12 November 2012 16:55 [Source: ICIS news]
LONDON (ICIS)--Moody’s has downgraded its outlook for the chemicals industry in Europe, the Middle East and Africa (EMEA) and in North America over the next 12-18 months to “negative” on the back of deteriorating economic conditions in Europe, slowing growth in emerging markets and weak US growth, the ratings agency said on Monday.
According to an industry report issued by the company today, the decision to downgrade its outlook for the industry was driven by revisions to its growth forecasts for the G20 group of major economies.
Released today, the figures are “materially” lower than the rates of expansion in 2010 and 2011, with predicted GDP growth for the G20 economies standing at 2.7% in 2012, 3% in 2013, and 3.3% in 2014, according to Moody’s.
Elena Nadtotchi, Moody’s vice president – senior credit officer and co-author of the report, said: "The decision to change the outlook [for the chemicals sector] was based on our revised 2012-2014 GDP growth forecasts. As a result, we forecast weaker domestic demand, particularly in Europe, and that slowing exports will exert pressure on the earnings of the region's chemicals companies."
The weak economic environment is also likely to leave chemicals companies more vulnerable to oil price fluctuations, the company said, as it may be difficult to raise prices without hurting sales volumes.
A cooling market may lead to increased merger and acquisition activity, as companies with strong cash reserves look to acquisitions as a means of expansion in the absence of organic growth, according to Moody’s.
However, profit margins for petrochemicals producers may increase despite the weakened economic environment, due to forecasts of reduced feedstock prices in 2013. The agricultural, nutritional and medical applications sectors are also expected to outperform the wider industry, Moody’s said.
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