ARPRO® Price Outlook 2010 (Europe)

The level of economic activity is not where any of us would choose for it to be. In addition, the general trend, as well as the specifics of automotive demand, are unlikely to return to previous levels until some time beyond 2010. Without doubt a difficult environment for any of us in which to move our businesses forward.

JSP has constantly sought and continues to strive to minimise the impact of increasing costs on our valued clients and end users. Efficiency gains and past price adjustments, however, have been insufficient to cover all impacts. This is made worse by the depressed demand levels in the European economy. This really is the “perfect storm”. Indeed a rare situation, where the combination of circumstances aggravate a situation drastically.

Despite having been in this situation for a year, we have maintained our service and support levels for ARPRO®, as well as continuing to invest in the creation of new products and markets.

The recent volatility in crude oil prices stems from fears about availability. The root of these fears goes back to 2003 when three supply side shocks (Venezuela, the Gulf and Nigeria) took almost 10% of supply out of the market. Situations in Russia and Iran further reinforced fears about ongoing availability. Where such fears drive oil prices, there are only two possible solutions; an increase in supply, or a decrease in demand. The absence of a supply response, represents the first time in the last sixty-five years, that the oil industry has not managed a meaningful supply response to higher average oil prices. In today’s economy, unlike the 1970s, over seventy percent of global oil consumption is for transportation fuels and twenty-five percent for petrochemical feedstocks or specialties; neither of which can be easily or quickly replaced by alternative fuels. Demand for oil has become inelastic. No longer does demand decline as prices rise. As such the price of oil has an ever increasing interdependency with the wider economy. We face a period of volatility and uncertainty directly attributable to the price of oil.

The World Energy Outlook, published recently by the International Energy Agency, makes plain that we can expect feedstock prices to increase over the next two decades. It also sets out a number of predictions. It foresees a “supply crunch” on oil by 2015 and anticipates that this, together with rising marginal extraction costs, will lead to dramatically higher oil prices. The report also sets out that carbon charges will have to reach 50$/t (33 €/t) by 2020 and 110$/t (73 €/t) by 2030, to arrest global warming. A more positive prediction is that there will be an “automotive sector revolution” and that 60% of vehicles will be hybrid or electric powered by 2030. ARPRO® is uniquely placed to play a major role in the critical weight reductions and indeed carbon reductions, required to fulfil the potential of hybrid and electric vehicles.

Measured over the last several years feedstock and utility costs for the production and transformation of products like ARPRO® have increased. Prices, however, have not increased sufficiently to compensate.

These higher costs, without fully offsetting price increases, are only exacerbated by the current weaker demand levels than we have been used to. Another factor has been the insolvency or re-organisation of participants in our sector.

In these circumstances, applying only the principles of economics, we should be demanding increased prices for ARPRO®.

More background on cost pressures and market drivers can be found in the ARPRO® Market Report 2009 at http://www.arpro.com/

It is our view that, only if price increases are passed along the supply-chain can the sector and indeed end-users, have sustainable businesses. We are very conscious, however, that there can be time-lags and dislocations. Accordingly, we have taken the decision to maintain current price levels for 2010*. We will attempt to keep this position throughout 2010, but can only do so up to the point our product and service levels, or indeed our economic viability, are threatened.




Paul Compton
Executive Vice President and Chief Operating Officer - Europe

* Subject to precise terms of existing supply agreements
Return to News