The ICIS Top 100 Chemical Companies: analysis

13 September 2010 08:17  [Source: ICB]

The ICIS list of top players in the global chemical industry confirms that 2009 was a year of turmoil, but many companies have emerged from the downturn in solid shape

Global chemical companies coped remarkably well with the slump in demand at the end of 2008 and the start of 2009. The financial crisis had taken hold and the cold winds of recession swept across the globe. As suppliers of feedstocks and raw materials for a broad range of industries, the chemical sector felt the chill earlier than most. And the impact was deep and long lasting.

 

 Gareth JJ Burgess

Production was cut back sharply towards the end of 2008 and the start of 2009. And it was possible to lift output only slowly through 2009 as inventories were rebuilt down multiple supply chains. China was the huge draw for so many chemicals but strengthening demand in the US and then Europe played a part.

The recovery in demand and in chemical output has persisted into 2010 with the year's second quarter (Q2) marking what many see as a high point. Producers of all sorts, both upstream and down, have continued to benefit from increased underlying demand - not just inventory rebuilding.

The questions being asked now have more to do with the sustainability of growth in a much-changed financial world rather than business survival. China's demand continues to provide the key to volume but recovery in North America, Japan and Europe has yet to help drive output and capacity utilization to the levels reached before the recession.

The ICIS Top 100 listing of the world's leading chemical firms shows that aggregate sales of the Top 100 declined by 19.7% in US dollars in 2009. Total aggregate profits of the Top 100 fell by 17.5% in US dollars in 2009 after falling by over 50% in 2008.

Production simply stopped in so many industries and sectors of the economy at the turn of 2008-2009. Many chemical companies were forced to follow suit and shut plants to help preserve cash.

Industry-wide data show how deep the downturn was in output terms at the start of 2009 and chart the recovery over the course of the year.

At the low point, global chemical production was down by more than 8% year on year. For 2009 as a whole, global production of all chemicals, including pharmaceuticals, was down by 3.6%, according to data from the American Chemistry Council (ACC).

The output slump in the developed world was 6%, whereas developing world chemical output fell by 0.7%. US output was down by 4.5%, Western Europe down by 5.9% and that for Japan down by 9.8%. Globally, chemical production was down by 3.6% in 2009.

Global shipments of chemicals, excluding pharmaceuticals, according to the ACC, were down by 12.5%. In the first months of 2009, chemical producers were hit with steep price declines for many products. The combination of the slumps in volume demand and price are reflected in the data in the ICIS Top 100 table of the leading chemical producers in 2009.

COMMODITIES HARDEST HIT
Upstream petrochemical and commodity chemical players bore the brunt of the downturn early on, alongside the plunge in commodity chemical prices linked closely to the price of oil.

The price of crude had fallen dramatically from the $147/bbl peak reached in July 2008 to around $32/bbl by December 2008. An important feature of the way chemical companies were able to cope with the worst of the downturn in 2009 was the ability to match output closely to slowly developing demand (in most regions).

The focus, given the financial climate, had to be on working capital and cash preservation. Producer and customer inventories were being tightly managed. The climb back to better financial health would take time.

The table records steep year-on-year declines in sales for the large commodity producers and also the impact of the downturn on more broadly based firms.

Not surprisingly, given the collapse in prices, fertilizer producers PotashCorp and Terra Industries reported the steepest decline in year-on-year sales.

NOVA Chemicals and Shell Chemicals saw sales fall by more than 40% with a broad swathe of major producers - from LyondellBasell Industries and INEOS to Dow Chemical, ExxonMobil Chemical and SABIC - recording declines of more than 30%. The more diversified BASF managed to contain the drop in sales to 17%. Mitsubishi Chemical's sales were down by 14% and DuPont's down 14%.

The 13% decline in sales for the petrochemical business of Chinese giant Sinopec reflects the relative buoyancy of China's chemical markets as they staged a recovery from the downturn.

CHINA DEMAND HELPED
The strength of chemical demand growth in China in 2009 surprised many for much of the year. Driven by the country's massive stimulus program, infrastructure development and, to a degree, financial speculation, chemical and polymers demand rose sharply.

That demand growth was sufficient almost to keep some producers in Europe and North America afloat during the period. It certainly helped raise the fortunes of polymer and other producers for much of the year - at least until stronger North American and European demand took hold.

BUCKING THE TREND
Some chemical companies managed to buck the downward sales trend from a combination of location, fiscal year-end and business mix. In this group were: Merck KGaA with its heavy pharma and liquid crystal display sales mix; Reliance Industries, which continued to benefit from strong demand in India; and Sasol, which had a year end of June 30, 2009.

Fewer firms among the Top 100 Chemical Companies reported a loss at the operating level in 2009 than in 2008 - 9 versus 15 in the earlier year. And majors such as LyondellBasell Industries, Braskem, and INEOS swung back into profit.

The questions being asked now have more to do with the sustainability of demand growth in a much-changed financial world rather than business survival
A great deal of this was because of the way firms managed costs through the downturn. Companies lived from hand to mouth during the recession, holding as little inventory as they dared. Cost control measures generally were savage, with short-time working and layoffs commonplace.

Matching output to demand more closely put pressure on some supply chains, which was apparent even into Q2 2010.

Tightness in certain supply chains, which was brought about by routine maintenance, as well as unscheduled shutdowns, has been both a help and a hindrance. It helped to secure margins when demand was weak and production merely filling downstream inventories.

No-more-than-adequate supply also helped sustain prices but the rising cost of oil through 2009 - the oil price more than doubling to $80/bbl by the end of the year - was the significant factor.

WIDESPREAD LOSSES AND DECLINES
A total of 16 chemical companies among the Top 100 reported a net loss in 2009 - the most significant losses being recorded by LyondellBasell Industries ($2.87bn – €2.26bn), PEMEX ($1.54bn) and INEOS ($881m). LyondellBasell Industries was in Chapter 11 bankruptcy protection for the whole year, emerging at the end of April 2010. INEOS took many months in 2009 to forge a new business and financing plan with its primary lenders and more than 200 bondholders.

The big players in the industry suffered steep sales declines in 2009 but managed to produce significant net profits. SABIC's net result of $2.42bn was down by 59% year on year. The ExxonMobil Chemical net result of $2.31bn was down by 22%. BASF was down 52% at $2.02bn and DuPont down 12% at $1.77bn.

No part of the industry was immune from the downturn, but the industrial gases players fared much better than most. Air Liquide saw its net profits rise by 1% to $1.76bn.

CUTS IN CAPEX, R&D AND HEADCOUNT
In a world cautious in the extreme and armed against the impact of a further downturn, it is predictable that the Top 100 analysis for 2009 records much lower capital expenditure (capex) across the sector. The average fall for the Top 100 that disclosed capex was 16.5%.

For the Top 100 that disclosed research and development (R&D) spending, the average decline was 4.4%. A total of 37 made cuts of more than 5%, which is perhaps unwise given the importance that new product and process development is to the sector. That companies should be forced to slash R&D illustrates the tough financial regimens that most adopted over the course of the year.

The Top 100 analysis produces an extensive data set and the employee numbers also illustrate how hard companies had to cut back in 2009. INEOS made the steepest cuts among the Top 100, reducing headcount by 20.2% to 11,949 employees. The data set here is limited, given the reluctance of many firms to publish comparable numbers but Dow Chemical's head count fell by 15% to 52,200. Clariant made cuts of 13% to 17,536, while Huntsman and NOVA Chemicals made cuts around this level. In this analysis, 11 companies cut employee numbers by more than 10%.

Download the full ICIS Top 100 Chemical companies feature, including the league table in pdf format

A MESSAGE FROM OUR SPONSOR
Antony Elwine, global head of chemicals, Damco

The ICIS Top 100 Chemical Companies highlights businesses that have successfully dealt with the challenges of the global market. Our sponsor, Damco, gives a view on how supply chain management and logistics can play a critical role in success.

Damco, one of the leading global logistics providers to the chemical industry, is honored to be the sponsor for the ICIS Top 100 Chemical Companies.

Over the past two years, the chemical industry has gone from record profits to record lows, as it entered a cyclical downturn largely caused by macroeconomic conditions.

Although the industry is recovering, challenges concerning the future axis of supply and demand and increased globalization remain. This has led to a number of fresh challenges for the industry, where service differentiation across an extended supply chain has fueled reorganization of how producers manage their businesses.

Demand management is in vogue and process optimization linked to increased visibility with a plan to reduce capital exposure is high on the agenda. Supply chains are also being reengineered to work with these measures, and global partners such as Damco are leading the way through a collaborative approach in redesigning the future of the industry.

Service differentiation across an extended supply chain has fueled reorganization of how producers manage their businesses 
With its presence in emerging markets, Damco is well positioned to help chemical producers reach converters in areas of the world where infrastructure is not yet well developed. Through an extensive network of offices across the globe, Damco can enable chemical producers to sell directly to converters in fast-growing emerging markets with unprecedented service levels and reliability.

As part of the A.P. Moller - Maersk Group, Damco offers a broad range of supply chain management and freight forwarding services to customers all over the world, and has 10,500 employees in more than 280 owned offices across 90 countries, with representation in 120 countries in Africa, Asia, Australia, North America, Europe, Middle East, and Latin America. In 2009, the company had net sales of more than $2.0bn (€1.6bn), managed more than 2.3m TEUs (20-foot equivalent units) of ocean freight and supply chain management volumes and air freighted more than 60,000 tonnes.

LIST REVEALS TOP PLAYERS IN GLOBAL CHEMICAL INDUSTRY
ICIS is pleased to present its Top 100 listing of the major global chemical producers, ranked by sales for 2009, sponsored this year by leading global logistics provider Damco. The Top 100 provides key financial data for the largest companies in the chemical industry. It lists a range of financial information from top line sales to bottom line profits for players whose products help drive manufacturing and the global economy. The Top 100 data set extends back over 30 years and helps illustrate the progress of major producers of mainstream commodities and more specialized products. BASF remains the largest chemical company in the world in the latest ICIS Top 100 listing. The company saw sales fall by 18.6% in 2009 but retained its leading position based on group sales. Dow Chemical, whose sales dropped by 32.9%, is in the No. 2 position, with the chemicals business of ExxonMobil in third place, despite a 29.4% sales fall.

ICIS collects a significant amount of data to populate this listing which will be made available on the web at www.icis.com/Top100. The full Top 100 data set, which includes a broader range of financial measures and comparisons and companies just outside the Top 100 in our "bubbling under" category, is also accessible through this website. Data for these companies - those with sales of more than $2.0bn (€1.6bn) in 2009 or the latest financial year - are shown on page 32.

In coming issues of ICIS Chemical Business, we will look at the leading chemicals players on a regional basis (published September 20) and analyze their performance. ICIS makes its Company of the Year Award on September 27, based on the Top 100 financial data.

THE DECADE'S CLIMBERS AND FALLERS
John Baker/London

Most companies in the Top 15 of the ICIS Top 100 ranking have been there for more than a decade, but there have been some casualties and some newcomers.

During the past 34 years in which ICIS has been publishing its ranking of leading chemical companies by turnover, companies have inevitably come and gone. But in the past decade, the top tier of producers has remained remarkably stable, albeit with a few notable exceptions.

Of the 15 top chemical producers in 2000, 10 are still firmly positioned in the Top 15. Those that have lost their place among the leaders at the turn of the millennium are ICI, now part of AkzoNobel; BP, much reduced in size after disposals to INEOS; and Asahi Kasei, Huntsman and Solvay, eased out by faster growing companies.

Among the relative newcomers, two stand out simply because of the scale of their organic growth over the past 10 years: SABIC and Sinopec. Two more have joined the top tier through merger and acquisition (M&A) activity, notably LyondellBasell Industries and INEOS. The fifth newcomer slot has gone to Sumitomo Chemical, which has hovered between 14th and 16th place over the past five years.

The diagram below charts the rise and fall of turnover over the past decade for these industry leaders. The sharp decline between 2008 and 2009 is clearly evident, as is the earlier, smaller contraction in 2003-2004. Also notable is the leadership that BASF has held and enhanced over the period, through the growth of its oil and gas interests and more recently its active M&A strategy. In addition, the chart shows the strong organic growth achieved by ExxonMobil Chemical.

But the real story of the decade is the rapid advances of Sinopec and SABIC. In 2000, these two companies were ranked 25th and 26th, respectively, with sales of just over $7.0bn (€5.5bn) each. In 2009, they ranked fourth and seventh, with sales of $31.4bn and $27.5bn, respectively. In 2008, they were seventh and eighth, indicating that even in a very difficult climate, the Chinese major has managed to limit contraction in turnover.

Also notable is the lack of progress in sales terms of DuPont, which has seen sales oscillate between $24bn and $30bn over the past 10 years. Compare this to BASF's advance from sales of around $29bn in 2001 to $87bn in 2008 and ExxonMobil's from $16bn in 2001 to $58bn in 2008.

The decade in question has seen several major upheavals through M&A, but largely within the Top 15 tier. Shell Chemicals and BASF created their Basell polyolefins businesses in 2000, only to sell it in 2005 to Access Industries and see it merge with Lyondell Chemical at the end of 2007. The chart offers a rough pro forma combination for the years in between.

INEOS, which had grown at the start of the decade through acquisition of several business units from ICI, made a transformational step at the end of 2005 with the purchase of the Innovene business from BP. It has since acquired several smaller assets in Europe.

Active European petrochemicals restructuring also featured as Total, Fina and Elf put together their chemical and petrochemical assets to create AtoFina at the start of 2000. Total, as the merged oil groups came to be known, subsequently spun off Arkema in 2004, with Total holding on to the main petrochemical activities. The Total line in the chart begins with the figures for the precursor AtoFina business.

Note that the Bayer line is for the group over the decade - the full ICIS Top 100 has used figures discounting the pharma business turnover for the past three years.

Who knows what the next decade holds? The top tier may well be under attack shortly by rapid climbers such as PetroChina and Reliance Industries. Reliance is a candidate for a major acquisition, although it has failed to consummate deals recently.

The sale of BP's remaining chemical assets, as rumored following the Gulf of Mexico oil spill, might give a potential buyer a significant leg up the ranking, sooner rather than later. Inevitably, the major cracker investments of Sinopec, SABIC, ExxonMobil and Shell will keep them firmly in the top tier - if not right at the top.

In the meantime, BASF seems unassailable at No. 1, given its recent purchases of Ciba Specialty Chemicals and now Cognis.


By: Nigel Davis
+44 20 8652 3214



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