23 March 2009 17:48 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--BASF's view of the economy and the industry is gloomy but realistic, Citi Investment Research said last week. They are right.
BASF CEO Jurgen Hambrecht said that global destocking is far from over. The ?xml:namespace>
That suggests that a recovery for any firm selling into these big chemicals-consuming markets is still a long way off. BASF doesn’t see a major turnaround until the middle of 2010. Citi said it expects destocking to have run its course in chemicals in the first half of 2009 but then for production to match (reduced) demand.
Layer on top of that the supply side of the equation, particularly the wave of ethylene and ethylene derivatives capacity expected from the
Hambrecht again is realistic. BASF believes that as much as 2m tonnes of ethylene capacity in Europe and 4m tonnes in the
But project delays might help. Emerging slowly from the stasis induced by the slump in chemicals that became apparent in November and December last year, companies have to take stock.
BASF also mentioned that engineering and construction costs have declined by about 10% since the start of this downturn and are likely to drop further.
Engineering and construction contracts are being renegotiated given the drop in raw material prices. Contracting companies, too, are reining in spending in these difficult times.
Industrial gases and engineering group Linde last week said that its high engineering order backlog is a good basis for a relatively stable business for the next two years.
But the company admitted that, in the current environment, it is only to be expected that some new projects involving large-scale plants may be postponed. “In our weaker scenario, we assume that new orders in our engineering division will not be sufficient to achieve the same level of sales in the 2009 financial year as in 2008," it said. It targets, however, a stable operating margin for the business.
In gases, the company said it expects anything from a slight rise in sales to a slight decrease. The future is difficult to call and no more visible in this relatively stable industrial segment. Indeed, stability has been lacking even in industrial gases these past few months and might not be expected in 2009.
Air Liquide a few weeks ago described the decline in gases demand in some cyclical sectors as “brutal”. In one of its scenarios for 2009, it envisages a downturn in gases sales to cyclical industries of 30%. If there is a partial recovery in the second half, the negative impact from cyclical sectors could still be 10%.
The industrial gases and engineering group has been hit by the downturn in its large industries segment in North America and in speciality gases, which are sold into the electronics industry in
The industrial gases companies might be expected to produce more stable results in most environments, but this downturn is different. They are exposed on multiple fronts.
Linde, for instance, suggested that its sales in 2009 may rise or fall.
As has been said before in Insight this year, only agrochemicals and the life sciences offer anything approaching real immunity from recession. Other segments are just more or less recession-proof.
For more on ethylene and industrial gases visit ICIS chemical intelligence
For more on Linde visit ICIS company intelligence
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