14 October 2009 18:08 [Source: ICIS news]
By Nigel Davis
Earnings before interest and tax (EBIT) could rise by between 20% and 40% for many, it suggests, due to strong volume growth and the momentum behind cost cutting.
Sales volumes could lift by between 8% and 10%, “even with only modest GDP growth in 2010 and no strong inventory restock”.
Sounds good, at least from where we are. But, relatively speaking, the climb back from the trough of the downturn cannot but take time.
BASF did well in the third quarter to hold the drop in EBIT, before charges and gains, to 20%. The sales fall year on year was 19%.
Quarter to quarter in 2009, EBIT was up 9.5% and sales up 2.4%. That better-than-consensus performance helped drive the shares higher.
BASF CEO Jurgen Hambrecht was cautious in his comment on the outlook, though, despite the profits gain.
“Although the mood is slightly brighter and we are climbing out of the trough, the recovery remains slow and fragile,” he said in a statement.
“Economic developments in the coming months remain difficult to predict,” the company said.
The chemicals business through most of this year has been driven by demand from
The industry is well placed to take advantage of what appears to be simultaneous manufacturing upturn in both the
Deutsche Bank’s chemicals analyst said he expects third-quarter sector EBIT to be a considerable 20-30% higher than in the second quarter. Volumes and cost cutting will offset eroding foreign exchange support, increasing raw material costs and marginally eroding product prices, he adds.
“On outlook we expect less pessimism but no optimism given the conservative nature of most management teams and lack of clear evidence of sustained recovery.”
So don’t expect too much in the way of a positive outlook from the companies themselves – that appears to be the message – but note the percentage gains against a weakening sequence of quarters from the end of last year and through 2009.
Clearly, the annual comparisons will start to look better from the fourth quarter of 2009 onward given the parlous state of business at the end of 2008.
However, it looks as though commodities, with the exception of fertilizers, will come back strongest, driven by
The bank also expects an improvement in specialities but notes the greater sequential quarter-to-quarter impact of product price erosion and raw material price pressure.
In their home markets, European and US companies still struggle with a changed operating environment characterised by low inventories and reduced operating rates.
Products rapidly can become tight if there are supply problems. In the most recent quarter, prices have moved against the background of supply constraints rather than with demand.
Chemicals production in the EU was down 17.7% for the eight months to July compared with the similar period of 2008. The improvement, however, has accelerated since February, with the July 2009 shortfall year on year being 11.3%, according to EU statistics.
The chemicals trade group Cefic calculates that petrochemicals production dropped lower again in July after gaining ground through most of the year. July production was down 13.8%.
EU polymers production in July was down 15.9% year on year, basic inorganics down 20% and specialty chemicals down 3.1%.
It depends very much on the portfolio and the exposure to
BASF released its stronger-than-expected third-quarter results early as it became clear that they were well ahead of consensus, and the move has raised expectations for the sector. The company will issue a full quarterly earnings statement on 29 October.
Markets have stabilised at a low level, BASF said of its own businesses. “Impulses for growth are coming from Asia, especially
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