Reinvestment economics

We tested whether it was possible to make long term projections of chemical prices from an understanding of Hkely future reinvestment economics. Historical prices were compared with actual reinvestment economics for leader players in 10 commodity sectors in Western Europe over 20 years from 1980 - a period which contained at least two cycles. The sectors analyzed included major intermediates such as styrene and terephthalic acid, plus polyolefines and polystyrene. 

The conclusions (Fig. 16.6) were that, for many products, for example, styrene (Fig. 16.7), polystyrene, acrylonitrile, LLDPE, and PTA, the abihty of leader reinvestment economics to predict market prices was remarkably good. A difference between the two of less than USD 50 per toime on average was observed over the 20 year period, with a similar directional trend. For other products, HPDE and... 

Long term predictive power of leader reinvestment economics Product... 

Average 20 year difference between actual price and price predicted by leader reinvestment economics... 

Fig. 16.6 Ability to project future commodity chemical prices from reinvestment economics Source McKinsey...

Fig. 16.7 Comparison of long term styrene price trend with styrene reinvestment economics, 1980-99...

David Bonner, Rohm and Haas Company I think your talk and Dr. Manzer s talk together provide a beautiful synergy, and it is great that you all collaborated. If you try to boil the messages from both of the talks down to the main concepts, I would say it is clear that although there is a broad array of possibilities available to us, reinvestment economics limit some of the things that can be taken through practical development. 

If reinvestment economics do shift because of carbon management considerations, through either government regulation or economics of another sort, what areas of research funding, in your opinion, should be emphasized more than they are now by policy makers in the federal government ... 

From an overall economic viewpoint, any investment proposal may be considered as an activity which initially absorbs funds and later generates money. The funds may be raised from loan capital or from shareholders capital, and the net (after tax and costs) money generated may be used to repay interest on loans and loan capital, with the balance being due to the shareholders. The shareholders profit can either be paid out as dividends, or reinvested in the company to fund the existing venture or new ventures. The following diagram indicates the overall flow of funds for a proposed project. The detailed cash movements are contained within the box labelled the project . 

Marx here tries to perform with a conceptual sleight of hand the task to which Max Weber devoted vast empirical studies to explain the emergence of the reinvestment motive in early capitalism. No short-cut, however, is possible - unless one already has the answer. The explana-tion of saving and investment must be found in the motives of individual economic agents. It cannot be derived from a conceptual analysis of money. 

In engineering economic evaluation, rate of return on investment is the percentage ratio of average yearly profit (net cash flow) over the productive life of the project, divided by the total initial investment. This is calculated after income taxes have been deducted from the gross or pre-tax income. The remainder or net income may be used either for paying dividends, reinvestment, or can be spent for other means. ROI is defined by... 

The two principal uses of economic goods and services are current consumption and capital investment for the future. Modem industry and especially the CPI requires enormous investment in plants and equipment. To ensure continued growth of profits and production, a substantial percentage of industrial profits must be plowed back into the operation via retained earnings. Without the reinvestment of a portion of today s profits, there will be obsolete facilities and lower profits tomorrow. 

Reinvestment in large amounts of assets requires significant economic efforts for a distribution company whose annual costs and profits are under regulatory control. Table 4 shows a rough estimation of the increase in maintenance costs and investment costs associated with each strategy. 

Risks not understood Change so slow it is unnoticed (risk creep ) Profit reinvested but not in safety Company focusing on the wrong issues Inspectors follow their own hobby horses Penalties not imposed Short life span of companies Responsibility diffusion Regulator has conflicting interests e.g. economics vs. safety Level or type of rules not appropriate for regulated companies Public concern too low to support regulatory action... 

Economic studies by Aquilo et al of the Celanese Chemical Co. have shown that acetaldehyde production via reductive methanol carbonylation is superior to the Wacker—Hoechst process, if reinvestment is considered... 

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