13 January 2004 17:36 [Source: ICIS news]
HOUSTON (CNI)--Credit watchdog Moody's Investors Service expects more credit rating downgrades for the global chemical industry this year and still rates the outlook as "negative" despite signs of economic improvement, Moody's said Tuesday.
"There are a number of secular trends we expect to limit any near-term improvements in the industry's financial metrics and to provide on-going challenges over the longer term," said Moody's analyst John Rogers.
Rogers cited the continuing impact of low capacity utilisation rates and increasing competition from Asian producers as examples of secular factors expected to hold the global chemical industry back.
Despite the negative outlook, Moody's did say it projects the ratio of credit quality downgrades to slow this year compared with 2003 when Moody's measured eight cuts to every upgrade.
Moody's released its projections as part of its industry outlook for 2004. The New York City-based credit agency monitors 74 chemical companies with $70bn (Euro55bn) worth of rated debt.
Conceding it expects the recovery this year to be stronger than previously anticipated, Moody's still said: "We anticipate that the improvements in 2004 will be uneven as the chemical industry deals with the impact of even higher, and more volatile, oil and natural gas and energy prices."
The analysts said: "We believe that the breadth of these negative secular trends will cause a continuing decline in the industry average rating, currently at 'Ba1,' over the next several years."
That "Ba1" rating is the highest among "speculative" or "junk" credit grades on the Moody's scale.
Elaborating on the negative trends facing the industry in the years ahead, Moody's warned it expects natural gas and energy issues will limit exports and increase the duration of chemical industry troughs.
At the same time, Moody's said increased imports of finished products will continue to reduce demand for domestic chemical products. Moody's cited the carbon black market as one example, noting that increased imports of tyres have reduced domestic demand. Other areas of concern include low-end commodity products such as plastic grocery bags.
As a result, Moody's said: "We believe that North American capacity utilisation rates will not recover as quickly as some other industry analysts have predicted."
Moody's also said it expects product liability lawsuits will remain a major concern for the chemicals industry.
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