The Economic Realities for Industry

Transcription

1 The Economic Realities for Industry Presented by: John Mothersole, Senior Principal Economist, IHS Global Insight Steve Zinger, Chemical Industry Research & Analysis, IHS George M. Magliano, Senior Principal Economist, IHS Automotive Karen Blanford, Research Director, IHS October 2011

2 The Economic Realities for Industry The Glass is (Still) Half Full Presented by: John Mothersole Senior Principal Economist IHS Global Insight

3 Global Manufacturing Has Slowed PMI Manufacturing Indexes values over 50 indicate expansion United States Eurozone China Sources: ISM and Markit Copyright 2011 IHS Global Insight. All Rights 2011 Reserved. World Economic Outlook Conference 3

4 Which Has Broken the Back of the Commodity Price Rally Global Insight Industrial Materials Price Index, 2002:1=1.0, left scale CBOE Market Volatilty Index, right scale Copyright 2011 IHS Global Insight. All Rights 2011 Reserved. World Economic Outlook Conference 4

5 Pressures in Supply Chains are Abating 70 United States China Month Lag, PMI Component Index - Supplier Deliveries (Left Scale) Year over year change, PPI, Core Intermediate Materials (Right Scale) 6 Month Lag, PMI Component Index - Delivery Times (Left Scale) Year over year change, PPI, Total Industrial Products (Right Scale) Eurozone Brazil Month Lag, PMI Component Index - Delivery Times (Left Scale) Year over year change, PPI, Intermediate and Capital Goods (Right Scale) Month Lag, PMI Component Index - Supplier Deliveries (Left Scale) Yearover year change, PPI, Industrial Products (Right Scale) -10 Copyright 2011 IHS Global Insight. All Rights 2011 Reserved. World Economic Outlook Conference 5

6 But It s Not A Repeat of 2008 IHS Global Insight Industrial Materials Price Index (2002:1=1.000) Q1 2011Q3 Copyright 2011 IHS Global Insight. All Rights 2011 Reserved. World Economic Outlook Conference 6

7 Summary Global manufacturing has lost momentum as stimulus in the U.S. and China winds down and austerity budgets start to bite in Europe. Investors have also moved to the sidelines in commodity markets as anxiety over Eurozone debt and slower growth have fostered risk off asset reallocations. The silver lining is that the change in markets has halted the strong upward momentum in commodity prices. The break in prices is just beginning to filter downstream, with cost pressures starting to abate. Change in commodity markets is not a repeat of Absent a worst case Lehman Moment demand still looks supportive of pricing in Current pricing represents a buying opportunity. Copyright 2011 IHS Global Insight. All Rights 2011 Reserved. World Economic Outlook Conference 7

8 Thank You for Your Participation! Presented by: John Mothersole Senior Principal Economist IHS Global Insight Download a copy of this presentation at:

9 Chemicals Outlook Presented by: Steve Zinger Chemical Industry Research & Analysis IHS October 2011

10 Petrochemical Value-Chain Dynamics Consumers Retail Converters Energy Petrochemicals Derivatives Copyright 2011 IHS Global Insight. All Rights 2011 Reserved. World Economic Outlook Conference 10

11 Global Chemicals Summary Perspective Developed World Matures Developing World Expands Lower Demand Higher Imports (Finished Goods) More Capacity Higher Imports New Gulf (ME) Advantage Remains Renewed Gulf (GOM) Reemerges Higher Exports Diverse Capacity Wide Oil vs. Gas Gap Higher Exports (Raw Materials - Resins) 11

12 North America Shale Gas Developments Having a Global Impact 2010 Global Ethylene Cost Curve West Europe North America Northeast Asia $ /ton Middle East 12

13 Basic Chemicals & Plastics Global Demand, Recovery, and Growth Are Impressive but Cautious Sharp decline followed by a sharp recovery in the Developing World New spending supports growth: Consumption levels rising Especially in China Concern about capacity overhang delays investment Millions of Metric Tons Percent Annual Growth 12% Demand Change (%) Demand Change 10% 40 8% 30 6% 20 4% 10 2% 0 0% -10-2% Capacity Additions % -6%

14 Near Term Business Outlook in Chemicals Global markets for chemicals, plastics and synthetic fiber ( Chemicals ) have softened over the past 90 days: As lower raw material prices (energy products) and a weakening in the pace of demand growth are encouraging inventory destocking throughout these value chains. In the U.S. and Canada, the euphoria over impacts of Shale Gas continues: Real and anticipated hydrocarbon supplies are providing cost advantaged feedstock and enhanced profitability for the Chemicals sector basic building blocks such as ethylene, polyethylene, and PVC. Chemicals industry continues to be fundamentally oversupplied: Due to excess capacity additions in the Middle East and Asia in Across Asia there are shades of the 2010 demand pattern reappearing: Weak second quarter, and then a market rebound during the third quarter. Fourth quarter outlook is cautiously positive. This year we are missing the unbridled economic optimism which witnessed China still in stimulus mode and the rest of the world in recovery 14

15 Thank You for Your Participation! Presented by: Steve Zinger Chemical Industry Research & Analysis Download a copy of this presentation at:

16 U.S. Light Vehicle Outlook Presented by: George M. Magliano Senior Principal Economist IHS Automotive

17 Autos: The Current Situation Defenses Industry in good shape: Debt Cash Inventory Capacity Utilisation Japan s supply chain recovery is accelerating Almost all auto stimulus programmes have already played out Ample liquidity and government commitment to the banking sector means we are not expecting a freeze in auto credit but perhaps a chill wind Exposures Committed capacity expansion in BRIC markets Latent raw material cost feed may limit OEM incentives to support sales No scope for government sponsored auto stimulus (except China, Brazil and possibly Russia even in a downside scenario) 17 17

18 U.S. Auto Market Overview The auto recovery has fallen victim to a poor economy Consumer confidence has plunged, but it appears as if the consumer attitude to new vehicle purchases remains favorable The impact of the disaster in Japan is over, selling rates are slowly improving Retail, rather than fleet, remains the main driver Sales in the coming months will benefit as Japanese cars return to the showrooms Incentive spending will rise as inventories rebuild, there will be an increase in lease activity Auto credit availability is improving The used car and truck market remains very strong Cost pressures are building but industry profits are good Bottom Line A weak economy will hurt the release of pent up demand, slowing not derailing, the auto market recovery 18 18

19 U.S. Light Vehicle Sales (Units in millions) October Forecast July Forecast Pessimistic - 40% 2018 Optimisitc - 10% 19 19

20 North American Production vs. Capacity Production will match sales, generating better pricing power (Units in millions) % % % % 8 40% % 2 0 0% Production Capacity Capacity Utilization (R-scale) 20

21 Auto Industry Profitability Has Rebounded Dramatically Top 12 Global OEMs 10% Average margin since % Operating Profit Margin Average of Top 12 OEMs 10.00% 8.00% Top 12 OEMs suffered a $170 billion loss in revenue in 2009 to $1.14 Trillion or -14%, which was far more than the 4% sales volume decline Korean Japanese 6% 4% 2% 0% European -2% American (2) -4% 6.00% 4.00% Average 3.1% 2.00% 0.00% % Notes: Japanese OEMs shown as Fiscal Year, Converted at Average FX rates each year, GM is estimated from sum of Old and new GM results in 2009 Source: UBS / IHS Automotive June 2011 update for 2010 actuals 21

22 Autos The Bottom Line A weak economy will slow the pace of the auto recovery, not derail it Auto credit quality is outstanding, availability has a way to go Industry pricing power will continue to improve, but we still need to get better prices for our cars and trucks Leasing is on the way back Small cars will gain market share but crossovers will remain very popular Higher fuel economy standards are the next big challenge (opportunity) The industry has done a great job reducing capacity and cost, but we can t rest on our laurels Eventually the economy will support volume levels that are more normal for the auto industry The industry has become more profitable and once volume returns, it will become even more so 22 22

23 Thank You for Your Participation! Presented by: George M. Magliano Senior Principal Economist IHS Automotive Download a copy of this presentation at:

24 Global Construction Overview Presented by: Karen Blanford Research Director IHS

25 Not All Countries Have Returned to Pre-Crash Construction Levels Percent 0.44 to to to to Construction Construction Spending Spending Index, Index, Country Country Peak Peak ==

26 BRICs and CIVETS Will Lead; PIIGS Will Fall Behind Real Total Construction (Index 2007=1) CIVETS 2010 PIIGS 2015 BRIC 2020 Rest of World 26

27 BRICs Provide Good Mix of Size, Growth and Tolerable Risk BRICs in Context vs. Fastest and Slowest Regional Markets Global Average Japan Singapore Ukraine Poland Venezuela Panama Iran Bahrain United States Canada Ireland Turkey China India Russia Brazil 27

28 Most Regions Will Return to Growth by 2015 Less than -2% -2% to 0% 0% to 2% 2% to 5% Greater than 5% Total Total Construction Construction Spending Spending US US dollars dollars CAGR CAGR

29 But Growth Rates Are Deceptive Total Construction Spending Index, 2006= World Asia-Pacific Eastern Europe Latin America Middle East/Africa North America Western Europe 29

30 By 2015 Not All Countries Will Have Returned to Pre-Crash Spending Levels Less than to to 1.1 Greater than Construction Construction Spending Spending Index, Index, Country Country Peak Peak ==

31 Thank You for Your Participation! Presented by: Karen Blanford Research Director IHS Download a copy of this presentation at: