Inventories up in chemicals: New imperatives
Global inventories (see slides below) in the chemicals value chain are mostly below average, except for the upstream (oil, gas and refining).? ?However, inventories are heading up.? What does this mean in a time of post-Covid inventory management practices, Middle East conflict, shipping disruptions, other geopolitical activity/tensions and general economic conditions?
Based on our analysis of the 559 global public and government-owned companies’ financials, inventory building has been occurring the past few quarters.
?The expected new norm of “just-in-case” inventory for supply security versus “just-in-time” inventory isn’t happening on a global level, although there are indicators that it may be happening regionally (such as in the US).? ?
Chemical company inventories are at “average” levels. With Middle East tensions, pre-buying may be happening in the chemicals chain to avoid higher feedstock costs (crude oil prices). ?Rubber and plastic products manufacturers have low inventories; re-building them will add upward price pressure.? Similar patterns are apparent in other materials supply chains, and this will contribute to inflationary pressures worldwide.
Finished goods producers are an exception and are holding inventories flat, below historical average levels. ?This increases the chances of shortages and price spikes from further supply chain disruptions related to conflict, weather, and other factors, increasing the risk in the global supply chain.
The current situation would suggest a few imperatives, such as:
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