INSIGHT: Upstream weakness offset by diversity

25 October 2011 21:00  [Source: ICIS news]

By Nigel Davis

DuPont CEO Ellen KullmanLONDON (ICIS)--Higher titanium dioxide prices helped DuPont post better-than-expected third-quarter profits on Tuesday but the US based company warned that consumer electronics would take time to recover.

The profit numbers and, particularly, full-year expectations were good enough to help drive the share price higher.

Underlying net profits (excluding significant items such as charges related to the acquisititon of Danisco) were up 78% at $665m, DuPont said. “The increase principally reflects higher selling prices and currency benefit, partly offset by increased spending for selling, marketing and research and development, and increased costs for raw materials, energy, and freight,” it added.

DuPont’s electronics and communications, and performance materials, profits were down year-on-year as the economic slowdown began to bite but the company pointed to the resilience of its portfolio.

Full-year earnings expectations were raised to $3.97-4.05/share, and to the upper half of previous guidance.

“Expectations for the fourth quarter include slowing global growth, some destocking, and the recognition that a portion of Agriculture sales in Latin America was shifted to the third quarter by the early start of the planting season,” the diversified materials, agriculture and biosciences producer said.

In the current climate, CEO Ellen Kullman’s comments are apposite. “The resilience and diversity of DuPont’s business portfolio was evident in our strong third-quarter results,” she said. “Despite turbulent global economic and market conditions, we delivered solid growth through innovative products and process technologies, disciplined execution and continued productivity gains.”

Kullman added that the DuPont portfolio is further strengthened by the integration of the Danisco biosciences businesses and by capacity expansions.

The broad-based portfolio clearly provided a good deal of relief from market headwinds in the reporting period but elsewhere the upstream chemicals softness is beginning to show.

INEOS said on Monday that its third-quarter chemicals earnings before interest tax, depreciation and amortisation (EBITDA) had fallen 20% compared with the year earlier period and were down 36% compared with the second quarter of this year.

INEOS's Chemical Intermediates’ EBITDA was down 34% on “mixed” demand.

Phenol and acetone demand was strong in a structurally tight market and margins good. Speciality oligomers did well also and the oxide business benefitted from strong demand from monoethylene glycol (MEG) and derivatives, INEOS said. But acrylonitrile (ACN) demand was hit by acrylonitirile butadiene styrene (ABS) weakness in Asia with volume and margin declines.

Polyolefins margins were weak in Europe while cracker margins held although butadiene prices fell in the quarter. The company’s Olefins & Polymers (O&P) Europe business saw profits drop by 16%

INEOS's North American O&P businesses were clearly in better shape although polymers demand was not great. O&P North America EBITDA rose by 7% compared with the third quarter of 2010 the profits increase driven largely by the business’s ability to crack cheaper ethane and other gas feedstocks.

“Demand for olefins remained good, resulting in high utilisation rates, INEOS said. “Margins have also been supported by a number of turnarounds in the industry tightening the supply side during the quarter,” it added. 

“Demand for polymers has been sluggish during the quarter with weak domestic demand and little export opportunity.”

The Asia demand slowdown coupled with softness in Europe and North America is having an impact across the company and petrochemicals in general.

“Global economic and political turbulence has created hesitancy in many markets, leading to a softening in demand in a number of sectors towards the end of the third quarter,” INEOS said.

Read Paul Hodges Chemicals & the Economy blog
Bookmark John Richardson & Malini Hariharan’s Asian Chemical Connections blog

By: Nigel Davis
+44 20 8652 3214

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