INSIGHT: Leading global companies ride high

17 September 2007 16:33  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--How good was 2006 for the chemical industry - and will 2007 be any better?

The listing of the Top 100 chemical companies published in ICIS Chemical Business on Monday shows just how well most producers did in the latest financial year. The data for the Top 30 producers are shown here.

Most of the big companies grew sales and profits, the Europeans doing better than their North America counterparts. Sector firms in Japan at last picked up earnings momentum.

Petrochemicals producers fared particularly well across the year as a whole but most specialty makers were pleased with the results. Some records were set. The sector sat pretty at the top of its cycle.

But it didn’t always feel like that. There can be little doubt that 2006 was another banner year for the chemical industry. Demand improved almost across the board.

Companies fought with the sky-rocketing oil price and its impact on feedstock and energy costs but the battle was largely won. Higher costs were passed on to customers down most product chains. Cash flowed freely as companies capitalised on a third successive year of growth.

But in July and August first-half problems coupled with a record high oil price hit most businesses hard. Still buoyant demand, however, particularly from developing Asia but also from a resurgent Europe, helped keep supply/demand balances tight.

According to the ICIS data, sales for the leading 20 chemicals firms were 14% higher in 2006; operating profits were up 6%. Companies used cash to pay down debt, reward shareholders and expand. Net profits for the top 20 were on average 8% higher than in 2005.

A feature of the latest analysis is that, despite significant merger and acquisition (M&A) activity, the company ranking by sales value are little changed from 2005. In a fast moving business environment in 2006, most companies sought greater strength through M&A rather than step-out deals. Top-line growth was strong for many firms.

The big acquisitions of 2007 have involved fast developing global players such as Saudi Basic Industries Corp (SABIC) as well as private money and will change the face of the industry, but their impact will be more apparent in 2007 and beyond.

For most publicly traded companies, the focus has been on value creation and has been reflected in the sector’s rising market capitalisation.

Share values moved higher across the year and the increase has continued into 2007.

The mid-year 2006 pitch downward on the financial markets driven by rising concerns over the dramatically increasing oil price hit some firms harder than others but global chemicals stock market indexes ended the year higher. Asian stocks, as might be expected, showed greatest volatility.

North American stocks were hit hardest. Some perceived underperformance in upstream chemicals in the second quarter also added fuel to the belief that the chemicals cycle just might be about to turn.

The 2006 data, however, show strongly that sector companies continued to deliver healthy financials. This outperformance has largely persisted into 2007. The sector is still on a roll and industry growth projections remain strong.

Converting sales into profits was not always easy in 2006, particularly in the US where there were fears of an impending chemicals downturn were heightened perhaps more than anywhere else.

Olefins and polyolefins market conditions fluctuated throughout the year. Chlor-alkali and PVC (polyvinyl chloride) makers were hit by the slump in the US housing market later in the year.

The US consumer, however, stood firm and ultimately helped lift the sector.

By the year end, chemicals giant DuPont was talking of a 2% volume increase for the year and a 2% lift to prices. Average annual manufacturing capacity utilisation was a high 84%.

Dow Chemical put the real cost of still higher oil and gas into perspective. Its raw material and energy costs were up $2bn over 2005 with its hydrocarbons bill rising to nearly $22bn for the year. The volatile energy scene created great volatility in its markets.

Tighter control of capital spending over many years and, indeed, more focused capital expenditure, directed increasingly at growth markets in China and elsewhere in Asia, have stood the industry in good stead.

That is not to say that competition remains intense and in some markets has intensified further. The newer players in the chemicals business continue to flex their muscles. Production capacities are increasing or are set to increase sharply over the next few years.

The ethylene chain, particularly, looks set for oversupply from 2008 and beyond despite plant start-up delays. The future performance of the sector generally relies on the performance of the global economy and continued growth in manufacturing industry’s demand for raw materials.

Given that reliance on continued strong global economic growth the significant increase in capital spending by the Top 100 companies in 2006 serves as a warning that sector performance may have passed a peak.

The leading chemical producers in 2006

Company

Sales
($m)

Chg (%)

Op profit ($m)

Chg
(%)

Net profit($m)

Chg
(%)

Total assets ($m)

Chg(%)

R&D ($m)

Chg (%)

Cap
spend($m)

 

 

 

 

 

 

 

 

 

 

 

 

BASF 1

69,459

23.1

8,912

15.8

4,245

6.9

59,796.3

27.0

1,686.0

20.0

5,370.9

Dow Chemical

49,124

6.1

4,972

-22.3

3,724

-17.5

45,581.0

-0.8

1,164.0

8.5

1,775.0

ExxonMobil 2

48,900

13.5

3,403

-0.7

4,382

11.1

 

 

756.0

15.6

 

Bayer 3

38,230

17.2

3,647

9.9

2,222

5.4

73,791.2

52.2

3,032.7

32.9

2,560

Shell 2

36,306

17.0

991

-13.8

 

 

 

 

 

 

7,900

INEOS 4

36,000

44.0

 

 

 

 

 

 

 

 

 

Sinopec 2

29,253

27.6

2,210

20.6

14,370

10.4

 

 

 

 

1,164

DuPont

27,421

2.9

 

 

3,148

53.1

31,777.0

-4.5

1,302.0

-2.5

1,532

Total 2

25,234

14.0

1,604

5.8

1,167

-8.6

 

 

 

 

 

Sabic

23,022

10.3

8,237

5.9

5,412

5.9

44,426.0

21.6

 

 

0.0

Lyondell Chemical

22,228

19.5

1,069

-15.7

186

-65.0

17,846.0

18.3

94.0

3.3

400

Mitsubishi Chemical

22,037

8.9

1,080

-3.8

843

17.3

19,482.8

9.0

766.1

1.8

1,099.4

Akzo Nobel

18,137

5.7

1,930

-1.6

1,522

20.0

16,879.7

2.9

1,168.4

9.3

698.4

Sumitomo Chemical

15,040

15.0

1,173

15.6

789

3.5

19,533.9

6.7

 

 

1,343.1

Air Liquide

14,456

4.9

1,616

-16.9

1,030

-16.4

20,359.9

-5.3

 

 

 

Degussa

14,416

11.6

1,161

19.3

1,833

nc

415.0

3.1

838.4

16.8

35,621

Mitsui Chemical

14,183

14.6

770

56.2

439

18.5

12,587.7

12.7

 

 

 

BP 5

14,000

 

 

 

 

 

 

 

 

 

 

Basell

13,856

22.5

817

 

 

 

 

 

 

 

 

Asahi Kasei

13,643

8.4

1,074

17.5

576

14.9

12,266.3

6.1

440.5

1.9

709.2

Huntsman

13,148

1.2

737

3.0

230

nc

 

 

 

 

 

Yara International

12,773

37.3

0

 

 

 

 

 

 

 

 

Solvay

12,409

9.8

1,451

20.5

 

0.1

14,656.3

-1.2

743.3

19.3

1,132.8

Johnson Matthey

12053

34.5

494

21.7

 

 

4,092.6

-3.6

 

 

 

Chevron Phillips Chemical Company

11,839

10.6

1,443

54.5

1,349

58.1

7,119.0

2.3

 

 

191.0

DSM

11,064

2.3

1,101

3.2

722

3.8

13,322.8

-0.2

431.7

12.8

603.4

Linde

10,639

32.7

0

 

0

 

 

 

121.5

19.5

1,107.7

LG Chem

10,149

25.3

364

-20.8

348

-20.4

 

 

 

 

0.0

Reliance Industries 2

9,714

36.2

1,241

 

 

 

 

 

 

 

95.9

ChemChina

10,260

na

0

 

192

 na

 

 

 

 

 

Footnotes. 1: Includes oil and gas; 2: Chemicals only; 3: Includes pharmaceuticals; includes refining; includes joint venture sales


By: Nigel Davis
+44 20 8652 3214



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