Credit rating agency S&P upbeat on European chemicals in 2011

18 January 2011 15:53  [Source: ICIS news]

LONDON (ICIS)--European chemical companies will continue to perform well in 2011 although there is pressure in petrochemicals, credit rating agency Standard & Poor’s (S&P) said on Tuesday.

Sector financial results for 2010 are likely to be the best ever, with cost cutting and price discipline combining with a market rebound to lift earnings, S&P said.

First-half performance in 2010 was better than expected and the last few months of the year were good for producers of intermediates and specialties, S&P's chemicals team director Karl Nietvelt said at a credit outlook seminar held in London.

However, he suggested that petrochemicals makers fared less well in the fourth quarter as oil-related feedstock costs rose.

“Chemical company margins will set new records in 2010,” he said. “Sector companies will post their best-ever results.”

S&P is forecasting record earnings before interest, tax, depreciation and amortisation (EBITDA) of about €11.3bn ($15.1bn) for BASF in 2010. It expects INEOS's 2010 EBITDA figures to be greater than €1.7bn, more than double those reported for 2009.

S&P still sees room for chemicals volume growth before previous peak levels of demand are reached.

“We expect in 2011 continued good performance. Certainly the lights are on green for the sector,” Nietvelt said.

Because of its relatively higher naphtha raw material cost base and the possible impact of global overcapacities, S&P has a less rosy view of petrochemicals.

“In terms of European petrochemicals we are quite cautious,” Nietvelt added. S&P expects European petrochemical company profits to come down in 2011, with naphtha-based cracker operators challenged.

S&P believes that generally, European chemical companies are in good health and producing strong cash flows.

“The chemicals sector has shown enormous resilience through management actions,” Nietvelt said. “Post-crisis investors feel better about the sector [in terms of credit quality].”

S&P’s European chemicals team rates the creditworthiness of 30 companies, including four petrochemical producers. The agency rates 70 sector players in the US.

($1 = €0.75)

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By: Nigel Davis
+44 20 8652 3214



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