Experts Give The BPF 2009 Predictions on Raw Materials Energy and Insurance

At the BPF’s “Budget Planning for 2009” seminar on 9th July leading expert’s brands gave their predictions in changing economic conditions.

David Paul Global Head of Plastics and Chemicals at Barclays Capital said that economic projections, based on external and internal analysis, pointed to an 18 month economic slow down.  The government’s Public Sector Borrowing is at a very high level and additional pressure caused by a potential lower ‘tax take’ could lead to further increased borrowing requirements.  The net effect will be additional pressure on the government’s ability to spend in order to encourage economic growth. Creating a deeper downturn.

OIL

On Oil, Mr Paul said there had been a weak OPEC/NON OPEC response to increasing the supply of oil even in a high price environment.  New refining capacity coming on stream in Asia & Middle East should ease the tight refined products markets globally.  Barclays Capital predicted an oil price of $130 a barrel Brent Crude for 2009 providing there were no major Geo political upsets.

PLASTICS RAW MATERIALS

Mr Paul said on Plastics Raw Materials, Naphtha feedstock has gone up almost 3 fold since January 2007 and polymers have increased by 45% in the same period. As a consequence  all big European based producers announced have + €200/mt increases to try to recover margins.

Barclays showed ‘indicative prices’ for forward financial OTC swaps. Period full cal 2009 period as quoted on the 8th July.

     HDPE – 1340
     LDPE – 1345
     LLDPE – 1300
     PP – 1200
     PS – 1390
    ABS – 1700

ENERGY

John Hall of John Hall Associates urged all companies to treat Energy as a boardroom matter.  A risk managed contract should provide the best performance. 

A company should plan over a 3-5 year period and understand the fundamentals and history of energy costs.

Energy prices had moved up dramatically, 3.5 to 4 times higher than 4 years ago.  Oil stocks are not bad and are heavily overpriced due to speculators.  We don’t accurately know what the Middle East oil reserves really are.

Mr Hall said the Government denied there would be an energy gap between supply and demand, but there certainly will be.  The two UK Liquefied Natural Gas terminals had only received one cargo since a year ago.

Mr Hall said energy prices are significantly higher than 2007 but should stabilise next year.  He predicted the following prices for 2009:

     Brent Crude - $103 per barrel
     UK Gas -        68 per therm
     UK Power -    75 $/MWh

EXCHANGE RATE

Michael Low of Moneycorp also predicted an end of year $100 oil price due to economies slowing.  He said conditions were very difficult in Spain and Italy and also now Germany.  Growth would slow in China and India.

Mr Low predicted the Dollar will recover over the next 12 months and climb to 1.40 against the Euro.

INSURANCE RATES

Mark Radburn MD of Willis Networks said insurance rates will harden as insurers’ are not taking in sufficient money to meet claims.  Society is more litigious and Employers Liability is a big issue in the UK.  There are more stress claims, unheard of 10 – 15 years gap.  £9.5bn was paid out for last year’s floods.

Mr Radburn said in a hard market, to get the best deal, companies must demonstrate they have good Health & Safety programmes, be pro-active on “risk management” (e.g. driver training) and try and secure a three year policy.

Editor Notes

Predictions made by the seminar speakers are their own and can of course change with circumstances.