Examination of Witnesses (Questions 178-179)
CHEMICAL INDUSTRIES
ASSOCIATION
25 JANUARY 2005
Q178 Chairman: Good afternoon, Miss Hackitt.
Perhaps you could introduce your colleagues and we will get started.
Ms Hackitt: Thank you very much,
Chairman. We are here as a delegation from the Chemical Industries
Association this afternoon. My name is Judith Hackitt. I am the
Director General of the Chemical Industries Association. I am
joined this afternoon by two of our member company representatives.
Tom Crotty, on my right, is Chief Executive of Ineos Chlor and
David Calder, on my left, is Head of Manufacturing with CIBA Speciality
Chemicals. We have tried to represent here a cross-section of
the chemical industry so that we can reflect the impact that high
gas prices over the last six months or so have had on the wide
spectrum of the industry, rather than just reflecting the particularly
energy-intensive end. I think it is important to recognise that
we are a broad church as an industry. We do in total represent
an industry that employs 230,000 people directly, and by the time
you add to that the indirect jobs that flow from that, we are
an industry that covers employment close to a million in the UK,
so it is worth bearing in mind in terms of the relative size of
the impact of things like rising gas prices on an industry like
ours.
Q179 Chairman: You mentioned the diversity
of your industry. Perhaps you could give us some indication of
the kinds of differences and problems. Obviously, the big companies
will face a different set of problems from the smaller ones in
relation to energy prices. If you could perhaps start off with
that, it would be helpful.
Ms Hackitt: If I cover that in
general and then I will ask my colleagues to give you their own
specific examples, because I think we are perfectly placed to
do that. On the one hand we have the very large energy-intensive
companies, like Ineos Chlor, for whom purchase of energy is a
very important part of the management of their process and where
they will be familiar with the energy markets and will be very
well versed in how to do that and how to particularly purchase
on spot markets and to read futures prices, and so on. However,
even for very large energy-intensive companies like that who can
do things like that, I think the major impact of what we have
seen in recent months has been one of uncertainty, which makes
the whole business planning cycle particularly difficult, and,
particularly where this applies in multi-national businesses with
choice of sites as to where they manufacture products, can lead
to some very important sourcing decisions getting made for the
long-term about where production is sourced. At the other end
of the scale, for some of our smaller member companies who are
not so familiar with energy markets, who do not regard that as
a core part of their business, what we have seen in the last six
months has caused a number of them to stop mid-stream and think
about whether to renew contracts at the time that they normally
would have done and to have had to make some fairly short-term
decisions about how to proceed with their energy purchasing. Mr
Calder can talk more about that, but, perhaps, Tom, you can say
a bit more about your own business first.
Mr Crotty: Very briefly, we at
Ineos Chlor are based in Runcorn in Cheshire and employ about
2,000 people. We make about 80% of the UK's chlorine and caustic
soda—we are a basic building block chemical producer—and
that chlorine and caustic soda goes into a whole range of other
chemical manufacturing processes. As Judith said, we are very
energy-intensive. We purchase about 250 million therms of gas
a year—at current prices, that is about £70 million
worth of gas—and most of that is a raw material for us.
It is not a fuel to power a process; we actually use that to make
electricity and that electricity goes straight into our chlorine
manufacturing cells. Therefore, gas is our core raw material.
Mr Calder: CIBA Speciality Chemicals
has three manufacturing sites in the UK in Bradford, Manchester
and Paisley. We produce different types of speciality chemicals,
including pigments, textile dyestuffs and wood and paper treatment
chemicals in the UK. Although we do not regard ourselves as an
energy-intensive user, we have still been very hard hit by the
increase in gas prices, particularly in the last few months. It
really has had a severe impact on our product portfolio.
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