A Growing Capacity

CapacityHDR

While our clients represent many different links in the value chains that we cover (mixed xylene, orthoxylene, phthalic anhydride, plasticizer alcohols, butanol, and plasticizers), there seems to be a commonality to the overall situation. The business climate remains uncertain and issues that are affecting one region are likely to be spread on a global basis. The one market factor that could perhaps smooth over some of the rough patches ahead – improved demand – is really nowhere to be seen. Judging by the various manufacturing PMI™ reports from Markit® the global manufacturing PMI (done in association with J.P. Morgan and ISM, IFPSM) showed a December reading of 53.3. This was up from 53.1 in November and the 2013 average of 51.5. Developed economies generally led the way higher. However many developing economies, where investments are being made to capture growth are actually closer to a neutral 50 reading. Data recently released from January confirms somewhat improved results in Europe, Japan, and North America, while developing economies have held closely to an index of 50 (neutral).

Despite the slowing rate of growth or the lack of growth, capacity continues to be built. Not just a little new capacity has or will be added. Enough capacity to cover many years of growth has been added within a very short time. If a company happens to be on the consumer side of that equation, there is some good news, but there is perhaps also some bad, since practically everyone will be able to get a “good deal” on raw materials. The effect is not limited by geography, but is regularly crossing oceans.

While many clients are entering 2014 with cautious optimism, it will admittedly be a challenging year. In many product areas overcapacity means reduced operating rates and narrow margins. However, the situation has not come without warning and astute market players continue to adjust and survive.

Reprinted with permission from RXN Petrochemical Consulting Inc.
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