Segment data point to growth below trend in 2002

05 March 2002 16:22  [Source: ICIS news]

Deutsche Bank’s head of global chemical research, Campbell Gillies, talked of a ‘slow-burn’ recovery for chemicals in 2002 at the Nexant/Chem Systems annual European Chemicals and Petroleum review last month. The table below gives some more detail of his expected segment growth trends.

The chemicals sector is not going to sparkle this year and segment growth will be below trend. Most companies believe that recovery will be volume driven and be more apparent in the second half than the first. However, Gillies expects quarter-on-quarter sales growth throughout the year.

Deutsche Bank is looking towards a soft landing for the European economy despite the global slowdown and what ultimately will amount to a stagnation rather than a full blown recession. Inventory re-building will be the important factor initially but underlying demand growth could mean that by the third quarter, even chemical company earnings are recovering. The bank estimates that fourth quarter 2001 chemicals earnings were on average as much as 57% lower and that first quarter earnings growth will still be negative. A second half recovery, however, looks most likely. The sector simply does not have the robustness for price to play a major role in the upturn. Negative raw material price fluctuations are not expected to be a problem.

The chemicals operating environment will improve as customers begin to re-stock but questions remain over the speed and extent of the recovery. Large parts of the industry are suffering from the effects of overcapacity which will take time to work through the system at a time of slow demand growth. Gillies suggests, for instance, that the petrochemicals cyclical peak will not be reached now until 2004. Recovery expectations will change as demand picks up, but, as the table shows, from the current standpoint for most segments growth in 2002 is expected to be well below trend. However, agro- and crop protection chemicals are expected to do better in 2002 after a disastrous 2001.

Underlying the slow growth projections is the fact that volumes fell so far in the latter part of 2001. Analysis from the independent consultant Martin Simons,* for instance, of key companies in the sector is revealing the extent of the decline. Simons is working on a number of in-depth studies of companies in the sector. His analysis of just one, Akzo Nobel, shows that the company’s polymer chemicals and functional chemicals sales were down 16% in the fourth quarter. Surface chemicals sales fell 13% and pulp and paper sales were down 11%. The chemicals operating margin fell to 7.1% from 8.3% in the fourth quarter of 2000.

Akzo Nobel was not alone, of course, in falling into a trough in the final three months of the year and of having a difficult 2001 generally. For 2002, while there has been a recovery in some sectors, there is a long way to go before companies can begin to talk seriously about a bounce back.

Chemicals segment growth prospects (Deutsche Bank estimates)

Product	Projected volume growth 2002		Volume growth 2001	Five year trend-line growth
Adhesives & sealants	2% to 4%		-1% to -2%	3% to 5%
Industrial coatings	1% to 3%		-4% to -6%	2% to 4%
Dyes	1% to 2%		-3% to -5%	2% to 4%
Pigments	1% to 2%		-3% to -4%	2% to 4%
Plastics additives	2% to 4%		-4% to -6%	3% to 6%
Plastics compounding	4% to 5%		-8% to -12%	4% to 6%
Rubber chemicals	3% to 5%		-8% to -12%	1% to 3%
Surfactants	1% to 3%		+1% to -2%	2% to 4%
Metal chemicals	2% to 4%		0% to 2%	1% to 3%
Paper chemicals	1% to 3%		-1% to -3%	2% to 4%
Water treatment	2% to 3%		1% to 3%	4% to 6%
Oil field chemicals**	1% to 3%		10% to 15%	1% to 3%
Lube oil additives	2% to 4%		2% to 4%	0% to 2%
Electronic chemicals	3% to 6%		-10% to -15%	5% to 8%
Crop protection		2% to 4%	-3% to -6%		1% to 2%
Industrial gases		2% to 4%	0% to 2%		4% to 6%
** US only

*Martin Simon Associates Tel: 44 20 8788 8418

 

 

 

 

By: Nigel Davis
+44 20 8652 3214

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