The year 2009 has started with strange combination of circumstances. 6 months back, nobody could imagine that the price of crude oil would come down steadily to 35US$ per barrel, just as the fact that nobody could imagine around 2 years back that the price of crude oil could reach 140US$ per barrel.
Even today, there is no clear cut and convincing explanation about the reason for steep hike in the price of crude oil earlier, except some vague views that rapid industrial development in China and in India to some extent could have created huge demand for crude oil, leading to the price increase for crude oil .
Now, the reason for steep fall in crude oil price is attributed to the steady decline in demand due to the global melt down and recessionary trends in the American economy, which has impacted the global economic scenario itself.
Apart from financial institutions like banks and lending agencies, the manufacturing industries are also suffering due to fall in demand for the products and consequent stock accumulation in godown. Obviously, the solution for the present dismal scenario is that the demand should be created
and built for the products and services.
The question is as to how to create the demand at the requisite level and that too in quick time. This is a million dollar question.
As for as the global chemical industries are concerned, it is necessary to ponder as to whether the pace of capacity creation in chemical industries around the world in the last two years has exceeded the pace of demand creation. This might have contributed to the present topsy-turvy situation to some extent. Is it possible that the chemical industries took for granted that the demand would inevitably increase in consumer oriented economies?
Perhaps, the chemical companies even went to the extent of thinking that large level of supply itself would create demand.
Massive capacity buildup in petrochemical industries have taken place in the petro dollar rich Middleeast countries and by the ambitious chemical industries in China, probably leading to the capacity creation exceeding the demand creation. There is bound to be under utilization of capacity and locking up of inventory and wastage of resources and fall in price, in conditions of surplus supply scenario.
For demand creation in quick time, the multi national companies have to necessarily depend upon the developing countries like India, China and others, which have huge population and therefore potential opportunity for demand creation. In other words, economic growth and growth in the per capita income of the developing countries hold the key for accelerating the demand and overcoming the problem of demand constraint now facing the chemical industries around the world.
There is clear sense of panic and lack of coherent thinking amongst most of the chemical companies in the world who are closing down one factory after the other. They are not in a position to guess as to which would be the time for restarting the plants.
There is still no indication that chemical industries have realized that existing capacity could have exceeded the demand and therefore they had to necessarily wait for a few years so that the growth in the demand would catch up with supply scenario. Used to huge growth year after year, multi national chemical companies would find it extremely difficult to accept the situation where they would have to just wait helplessly until the demand would become more.
Then the only alternative method available for them would be to go for massive investment in developing countries like India and with liberal supply of technology that would spur the industrial and economic activity in these regions and create demand for the products and services.
Even if the large multi national companies would be hesitant to go for massive investment in developing countries to create demand, the developing countries themselves can take the initiative and seize the opportunities. The developing countries should have vision and strategy to convert the present situation to their own advantage.
There is no doubt about huge demand potential for the various kinds of products and activities like housing, infrastructure etc in the developing countries and any investment in such projects would inevitably and immediately push the demand for various chemical products directly or indirectly. The problem of developing countries is that most of the them lack resources to invest and lack of technology skill to build the projects on their own. Now, with no other alternative and with uncertainty glaring at them, large multi national companies should be in a mood the respond to the invitation from the developing countries to invest and mutually benefit themselves.
The recent proposals for massive investment in Gujarat indicates that the imaginative initiative and dynamism of the leadership can make huge investment possible even in the present global dismal scenario.
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