10 September 2012 00:00 [Source: ICB]
Higher prices translate to sales gain and improved profitability for the ICIS Top 100 chemical companies. We also highlight capital spending patterns
Despite many headwinds, the global chemical industry has surged to a new record level of chemical sales. The ICIS Top 100 chemical company listing shows that the top 100 had combined sales of $1.40 trillion (€1.08 trillion) in the 2011 financial year, representing growth of 13.4% compared with 2010. Top 100 sales in 2010 were almost 24% greater than in 2009, when chemical sales suffered greatly amid the 2008-2009 financial crisis.
Year-on-year sales growth in 2011, albeit down from the surge in 2010, is still close to 1.5 times the 9.0% average level of annual growth seen since 2000. The ICIS Top 100's $1.4 trillion of chemical sales represents 35.2% of the $3.98 trillion worth of global chemical production (excluding pharmaceuticals), according to the American Chemistry Council.
SALES MIRROR IPEX
The rise in 2011 sales was mostly in line with the level of growth suggested by the dollar-denominated ICIS Petrochemical Index (IPEX), which suggests that sales growth was primarily attributed to higher chemical prices rather than to any significant additional volume growth.
The IPEX is a monthly calculated, capacity-weighted index that tracks the price levels of a basket of 12 commodity-type chemicals and polymers in each of three regions - Asia, Europe and the US.
By using a similar methodology and the average IPEX reading for the first seven months of 2012, this forecasts a level of sales in 2012 of around $1.36 trillion, or a decrease in chemical sales of just under 3%.
The continued worries about the financial stability and fate of the eurozone, the health of the US economy and continued growth in emerging markets have capped volume growth and demand-pull price rises in the first two quarters of 2012. Price increases reflected in the IPEX have generally resulted from higher feedstock costs flowing through to increased product prices.
OPERATING PROFIT MARGINS RISE
The average operating profit margin (operating profits to sales ratio) for the top 20 companies in the listing was 9.7%, higher than the average 8.0% margin since 2001. It was the second consecutive operating profit margin increase since the 2009 slump.
For the second year running, fertilizer producers have returned the best operating margins and have dominated half of the top 10 places in the winners and losers chart. Although well down from their pre-crisis peak, fertilizer prices have remained resilient due to strong demand from emerging nations.
After its reorganisation and release of company financials, Russian chemical producer Sibur has ousted Middle East producers from the top margin spot for petrochemical producers, although Saudi Arabia's SABIC does feature in the top 10.
Understandably, a handful of Japanese companies are among the worst performers at the operating level, as they were greatly affected by the disastrous tsunami of early 2011 and are still facing difficult operating conditions of reduced electricity supply after the shutdown of nuclear generating capacity.
The only producers to declare negative operating profit margins are the Italian producer Versalis (formerly Polimeri Europa), which suffers from some legacy operating issues, and US-based Valspar as it struggled with a multi-year downturn of the US construction sector.
Industrial gas companies are seeing strong demand for their products from Asia and higher levels of capital expenditures are an integral part of their business model to supply their customers with their gaseous needs.
Sibur is the only petrochemical producer to feature on the big spender chart, as it has ambitious investment plans to supply a strongly growing Russian market. On an absolute level, the larger petrochemical companies show their presence. Germany-based BASF takes top spot with close to $4.5bn worth of investment in 2011, followed by SABIC, US-based Dow Chemical and China's Sinopec, each with $2bn-3bn of expenditure.
Quote: Average operating profit margin for the top 20 companies in the listing was 9.7%, higher than the average 8.0% margin since 2001.
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