22 March 2010 17:06 [Source: ICIS news]
By Nigel Davis
Companies have reported a 2009 year-end running against the seasonal norm. Restocking has continued into 2010 in multiple supply chains.
Operating rates have climbed but generally remain low, however. The rubber, polymers and fine chemicals maker LANXESS said last week that its plants were running at 70% of capacity.
Product continues to be drawn to
LANXESS' synthetic rubber business has been buoyed by growth in
Yet demand recovery apparently continues across a broad front. The American Chemistry Council (ACC) has issued an upbeat outlook for the
The news is encouraging but the ACC is also realistic. Given the extent of the decline, it could be 2013 before the prior peak in chemicals output in
Globally, the chemical industry is recovering well and this year recovery is expected to morph into expansion before further growth in 2011 and 2012. Not surprisingly, the strongest growth is expected in emerging markets “while the developed nations continue to face challenges”.
Increased sector confidence reflects pointers from the wider economy that the situation has improved.
INEOS said on 17 March that it wanted to raise close to €1bn ($1.35bn) from its lenders to help improve liquidity. The company carries an expensive, heavy debt burden. It sees its chemicals and polymers businesses improving, although it has to operate a hard-pressed refining operation.
In balance, however, the outlook has improved. The firm’s bonds are trading higher and it looks a great deal healthier than at the start of last year.
Lenders suggested the move – a step that indicates broader confidence in the sector and in the outlook.
Investors have also taken to the Kerling (INEOS chlor vinyls) spin-off, which was recently recapitalised.
INEOS is by no means set fair. Its ratio of debt to earnings before interest, tax, depreciation and amortisation (EBITDA) is 6.8 times. But credit rating agency Moody’s said on 18 March that it looks to a time when the ratio might approach closer to 5.
The ratings agency doesn’t expect INEOS to pay down any of its principal debt any time soon, so no disposals perhaps. It is confident, however, in increased cashflow from the company.
INEOS is driven as much by tighter markets as by demand growth.
Petrochemicals producers and others in the chemicals sector have been surprisingly good at passing on the higher oil cost in higher product prices.
Does that mean that they are offering better products – or better solutions, perhaps? It does mean that they continue to run their plants to match market demand.
Planned as well as unplanned outages are tightening supply. Balancing supply and demand will be vitally important in a 2010 that is expected to remain difficult.
In an interview with ICIS news last week, LANXESS management board chairman Axel Heitmann stressed that competitiveness is key; that is, the international competitiveness of each and every operating facility.
Companies have to be encouraged now by the way they are able to generate more cash. But there have to be calls on that cash, which must be managed wisely.
Borealis, for instance, last week suggested that 2010 would likely be tougher for it – not easier – than 2009 was.
“We think the economy is still nervous, and although we see some recovery, we believe it will be more difficult for our company because we are starting up both Borouge 2 and a LDPE (low density polyethylene) plant at Stenungsund in
These are not good times by any stretch of the imagination, but the near future for chemicals currently does look just that bit brighter.
Te brighter outlook should encourage some players to take bolder steps to help the next stages of improved global competitiveness.
($1 = €0.74)
Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
For more on LANXESS, INEOS and Borealis, visit ICIS company intelligence
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