H1 sees worst-ever number of chemical plant force majeures
on July 8, 2015

FMsJul15The first half of 2015 was the worst half-year for force majeures in the chemical industry since reliable data became available via ICIS news in 2005.  As the chart shows, there were 479 reports of outages, more than double H1 2014 and well above the previous peak of 375 in H1 2011.

This is absolutely shocking result, especially as it came after a bad 2014.  As I wrote when reporting those numbers earlier this year:

2013 wasn’t a good year for chemical plant reliability.  Force majeures (when plants go offline unexpectedly) were close to a record level.  Very worryingly, 2014 turns out to have been far worse:

  • 2014 saw a total of 620 reports, far above the previous high of 495 in 2011
  • 2011 was, of course, the year of the Fukushima disaster in Japan
  • This caused an additional 31 force majeures, but these were “knock-on” effects from the disaster

“We all know that accidents don’t just “happen”, but are caused by faulty procedures, lack of maintenance or training, or other human error.  It was also clear a year ago that the trend was already deteriorating. The number of force majeures had been above 2012 levels since May, and had reached a then-record high in the June – August period.

ICIS Insight editor Nigel Davies highlights the key issue in an excellent analysis:

“The situation in Europe has exposed underlying trends and issues that will need to be addressed. Companies appear not to have sustained an adequate pace of maintenance capital expenditure. That has been for economic as well as structural (cost) reasons. Spending in high feedstock and energy cost Europe has certainly not been considered de rigeur….Having maintained plants to run at between 80% and 85% of capacity, suddenly pushing them hard does little good. Sometimes, they fail.”

That said, buyers also played their part in creating the shortages.  Many failed to notice the major oil price decline that took place in H2 2014, and then suddenly woke up to reality in early Q1.  Panic destocking at this point left the market very short of product, and they then had to chase the market higher as prices rallied.  As I discussed in the Financial Times last week:

The current situation is not simply an issue of producers pushing up prices… on top of the force majeures, the second quarter of the year is typically the strongest time for demand and the limited rally in the value of oil at the beginning of 2015 caused buyers to rush to build plastics inventory in advance of expected price increases.”

This is the VUCA world that we described in Boom, Gloom and the New Normal, where Volatility, Uncertainty, Complexity and Ambiguity dominate.  Hopefully the experience of the last few months will prove to be a wake-up call, and ensure we are properly prepared for whatever is next thrown at us.

Issues such as oil price volatility, China and Greece are not going to go away anytime soon, and may well be joined by others as H2 progresses.

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