12 March 2008 15:01 [Source: ICIS news]
By Lucy Craymer
LONDON (ICIS news)--The weak US dollar is going to continue to impact profits of Europe's chemicals producers, analysts said after quarterly results showed sales figures were down an average of 3% due to currency fluctuations.
The US dollar is worth €0.10 less than it was a year ago - $1 is trading at around €0.65 - while $1 buys Swiss franc (SwFr) 1.03, down from SwFr1.23 a year ago.
Some hedging could prevent falling profits but it was not free and it would not help if the US dollar continued to weaken, ING analyst Dr Paul Satchell told ICIS news.
Analysts agreed there were three ways the US dollar was making itself felt by the industry - transaction, translation and competition.
Translation was the impact caused by US dollar sales being converted back to euros for reporting purposes being worth less than they were a year ago, Satchell said.
While transaction and competition meant that producing chemicals in Europe was more expensive than previously, while competition from the ?xml:namespace>
This was a bigger problem for specialty chemicals companies as they were more likely to move product between regions, said
This was a bigger problem for specialty chemicals companies as they were more likely to move product between regions, saidStandard and Poor’s director of chemical sector ratings Tobias Mock.
Already polyethylene (PE) players were noting a slowdown in activity in
“Lanxess, for example, is selling more in US dollars than it is producing in US dollars, which is not good,” he said.
“They need to think about producing in US dollars,” he said.
But he argued it was not always viable because of the benefits of site integration, available capacity and the volatility of exchange rates.
“What happens if currency goes the other way?” he said. “They need to look at the big picture.”
Clariant board member Jan Secher conceded his company was going to be impacted by the weakening dollar because it “sells a lot into the
Both Satchell and Mock believed companies that invested in overseas markets particularly
“The move by European companies into
But even then world’s largest chemicals company BASF, which has production facilities globally, is not immune to currency fluctuations, listing “an increasing imbalance in exchange rates” as one of the challenges facing the company in 2008.
“Currency effects reduced sales by 3.8%, or €2bn,” the company said in a statement.
While Akzo Nobel’s revenue for 2007 was up 2% to €10.2m year on year, the company said currency translation had negatively impacted by 2% on average, while the fourth quarter was worse with the adverse impact being calculated at 3%.
Firms such as
And companies are not hedging that the US dollar is going to strengthen in the short term and provide any kind of relief.
Lanxess chief financial officer (CFO) Matthias Zachert said the company believed the US dollar would not strengthen nor would the price of oil drop before the second half of the year.
The German company’s sales dipped 12.1% to €6.6bn year on year and it attributed 4.2% of this to the adverse affects of currency.
Satchell said he was sure there was going to be more movement towards more products being sold in euros.
Already the market is seeing European aromatics players trading in euros despite continuing to quote in US dollars to bring spot pricing into line with contracts and minimise risk.
“The contract is in euros, so this way we do not suffer from the volatility of currency,” said an aromatics trader.
But for oversupplied markets in
European producers previously dumped excess product into
“Companies are definitely converting to euros so they can compensate [for producing in euros],” Themistocleous said. “But why pay in euros if you can pay in dollars?”
The news is not all bad for the chemical industry, chemical companies headquartered in the
($1 = €0.65)
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