Boom, Gloom and the New Normal

The blog’s old friend, Judith Hackitt, stirred up the media this week. She attacked the Wimbledon tennis authorities for stopping Centre Court TV broadcasts when the grass is wet, on ‘health and safety’ grounds.
Hackitt now runs the UK’s Health and Safety Executive. She is clearly fed up with this trivialisation of health and safety. As a former chemicals manufacturing manager, she knows that real risks come from badly-run major hazard plants, not people walking on wet grass.
The blog applauds her letter to the Lawn Tennis Association (LTA), below:
“I was particularly disappointed to discover that the LTA/AELTC chose to explain its decision to ban spectators from Murray Mount as being ‘on health and safety grounds’.
“There is nothing in health and safety legislation which prohibits the continued broadcasting of Centre Court action to the crowds on the hill during the rain.
“Health and safety is concerned with the proportionate management of real risks caused by work, not attempting to eliminate every minor risk from every moment of people’s lives.
“People have been walking up and down wet, grassy slopes for years without catastrophic consequences. If the LTA was concerned about people slipping and suing for their injuries, the message should have made clear the decision was ‘on insurance grounds’.
“Health and safety excuses are becoming as much a feature of the British sporting calendar as the rain. You will understand that, while we can do nothing about the weather, we will not let the excuses pass unchallenged.”
UPDATE: Hackitt’s letter clearly had an effect. The screen was operating Friday night for Murray’s match, even though it was raining.

The blog sends its congratulations to Beth Tweddle, new world champion in the gymnastic floor exercises. It had the pleasure of working with her father, Jerry Tweddle (now with Ineos), for many years at ICI. Beth is everything that a world champion should be.
A video of her winning performance (possibly made by Jerry?) can be seen by clicking belowhere.

A year ago today, China banned the issue of free plastic bags from supermarkets, shops and open markets. And it seems the ban has had considerable success. Supermarkets have used 66% fewer bags, according to government figures. The ban has saved 1.6m tons of oil, whilst also reducing pollution.
Although street markets seem to have largely ignored the ban, the savings are still significant. Western companies were particularly keen to boost their green credentials, with Wal-Mart China reducing usage by 80% in its 106 stores. And, of course, they represent yet another bit of lost demand for polyethylene producers.

With public holidays in many parts of the world this weekend, my colleague Andy Gibbins has kindly collated a new selection of credit crunch jokes:
You know it’s a credit crunch when…
• The cashpoint (ATM) asks if you can spare any change.
• There’s a ‘buy one, get one free’ offer – on banks.
• The Inland Revenue is offering a 25 per cent discount to anyone who can pay their taxes.
• Your builder asks to be paid in Zimbabwean dollars
• Prince Charles’ home, Highgrove, has been repossessed.
• Victoria Beckham is photographed shopping in Primark and Wal-Mart.
The credit crunch has helped me get back on my feet. The car’s been repossessed.
A reporter on his way home is stuck in traffic. A policeman tells him: ‘It’s the Prime Minister. He’s so depressed, he’s stopped his motorcade and is trying to set himself on fire, because so many people blame him for the credit crunch. All the other drivers have stopped, and are taking up a collection for him.’
The reporter asks: ‘How much have you got?’
The officer replies: ‘About 40 gallons of gasoline, so far, but a lot of people are still siphoning from their tanks.’
Earlier selections of jokes, and the original sub-prime jokes, can be found by clicking here.

China’s exports continue to disappoint. They fell 18% in January and 26% in February. March showed a slightly better performance, with a 17% fall. But April was weak again, with a 23% decline in exports and imports.
China’s problem today is based on its past success in becoming the manufacturing capital of the world. Exports now account for 37% of GDP, compared to 20% in 2001. And they are focused on durable goods such as refrigerators and microwaves, where sales are directly linked to the health of Western housing markets.
As Nobel Prize-winning economist Paul Krugman noted in Shanghai today, “I think it’s difficult to see where a great revival of existing Chinese exports to the U.S. will come from. The U.S. is almost certainly going to be facing bleak consumer spending for an extended period.”

The combination of consumer environmentalism with retailer cost-cutting is having the expected major impact on the UK’s use of plastic bags. All the big supermarkets have been running campaigns to reduce the use of these. Some, like Marks & Spencer, now charge 5p a bag. Others, such as Sainsbury’s, send texts to remind customers to bring their own bags.
Customers love it. They feel they are doing their bit for the environment. Supermarkets love it even more, as they save the cost of the bag. M&S has cut usage by 80%. Tesco used 1.8bn fewer bags last year. The losers, of course, are the polyethylene producers – yet another bit of lost demand, in what had been a very stable market.

There is little justice in today’s recession. Countries that saved hard, and avoided reckless lending, are seeing their economies collapse as fast as those that spent as if there was no tomorrow. Thus Germany is now following the path already trodden by other export-oriented economies, such as Japan and most of the emerging economies. As the chart shows, based on new figures from the German central bank, the Bundesbank, industry’s export orders in December were down 32% from a year ago. Overall, orders were down 29%.
Orders hit an all-time peak as recently as last February. This led many to hope that prudence would have its reward. But unfortunately, the decline was only deferred, not avoided. As a late-cycle economy, Germany is now suffering from the lack of demand in its formerly profligate trading partners. In turn, this will encourage its own population to save even more. This is bad news for the chemical industry, which depends on consumer spending for most of its sales.

One can still rely on ExxonMobil to deliver positive results, even whilst the world is collapsing around them. Friday’s report showed Q4 chemical volumes down 20%, as a result of hurricane effects and destocking. But although earnings tumbled from $1.1bn in 2007, they were still in the black at $0.2bn.

Saudi Arabia, the world’s largest oil producer, now seems to be moving to Phase 2 of its efforts to achieve a $75 – $100bbl price range. As the blog noted in early December, the Saudis’ initial tactic was to play ‘hardball’ within OPEC. The aim was to ensure that other countries did not try to get a free ride, by forcing Saudi to make most of the cuts needed to bring supply back in line with slowing demand (as happened in the early 1980s).
Thus prices were allowed to slip to a low of $32/bbl, in line with the blog’s forecast of a temporary $20 – $30bbl floor (made when oil was $70bbl). And the Saudi tactic has led to high levels of OPEC compliance, as members recognised the dire consequences of indiscipline. Compliance with OPEC quotas is now around 75%, with output cut by over 3mbd versus the 4.2mbd target. Current OPEC production is just 26.15mbd according to PetroLogistics, who track tanker movements.
Now, the Saudis are signalling a more aggressive approach. Oil Minister Ali al-Naimi has suggested that Saudi will now reduce production by a further 300kbd, below their OPEC quota, and commented that “we are working hard to bring the market in balance”. Their first aim is clearly to stabilise the market around the $35 – $45 range. This looks achievable, especially with the USA’s summer driving season just about to start.

The excellent Gretchen Morgenson makes a good point in her New York Times column today. As she puts it, “here in Bailout Nation, you’ll be surprised to learn, some of us are more equal than others”.
Her argument is that Congress is operating to double standards. Last week, it refused to support $14bn of lending to the auto industry, on the basis that “we cannot ask the American taxpayer to subsidise failure”. Yet in October, it allocated $700bn to rescue the banks, where “taxpayers are financing not only failure, but also outright recklessness and greed”.
Equally, she notes, that before even considering the automakers rescue, Congress required them to submit detailed business plans, sell their private jets, and negotiate pay-cuts for the workers. Yet the banks have not been required to produce business plans, stop paying excessive bonuses, or sell their jets.
The blog takes no position on the merits of the proposed automakers bailout itself. But it does remain very concerned that the banks’ $700bn bailout is still being run by a 35 year old ex-Goldman Sachs banker with just 5 permanent staffers.