29 April 2008 17:16 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--The clear distinction between performance in the troubled US chemicals markets and those in Europe, and further afield, has become more apparent with the progression of the first-quarter reporting season.
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The Shell results on Tuesday give a flavour for what is happening upstream in chemicals. Margins are pressured both inside and outside the
Shell reported a $103m loss on a current cost of supply basis (based on first-in-first-out inventory accounting) from its
As was clear at the time of the National Petrochemical and Refiners Association meeting at the beginning of April, liquid cracking in the
Shell noted also on Tuesday the drop in year-to-year margins in chemicals and lower income from the joint ventures such as those in the Middle East and
The petrochemicals business has turned down and has become tougher worldwide.
Last week’s batch of first-quarter results also showed how companies have been able to hold out against the
It is a common theme, and Dow yet again on Thursday said higher raw material and energy cost it dear: This time a further $2.2bn in the latest quarter.
The quarterly cost increase was a whopping 42%; the largest quarterly increase in the company’s history and, Dow said, nearly equal to the increase experienced for all of 2007.
That gives some idea of the pressure faced across petrochemicals from the continued rise in feedstock and energy costs.
Companies have yet to see any significant downturn in orders related to slowing economic growth but weaker demand growth must be expected. Coupled with still high costs, this will hit earnings potential hard across the industry.
Dow did well to hold the drop in first-quarter operating profits to 4% given its exposure to the weaker
Dow’s performance plastics profits were down 25% on higher hydrocarbon and energy costs; performance chemicals profits down 13% and basic plastics off 19%. The fall in the basic plastics segment reflected lower polyolefins demand in
Battling these negative factors will be a common theme across much of the industry this year. Chief financial officer, Geoffrey Merszei, said last week that at the macro-economic level, Dow was seeing softness in the
BASF took the hits in the first quarter particularly in petrochemicals where the profits downturn was exacerbated by a two- week shutdown of the cracker in
The company also faced tough times in its functional solutions business segment. Higher catalysts earnings here could not offset falls in construction chemicals and coatings due particularly to lower demand in the construction and automotive industries in
BASF is relatively confident in its outlook but must expect slower growth this year in Europe as well as the
That having been said, however, there are companies, such as the
The now largely life sciences and materials company is quietly confident. It is still exposed to higher raw material and energy costs but to a much lesser extent than in the not too distant past.
As a European concern it is also hampered by the strength of the euro. But it appears to be in a better place than most chemicals makers currently and looks well positioned to weather the impending downturn.
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