19 January 2011 17:03 [Source: ICIS news]
By Nigel Davis
Downstream demand in Europe and elsewhere appears to have held up remarkably well in the fourth quarter, complementing the still strong demand pull from
Releasing its annual financial results on Tuesday, SABIC said that fourth quarter net profits of SR5.81bn ($1.55bn) were 27% up on the fourth quarter of 2009 and 9% higher than in the third quarter of 2010. Net profits for the year were SR21.59bn from SR9.07bn.
It attributed the increases to higher sales prices for most petrochemicals and plastics and increased production, however, and said little about volumes. The fourth quarter results also were under consensus and the company’s shares had lost close to 3% in value by late afternoon on Wednesday.
Markets are tight, with producers in many supply chains appearing to be able to match supply to demand much more closely than they might have done before the recession. This more "just in time" approach has led to increased price volatility but generally to higher prices with it sometimes being difficult to keep production units in operation.
Production capacities taken off line during the recession have not always restarted, leading to additional tightness as demand has improved. Some of these trends were noted on Tuesday by Standard & Poor’s in its annual European chemicals credit outlook and overview.
The credit rating agency called the volume rebound in
S&P analysts expect 2010 profits to set a record for BASF and double compared with 2009 for some sector firms, including INEOS, LANXESS and Clariant. They look at the earnings and debt profiles of 30 regional sector companies.
Management action has helped most companies get to where they are today and some chemical producers have come out of the crisis surprisingly well, S&P believes. There were many more upgrades than downgrades for chemical firms last year indicating that financially, producers are in good shape. Investors see the sector differently, certainly than they did in the early years of the last decade.
Doing things right, of course, helps greatly. And the focus on cash through the crisis has been of great benefit. The appetite for mergers and acquisition (M&A) activity is increasing with more of a feeling that deals can be dusted off and done in an improved operating and financial market environment. Some seven important M&A deals (larger than $40m) have been announced in the past two months.
So much of the confidence in the chemicals sector, however, is linked to emerging market growth and it will be the way in which national emerging markets develop that will have the most impact on the fortunes of chemicals players in 2011.
It is not surprising that 2011 chemicals growth forecasts for the sector in Europe and
While regional chemicals markets reacted similarly in the downturn, the recovery is exposing the growth potential of some and the burdened maturity of others.
The outlook is not all discouraging. The credit rating agency’s economists suggest that global indicators point to accelerating manufacturing activity.
($1 = SR3.75, €1 = SR4.98)
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