Cefic warns European indus try of `a probable downturn'

This year is set to bring improvements in production volumes for the chemical industry, according to ICI's chief economist, Richard Freeman. However, he predicts prices could well fall, writes Stuart Nathan.

Slack production performance in the first half of 1996 was followed by a very strong second half, with growth reaching 5 per cent, Freeman told delegates at a recent European Chemical Industry Council (Cefic) economic conference in Brussels. This growth will slow during the coming year to 2.5-3 per cent, he said; `and if we can get to that figure it will be a very good performance.'

The forces driving this growth are export demand and a trend towards restocking. Members of Cefic's economic panel have reported strong demand from Eastern Europe and Asia, and estimate that exports are likely to rise by some 4 per cent, outstripping a 3.5 per cent increase in imports. `The forecast for export growth is considered to be on the low side,' Freeman commented.

Stock levels are running low in most countries, both downstream and upstream. Any stocks built up in 1997 are likely to be reduced in 1998, which will probably lead to another downturn.

`Adding these two factors together, chemical production seems likely to rise by over 3 per cent, rather than the 2 per cent first thought of by the panel,' said Freeman. `This follows an estimated increase of below 2 per cent in 1996.'

Investment is also on an upward path, although the panel did not make a definite forecast. `Information about intentions in most major countries suggests that the rise in investment will be small, and in the range of 2 to 3 per cent,' Freeman added.

The prospects are not so good for prices, however. He explained that producer prices have slipped by 1.7 per cent over the past year. `Much of the fall seems to be behind us and prices have flattened out or are rising a little.'

For 1997, the Cefic panel is forecasting a 1 per cent increase in prices. `I hope they are right,' said Freeman. `A great deal depends on competitive pressures.'

However, some panel members - particularly those representing German companies - believe that the increases could be higher. `And when Germans say prices will go up, we'd better take notice,' Freeman warned.