23 July 2007 18:09 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Expect more encouraging words from the chemicals sector this week as companies report on the second quarter and start looking more closely at the full year.
2007 is proving to be another good year for chemicals, with sales buoyed by continued strong demand growth. But there are pockets of underperformance and profits have been tempered by high and volatile feedstock and energy costs.
Downstream makers reporting on Tuesday are likely to show how industrial product growth is underpinning sector fortunes.
DuPont reports that day, but so do the oil majors ExxonMobil and BP, specialities maker Rohm and Haas and coatings and chemicals group Akzo Nobel.
European demand growth has remained strong driven by stronger GDP.
Indicators in the
Utilisation is also below the 1972-2006 average of 78.3%. Chemical rail car loadings in the
So is the sector slowing down or, as seems to have been the case for a number of quarters now, bumping along the top of the cycle – or its ‘plateau’? As yet, there is little direction and the latter seems to be the case for most suppliers.
One reason for continued growth is the strength of
Producing cash at a healthy rate gives management the not always enviable task of working out what to do with it. The M&A merger and acquisitions) frenzy in chemicals is being driven by the need to settle deals while they are still possible.
At least one chemicals player, Rohm and Haas, has decided to use its balance sheet aggressively to fund share buybacks as opposed to a major acquisition.
Sector earnings estimates have been raised as the banks have upped their own GDP forecasts. Some of the most spectacular increases were seen last week from UBS, as higher GDP projections were fed into its model for BASF.
The relative health of downstream sectors such as construction, automobiles and electronics will set the tone for the chemicals reports as industry fundamentals remain strong.
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