Hopes for end to inventory cuts grow

Hopes for end to inventory cuts grow
By Richard Milne in London
Copyright The Financial Times Limited 2009
Published: May 4 2009 22:39 | Last updated: May 4 2009 22:56
http://www.ft.com/cms/s/0/ad5805b6-38d0-11de-8cfe-00144feabdc0.html


European companies are hailing a possible end of the vicious round of cuts in inventory levels as a sign that customer demand could be stabilising despite the ongoing global recession.

The turn in the inventory cycle is due to be reached in the next two months in industries as diverse as mobile phones, steel and consumer goods and that should lead to a rise in sales, according to some executives.

“We think the worst in destocking is over and we see better selling opportunities in the second quarter,” said Harold Goddijn, chief executive of TomTom, the struggling Dutch maker of satellite navigation devices.

Richard Simonson, finance director of Nokia, said last week at its first-quarter results: “The massive destocking in inventory is largely complete.”

Lakshmi Mittal, chief executive of ArcelorMittal, the world’s largest steelmaker, also said he expected destocking to be completed by the end of June and sales should rise after that.

Celanese, the US chemicals company with operations in Europe, said it thought most destocking had taken place throughout the supply chain except perhaps in the automotive and electronics sectors.

However, other companies think the speed and depth of the destocking – the cutting of inventory throughout the supply chain – is such that any rebound will only be temporary as underlying demand remains weak. Some executives point out that some customers have cut inventory levels by so much that they may need to restock just to return to normal amounts of stock.

Jürgen Hambrecht, chief executive of BASF, the world’s biggest chemicals maker, said: “We don’t consider temporary topping up of inventories in some regions and industries to be signs of a sustainable upturn.”

Destocking has damaged the results of companies from Pernod Ricard and ArcelorMittal to BASF and TomTom as customers and suppliers have cut their orders dramatically.

Chris Williamson, chief economist of Markit, which compiles purchasing manager data from around Europe, said recent surveys had pointed to record rates of destocking but also a belief that it would soon end.

He added: “There is a turning point for destocking in sight and there should be a rise in demand. But whether beyond that inventory correction there is anything more sustainable is unknown and questionable.”