INSIGHT: A race to the finish in the second quarter

02 July 2010 17:24  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Further evidence this week of a strong finish to the second quarter suggests that chemicals producers will reveal another good set of financial results starting in just a few weeks' time.

French specialties maker Arkema was particularly upbeat on Thursday, saying it expected a record second-quarter result. It has benefited from the stronger economic climate and the usual seasonal upturn in businesses such as fluorochemicals, specialties and coatings.

There have been other indications that the upturn has been widespread, driven largely by improved demand and better capacity utilisation.

Jurgen Hambrecht said on 23 June that BASF had seen (thus far) a better-than-expected second quarter. Remember, BASF’s first-quarter operating profits were up close to 98% year on year, mainly due to higher capacity utilisation. Renewed demand then was particularly strong from the automotive, electric and electronics industries and was feeding through into a stronger performance across core segments such as chemicals and plastics.

Regional demand was strong in Asia and South America. North America was recovering with Europe bringing up the rear.

It does not look as though much has changed in this respect for the chemicals giant and most other producers. Asia has been and will continue to be the driver of growth. China demand, particularly, will, over time, play a much more critical role, not just in volume growth but also in revenue generation for many players.

BASF has big plants in China and was expected, when the first-quarter results were announced, to be hit by a loss of volumes from these facilities in the second quarter due to routine maintenance.

Producers of all sorts are reaping the benefit of local, China, production capacity.

Arkema has ramped up production from a new HFC-125 fluorochemicals production unit in China. It said it has benefited from the development of products for new energy markets, the successful integration of new acrylic assets in North America acquired from Dow Chemical and cost-saving initiatives.

Cost savings continue to work their way through in most companies. Firms have learned to work with lower levels of inventory, with pared-back internal services and fewer employees.

There are no indications of the brakes being taken off in this regard. Companies may be somewhat more confident than they were but they are by no means in an expansive mood.

Current global economic uncertainty sees to that. Nervousness in chemicals markets is reflected by the sharp decreases in commodity chemicals and polyolefins prices in China in recent weeks.

Industry economists suggested in early June that the US economy was moving from an initial inventory and stimulus-led recovery towards “a self-sustaining virtuous circle led by the private sector”. But it was only last week that Dow Chemical CEO Andrew Liveris called for an “Advanced Manufacturing Plan” to revitalise the manufacturing sector in the US to create more jobs and growth.

Economic growth in North America is likely to ease in the second half of the year. European growth, weaker as it may be, is threatened by the sovereign debt issues in many nations.

Most companies have benefited in the most recent quarter from strong volumes but the recovery has also very much been price led. Arkema, for example, has reaped a harvest from sharply higher acrylics prices just as it has become, with the purchase from Dow, the second-largest acrylics producer in the US.

How sustainable product prices might be in a weaker economic environment and given lower volume growth is anyone's guess.

Producers have managed output to demand extremely well through the downturn.

How they manage through what could be a particularly difficult period remains to be seen.  

Bookmark Paul Hodges’ Chemicals & the Economy blog
Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
For more on Arkema, BASF and Dow visit ICIS company intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Nigel Davis
+44 20 8652 3214

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly