30 December 2010 16:08 [Source: ICIS news]
By Nigel Davis
Third-quarter financial results showed just how much progress had been made through 2010 quarter to quarter, let alone against a depressed 2009. And at the time, some firms were forecasting a record year.
While the market has delivered much needed relief and demand growth, it has been the attention to costs and inventories that has helped deliver such strong returns. Tight cost control remains paramount across the sector as it does in so many other industries with business primed to generate cash.
Companies have focused on debt repayment and sought more favourable, longer-term financing options. Only recently has attention turned more to what might be done with excess cash in terms of stronger merger and acquisition activity and enhanced capital spending.
For most of the sector, the return to growth in 2010 was surprising and significant, with the bounce-back driven first by demand from developing economies but then by strengthening European business.
EU statistics show the rate of growth of output across the sector improving markedly in 2010 compared with 2009 but also a growth slowdown in the third quarter. That slowdown in the rate of recovery will have been felt in the also seasonally slow fourth quarter and will be a major feature in the first months of 2011.
The high and rising oil prices has featured strongly on chemicals markets in recent weeks and producers are being hard-pressed to pass on higher costs in product prices. Closely matched output to demand, however, has kept markets tight.
At the end of October, BASF said that it expected 2010 to be a record year with operating earnings, earnings before interest and tax before special items, sales exceeding the prior 2007 high point. It added that it expected to earn a “high premium” on the cost of capital.
Bayer has remained optimistic for the 2010 group outlook and particularly for its MaterialScience business, although it has expected a significant seasonal fourth-quarter slowdown although a marked improvement on the 2009.
“Overall, the MaterialScience business has recovered impressively and more quickly than expected. This means we will meet our original target of returning to the pre-crisis level at MaterialScience by 2012 much earlier than planned,” it said on reporting the third quarter financial results.
Fourth-quarter year-on-year sales growth was expected to slow compared with 30% for the first three quarters. The slower fourth-quarter would keep growth for the whole year below 30%.
INEOS said in December that improving performance and disposals would help it pay down €200m ($264m) of debt at the year end in addition to a scheduled payment of €60m. At the end of September operating earnings before depreciation and amortisation were sharply higher compared with the equivalent 2009 period.
Improving finances were reported by a swathe of other chemical companies, although in operating terms European business was not as robust and growing as strongly as that in other parts of the world.
Players in the industry are relying very much on self-help in still difficult times although many see ways in which they can keep costs down to continue to hold margins.
The company’s optimism stemmed from its scale in diverse markets; the expectation of further cost savings and, importantly, what it said was “evidence of sustained industrial demand beyond re-stocking”.
($1 = €0.76)
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