Europe specialty chems must innovate - Moody's

By Mark Watts

LONDON (ICIS news)--The pricing of European specialty chemicals is becoming more dependent on value-added innovation as products retain their special qualities for a shorter period of time, Moody’s Investors Service said on Monday.

Analyst Elena Nadtotchi said innovation was key for staying ahead of the global competition, as specialty chemicals become increasingly commoditised.

Nadtotchi added that European specialty producers were facing continuous input cost inflation and a general structural shift towards Asia, with companies moving substantial production to Asia to follow their main product users. 

In a year-end report, the ratings agency gave a “mildly negative” outlook on European chemicals amid significant restructuring in the global industry.

Moody's, which rates many of Europe’s top chemicals players, has this year downgraded its ratings for DSM, INEOS and Basell and given negative outlooks on Clariant and BASF.

“Products are retaining their special qualities for a shorter period under increasing commoditisation, which affects pricing power,” said Nadtotchi.

“Specialty producers require global reach and a high degree of special products to sustain their profile,” she added.

Moody’s said the rise in mergers and acquisitions (M&A) activity this year was expected to continue into 2008.

“Most acquisitions were driven by the need to refocus portfolios, which we have been seeing for a couple of years and expect to continue,” said Nadtotchi.

The ratings agency issued negative ratings actions on both Clariant and INEOS in 2007 as the companies failed to meet operating targets, said Moody’s in its European Chemical Industry Outlook.

Clariant was given a negative outlook, as the Swiss specialty chemicals group’s margins were hampered by competitive pressure and price increases.

INEOS’s rating was downgraded as operating performance was affected by plant reliability and the company reported slower than expected deleveraging, said Moody’s.

However, Moody’s upgraded both Lanxess and Rhodia. Both companies have strived to restructure portfolios resulting in increased operating performances.

< previous article(ICIS Chemical Business podcast November 2, 2009)

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