18 March 2009 17:17 [Source: ICIS news]
By Nigel Davis
Bayer moved to its holding structure partly to distance itself from the cyclical materials businesses - polycarbonate and polyurethanes. It spun out Lanxess with a difficult product portfolio, to say the least.
Arkema was a curious mixture of businesses that did not fit with energy group Total’s largely petrochemicals and polymer ambitions. Arkema’s vinyls, industrial chemicals and so-called performance businesses have their roots deep in the French chemical industry and the merged chemicals activities of the former oil group TotalFina and Elf.
The downturn, a toxic mix of recession and the credit crunch has taken hold in
The slump, global and seemingly relentless in nature, has hit each of them hard. It will test, particularly, the restructuring, streamlining - call it what you will - that has characterised strategy at each group.
Critically, it will test management’s ability to act decisively. The three companies have momentum gained prior to and since spin-off. In general, they have all done the right thing. Portfolios have been re-shaped. The focus has been on the best businesses.
In its turn, each company has been able to tackle difficult production and employment situations. The process has been lengthier for some but, by necessity, there have been cutbacks and employees have had to be re-deployed.
This downturn, however, puts a different colour on events. What hasn’t been done to date may have to be accelerated. Companies have already cut back some production and more cuts have followed.
The Bayer MaterialScience business is exposed to badly affected customer segments: construction and automobiles. Arkema is exposed in the vinyls chain and in the acrylics that finds their way into consumer electronics and other goods.
Lanxess is hit in its mainstay rubber business. It said on Wednesday though that all three of its operating segments were being hampered by the donwturn to varying degrees.
Arkema in early March reported some resilience in the portfolio but overall was extremely hard hit. Its comments also reflected the view across the chemicals sector.
This is a time to seek to generate cash and preserve balance sheet strength.
The added finesse perhaps from Lanxess has been the emphasis put on its price before volume strategy. None of the companies have been reluctant to temporarily shut capacity in the face of difficult market conditions. The ability to have been able to introduce short time working has been of benefit for some.
The longer the downturn persists, however, the more difficult the operating environment becomes and the more exposed these three and other players are. A persistent slump will seek out still weak operators in weak markets. This is not the time to lose sight of the fundamentals of the business or the fact that some portfolios still need some further re-shaping.
The defining factors, however, for these and other small to mid-sized players in chemicals will relate to management ability and the willingness to act. Indeed decisiveness will be key, and in some financial analysts’ eyes past (management) performance in this regard marks Lanxess out as better bet.
Yet in their way, Lanxess, Arkema and Bayer MaterialScience have shown how exposed chemicals businesses are in the current downturn. The slump in consumer confidence and the knock-on effect on manufacturing in Europe, North America and in
The outlook for chemicals remains bleak Lanxess stressed today, which is the view currently held across most of the industry. The question is how the slump ultimately will play out to drive possibly permanent closures and further consolidation.
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