FocusChemical companies feel the squeeze

02 November 2007 17:44  [Source: ICIS news]

By Lucy Craymer

 

LONDON (ICIS news)--A weak US dollar and higher feedstock prices have hit third-quarter profit margins across the chemicals sector.

 

Profit margins are down on average around 5% compared with last year.

 

Rohm and Haas has been the worst hit of the companies to have reported so far with operating margins down 24% to 14.5% despite sales up $139m at $2.2bn.

 

Chairman Raj Gupta said: “The impact of weaker U.S. building and construction markets combined with rising raw material, energy and freight costs, as well as disappointing operating performance in our Houston monomer plant, has contributed to a significant earnings decline in North America."

 

Dow, whose profit margin was down 16.7%, reported it had increased prices through all regions and sectors to outpace a quarterly  increase of almost $400m in feedstock and energy costs.

 

Higher feedstocks and lower margins were blamed by Chevron for the 38.7% drop in third-quarter earnings in its chemicals segment on lower margins and higher costs.

 

Margins were squeezed as escalating costs for crude oil feedstocks could not be fully recovered in a US marketplace that was well supplied with gasoline and other refined products, said Chevron CEO Dave O'Reilly.

 

The weaker US dollar impacted European companies more heavily than their US counterparts who benefited from exports.

 

“Proceeds from higher selling prices were offset by negative effects from weaker currencies (mainly the US dollar) and somewhat lower volumes,” said Akzo Nobel in regards to its polymer chemicals unit.

 

The negative currency effect was 2% in its coatings segment mainly in its industrial activities and marine & protective coatings unit, it added.

 

BASF said it had felt the impact of the US dollar in its plastic business, which was not able to achieve the earnings level of 2006.

“Above all, this was due to a decline in Performance Polymers, which can be attributed to negative currency effects and production outages,” it said.

 

Bank of America chemicals analyst Kevin McCarthy described the 2007 third-quarter results released so far for chemical companies as “a mixed bag”.

 

While a few companies, namely Celanese and DuPont, exceeded the bank’s expectations others fell short.

 

McCarthy attributed RPM International, Nova, Dow Chemical, Monsanto and Lyondell’s inability to reach the bank’s expectations partly on rising feedstock costs.

 

Citigroup chemical analysts are predicting that Clariant’s results, due out on 7 November, will be impacted by higher feedstock prices as earlier results have been.

 

“Clariant’s results thus far in 2007 have been disappointing. Continued margin pressures from rising raw materials and a lack of pricing power have been compounded by the slow start to management’s restructuring programme,” the analysts said.

 

“Despite a sharp spike in raw material costs, Clariant has only raised prices by 1% in each of the first two reported quarters of the year,” it added.

 

Third quarter chemicals profits and margins

 

Company	Profits 1	Sales	Margin	Change
	($m)	($m)	(%)	(%)
BASF	2,355	13,963	16.9	-5.3
Dow Chemical*	1,144	13,589	8.4	-16.7
DuPont**	916	6675	13.7	-3.8
Exxon Mobil (chemicals)***	1,202	na
Shell (chemicals)****	397	na
SABIC***	7,400	na
Lyondell	684	7,385	9.3	5.0
Akzo Nobel	483	3,768	12.8	6.3
Air Products	389	2,603	14.9	51.0
Solvay	427	2,399	17.8	1.8
DSM	321	3,170	10.1	-3.9
ICI	413	2,635	15.7	5.3
Rohm and Haas	320	2,204	14.5	-24.3
Eastman	169	1,813	9.3	7.2
Celanese	302	1,573	19.2	-4.6
Footnotes:
1 EBITDA (earnings before interest, tax,depreciation and amortisation);
na = not available;  *Profit before tax excluding gains/charges; **Segment pre-tax operating income; ***Net income; ****Segment earnings

 

By: Lucy Craymer
+44 20 8652 3214

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