INSIGHT: China, M&A and cheap gas drive regional chemicals growth

17 September 2012 17:16  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--The listing by ICIS of the top 100 chemical companies by sales always provides a healthy set of talking points.

The top 10 jostle for position and define the most widely held views of the sector, such as which are the world’s leading quoted producers – and where are they based – and how did the big privately-held and state-controlled chemical makers fare in the most recent financial year – in this case, largely calendar 2011.

As I wrote in ICIS Chemical Business a couple of weeks ago: “The listing by sales in 2011 reflects a world that continues to change, with emerging market players showing the strongest year-on-year growth.”

The commentary added: “Some chemical producers hit new sales records in 2011 as rapidly growing international markets compensated for quickly contracting growth in the US and, particularly, in Europe.”

Sinopec springs to mind when thinking about the changes being wrought across the face of the chemical industry. The largely state-owned company refines oil and turns it into the fuels, chemicals and intermediates that China’s manufacturing industry needs.

We just look at the financial results for Sinopec’s chemical businesses but they are globally significant in their own right.

The steep rise in chemical sales for the company – 28.9% in 2011– pushed it to number two in the ICIS Top 100 Chemical Companies league table. That meant that it jumped two places in the top 100 listing compared with 2010.

Given the continued growth of China’s chemical markets – albeit at a somewhat slower pace than in recent years – Sinopec can only become more influential on the chemical stage.

The company’s chemicals production rose by 14% a year on average between 2000 and 2011 and its capacity expansions will continue, whether or not China’s economic growth stalls. That should worry regional producers and consumers of petrochemicals. China’s ethylene capacity is planned to rise 27m tonnes/year in 2015 from around 15m tonnes in 2011.

Merger & acquisition (M&A) activity continues to drive changes in the listing and across the industry. In the case of Asia-based producers, for instance, the 47.6% increase in sales of South Korea’s Honam Petrochemical was driven by the acquisition in 2010 of Malaysia’s Titan chemicals.

Other Asia players making important gains in 2011 were Thailand’s PTT Global Chemical – which represents the combined businesses of the former PTT Chemical and PTT Aromatics – and Indorama, one of the most prolific acquirers of assets in the chemical industry over the past two years.

Companies are vying with each other to gain access to vibrant South East Asia markets while they eye China and its giant chemical makers.

Clearly, fertilizer makers also grew strongly in 2011, as did important regional players in chemicals such as Mexichem, Russia’s SIBUR, Brazil’s Braskem, Poland’s PKN Orlen and Saudi Arabia’s SABIC.

So, BASF cements its place as the world’s largest chemical company – even if strong 2011 sales in its important oil & gas segment are excluded – with Sinopec’s petrochemical operations coming in at number two.

US-based Dow Chemical slips to fourth in the table from second last year, reflecting its realignment as a more specialty-oriented materials producer.

In North America, the leading producer, the chemicals business of energy giant ExxonMobil, pulled further ahead with an impressive 20.7% sales increase. Top line growth for Dow was a more modest 11.8%.

The regional table for North America, published in this week’s edition of ICIS Chemical Business (ICB), in itself tells a tale. DuPont gained greatly last year on the Danisco acquisition and also on solid organic growth. Fertilizer producer Agrium’s sales were up 44.0%.

A combination of competitively priced shale gas and M&A activity continues to drive sector firms.

The shale advantage continues to play out in petrochemicals upstream although 2012 has proved to be a challenging year for even the most cost-advantaged players.

Nevertheless, Eastman chemical’s $3.4bn (€2.6bn) acquisition of Solutia in July should push the combined firm into the Top 100 top 10 for 2012. Polyvinyl chloride (PVC) producer Georgia Gulf will also climb in the rankings following its agreed $2.1bn merger with PPG’s chloralkali business.

In Europe, following a fair amount of M&A activity in 2011, 2012 is shaping up to be much quieter. However, four of the top 10 companies are headquartered in the region and seven of the top 15.

It is the diversity of their geographic assets and sales bases that singles out these players and allows them to retain their positions in the chemicals league.

$1 = €0.76

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

By: Nigel Davis
+44 20 8652 3214

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