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United Kingdom Petrochemicals Report Q4 2011
Business Monitor International, Sep 2011, Pages: 51
Business Monitor International's United Kingdom Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on United Kingdom's petrochemicals industry.
The decline in the British chemicals industry, which began in 2008, shows no sign of abating, according to BMI’s latest UK Petrochemicals Report.
By June 2011 the chemicals industry was operating at 14.1% below levels in 2006 and represented one of the lowest monthly rates of production for nearly three years. In Q211 chemicals and man-made fibres output declined 2.6% y-o-y, a lower rate of contraction than the 3.7% in Q111. The poor performance mirrors the dismal performance of the UK economic recovery, with Q211 manufacturing output down 0.5% y-o-y and economic growth of just 0.2%. The main cause was the decline in exports, which the UK was relying on to stimulate growth across the economy.
Nevertheless, BMI believes the economy is going through a soft patch rather than facing another recession. Moreover, as we have stressed before, the recovery was never going to be linear, with deleveraging and economic rebalancing pressures coupled with a severe fiscal austerity drive, ensuring that petrochemicals output volatility will remain elevated. Yet, even during quarters of manufacturing growth, the British chemicals industry has experienced contraction and a return to pre-recession output levels seems unattainable in the future. There is little upside, particularly considering that the chemicals sector failed to benefit from strong growth in other areas of manufacturing. We therefore do not rule out a further year of contraction between 2.5-3.0% for 2011, before hitting the bottom.
The main risk factor is the rising price of naphtha feedstock, compounded by imported price pressures which will be passed down the supply chain. BMI believes that margins are too low to absorb these cost pressures and they will inevitably be passed onto the consumer, with the prospect of slower sales growth. Should inflationary pressures continue to build, we would warn that this would risk the recovery.
The UK scores 69.6 points in BMI’s latest Western Europe Regional Ratings, unchanged since the previous quarter putting it 0.6 points behind the Netherlands and 1.8 points ahead of Spain. This puts it in sixth place. Protracted economic stagnation, increased political uncertainty and further plant closures could see the country’s score diminish further, threatening to drop it into last place.
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