If you were at all searching for a good bellwether of what’s really going on in the global economy these days, all you need to do is trace down the various supply chains of key industries. I myself tend to watch the petrochemical, chemical, and semiconductor sectors, since they are the first stop in the raw materials supply for many other industry products..
Last week, global chemicals provider BASF indicated that it would temporarily halt or slow production of 180 of its worldwide plants, to reduce output as much as 25%. BASF indicated that demand in the automotive, construction and textile industries has declined sharply in recent months, necessitating this need to reduce overcapcity. BASF will re-review its business in January to ascertain whether conditions warrant any return to full production. What really caught my eye was a quote from a German financial analyst who follows BASF. “There is currently no demand for chemical products. The customer base is almost nonexistent in the fourth quarter because of inventory drawdown.”
Andrew Liveris, the CEO of another global giant Dow Chemical, in a telephone interview with business network CNBC stated that his company is likely to announce a restructuring of operations before the end of 2008. He further indicated that a protracted global recession could extend to 2010, and that a price increase on commodity chemicals instituted in the middle of the year has been lost, while price increases on specialty chemicals are still holding. Dow is now forecasting overall shipment volumes to be down 10 to 20 percent for the next few quarters. Rohm and Haas, which is in the process of being acquired by Dow Chemical, also reduced its installed capacity in paints and coatings by 30% this past summer, as a result of declining demand.
Last week as well, a Semiconductor Industry Association (SIA) press release of its annual forecast of global semiconductor sales indicated that September provided the first sign of a slowdown, and that sales for the current quarter, traditionally a strong quarter for microelectronics, are forecasted to decline by 5.9 percent. SIA, which by my observation has always tended to be conservative, projects 2009 output to decline by 5.6 percent overall.
The evidence of a global cutback in automotive, construction, textile and high tech supply chains is now in, and output levels are being reduced While automotive and construction-related are dramatic, the high tech industry is a bit more optimistic. Let’s all keep our eyes on the final results of the upcoming holiday shopping period. January may well be another watershed event for further, perhaps permanent, reductions in capacity.
How is your company or organization forecasting 2009 and 2010 demand? Share your comments for the education of all our readers.