CIA January 2017 Quarterly Business survey
This is the first of a regular series of blog posts on the economy and the chemical sector by Stephen le Roux, the CIA Head of Economics. For further information or feedback on this blog please contact Stephen le Roux, email@example.com.
Introduction to the survey
The CIA Quarterly Business survey is a quarterly survey of Chemical Industry Association (CIA) member companies conducted in the first month of every quarter. Responses are normally received from around 40 out of the 100 member companies. CIA member companies produce around 70% of the chemicals and pharmaceuticals manufactured in the UK.
The survey consists of three standard questions and usually two or three additional questions on topical issues such as Brexit or the Budget. The standard questions are:
- The change in total sales volumes, exports, margin, employee number, R&D spending and capital spending in the most recent quarter compared to the previous quarter.
- The change in total sales volumes, exports, margin, employee number, R&D spending and capital spending expected in the next twelve months
- The key threats and opportunities in the next twelve months
The survey provides essential information to the CIA about members’ views on current and future business conditions and topical issues like Brexit. This information is vital to the lobbying efforts of the CIA on behalf of its members and helps us to better understand the performance of the sector.
Results from the first two questions are normally presented as balance statistics. Balance statistics are calculated by subtracting the percentage of companies who report a decrease from the percentage of companies who report an increase. The result provides an approximate average growth rate for a particular indicator.
Results from the January 2017 survey
Recent performance: The survey indicate that Q4 2016 was a challenging period for the chemical sector after a relatively positive third quarter following the EU referendum. In Q4 companies reported falling total sales (balance -11%) and flat exports (+0%) and weakening margins (-13%). Employee numbers (-5%) declined after two successive quarters of growth.
The outlook for the next twelve months: Margins (-11%) will be squeezed by higher energy and raw material costs but there is set to be strong growth in capital investment (+18%), research & development spending (+11%) and employee numbers (+3%) in the year ahead, with these measures growing at their fastest rate since April 2016.
The positive outlook is somewhat puzzling given the noticeable weakening of expectations in our August and October surveys. The January survey does not fully answer the question but does provide some clues. When questioned about the impact of Brexit on their outlook for total sales and capital expenditure close to 80% of companies said that Brexit had no impact on their outlook. In addition, recent UK and global economic data have shown much stronger economic activity in the second half of 2016 and forecasts for 2017 have also been revised up particularly for the UK.
Opportunities: It is not a surprise for an export-dependent sector like chemicals and pharmaceuticals that external demand factors like a weaker currency and expansion in Asian, EU and US markets should dominate opportunities over the next twelve months. The importance of expanded capacity, new products or improved processes also demonstrates the essential nature of continued capital and R&D investment.
Shale Blog - 16th December 2015
Why extracting shale gas matters
CIA sees the development of shale gas as critical to the future competiveness of the UK chemical industry. Our key priorities, as set out in our growth strategy, are securing competitive energy and feedstocks (raw materials), accelerating innovation, and rebuilding UK chemistry supply chains. It is critical that we urgently exploit our shale gas potential to achieve these priorities.
We have now reached the point where UK based chemical companies are installing facilities to import US shale feedstock. Indigenous shale gas production could provide a more secure and potentially competitive source of energy that would position the UK as a more attractive destination for investment in chemical capacity.
The reality is that gas will continue to be the main source of heat in homes and industry and, instead of our dependence on gas diminishing, more gas fired generation will be needed during the transition to a green economy. Anti-shale activists have said that the development of shale will undermine our climate targets. However, by increasing our reliance on imports we are potentially exposing ourselves to increased carbon emissions – a recent report by DECC states that if regulated properly the overall carbon footprint of piped gas will be comparable to conventional pipeline gas and lower than that for imported liquefied natural gas.
We in the UK have a robust regulatory regime to ensure shale extraction takes place safely. For example, sShale operators are required to disclose fully the composition of fracturing fluid additives as part of their application for environmental permits. The Environment Agency assesses the hazards presented by fracturing fluid additives or drilling muds on a case-by-case basis and will not permit the use of chemicals hazardous to groundwater where they may enter groundwater and cause pollution.
Yet, instead of capitalising on the resource beneath our feet, we are currently in a position where we importing over half of our gas needs and current projections suggest this will reach 80% by 2030. By not exploiting our indigenous resources we are increasing the UK’s vulnerability to supply uncertainties and volatile energy prices while undermining our industrial competiveness.
In addition to the obvious benefits of secure energy and feedstocks, the development of shale creates economic benefits jobs - it is estimated that UK shale gas development will itself require supply chain spending of £3.3bn p.a. and generate 64,500 jobs.
To us the case for shale is a ‘no brainer’ – if we don’t extract this resource we will simply be increasing gas imports and exporting more jobs.