Chemical Project Delays and Cancellations Remain Low Compared to Previous Years

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Researched by Industrial Info Resources (Sugar Land, Texas)--Capital and maintenance projects that were cancelled entirely or placed on hold indefinitely at chemical plants in the United States and Canada reached a peak in 2010, affecting projects with a combined total investment value (TIV) of $4.3 billion. This peak was reached at one of the lowest points of the Great Recession, as industrial markets around the globe stalled progress on active projects big and small to evaluate their next move and re-justify projects previously approved or deemed feasible. A couple of very large projects valued at nearly $1 billion each contributed to the sharp rise in the value of Chemical Processing Industry (CPI) projects being placed on-hold or cancelled in 2010, as coal-to-chemical project owners battled not only a recession, but also the economics of very inexpensive natural gas feedstock.

In 2011, the total value of CPI projects cancelled or placed on-hold fell by $1 billion to $3.36 billion, compared to the previous year. Although a significant improvement was witnessed in 2011, this is still a long way from the low of the past five years, which was $1.46 billion in 2007. As the recession began to take a firm grip on global markets in 2008, the value of projects affected immediately became evident, and the value of projects placed on-hold or cancelled rose to more than $2 billion dollars, where it has remained. The decrease witnessed in 2011 took place as the recession officially came to an end, and as confidence began to creep upward.

So far in 2012, the total value of CPI projects placed on-hold or cancelled entirely has reached only $1.8 billion. At the start of the year, when this number was first compiled, it totaled $1.6 billion, so it has risen only slightly as we quickly approach the midpoint of 2012. It is almost certain that additional projects will be cancelled between now and the end of the year, although the expectation is that this will remain minimal, and most likely we will see another improvement this year of at least $1 billion.

One of the factors that influences the rate that projects are shelved is the overall confidence within the industry. Industrial Info measures industry confidence by comparing the original forecast of spending against actual spending over a period of time, resulting in what Industrial Info calls the Confidence Factor. Calculating the Confidence Factor over a period of five years shows that an estimated 68% of all projects identified and reported by Industrial Info move forward and become a construction opportunity. This same measurement calculated at the end of 2010 showed the five-year Confidence Factor as low as 47%. The dramatic improvement in industry confidence matched with industry trends, such as historically low feedstock costs and improving demand from global economies, seems to be the right recipe to keep the level of project cancellations low in 2012.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.