08 March 2013 09:26 [Source: ICB]
Europe-headquartered chemical companies are relying on emerging markets to drive growth in 2013 amid continuing lacklustre domestic macroeconomic conditions.
BASF is basing its 2013 outlook on global chemicals production growth of 3.6% and global economic growth of 2.4%.
"Overcapacity is gradually being filled now, and will reach more of a normal capacity utilisation"
Generally, weak economic conditions persist and the chemical giant's apparent optimism - or should that be belief that things must get better? - is difficult to square with the dire state of Europe's major economies, combined with only lacklustre economic growth in the US and ongoing weakness in China.
BASF had a relatively good year in 2012, but was buoyed by a sharp rise in profitability from its oil and gas businesses.
Chemicals operating profits were down by 30% year on year at the company, as were profits from plastics. Agriculture profits were up by 27% and oil & gas profits up by 85%.
CEO Kurt Bock said the company did feel that investor uncertainty would lift in 2013 - although the results of the Italian election had dealt the markets a blow.
"Worldwide economic growth will be bolstered... by low interest rates and government stimulus measures in emerging markets," he said. "We expect a gradual decline in economic uncertainty and an increase in investor and consumer confidence."
BASF felt the benefit of restocking in January and it remains to be seen just how far returning consumer confidence will go this year towards bolstering corporate profits. The news from Europe is not good, with the European Commission on 22 February predicting that eurozone GDP would contract in 2013 and EU GDP barely grow.
A return to growth in the US does appear to be gaining pace, but it is growth in Asia that is vitally important to the sector now.
BASF'S TOUGH 2012 IN ASIA
BASF said that the slump in chemicals production growth last year was the result of weak growth in Asia's emerging markets in the first half. An upturn was expected in the second six months of the year, but deep uncertainty persisted and it did not materialise.
China is the key growth market for chemicals and one that can swing the numbers either way.
In response to questions on 26 February, Bock said BASF expects China's GDP growth to be around 8% in 2013. "Chemical growth will go along with this, which was always slightly above GDP growth."
The BASF CEO had been cautious earlier when commenting on current business, and he suggested too much weight should not be placed on the slight January upturn.
Other CEOs in Europe this reporting season have been more forthright, although this can be put down largely to the portfolios they manage.
Solvay CEO Jean-Pierre Clamadieu, for instance, quite clearly pointed to stronger China demand. "China is strengthening," he said. "We are seeing in our order book clear signs that China is coming back to growth."
"We expect a gradual decline in economic uncertainty and an increase in investor and consumer confidence"
Some growth had returned to his company's China markets, Buchner said - "not to the levels of the good past that we saw in the early days, but it is returning at growth levels that are significantly higher than those seen in Europe and North America".
The leveraged effect of only slightly stronger China chemical markets growth in 2013 than in 2012 would be significant.
Meanwhile, growing global demand - especially in Asia - is likely to ease the overcapacity that has plagued the chemicals industry during the last few years, Bayer CEO Marijn Dekkers said on 28 February.
He predicted that strong demand growth, particularly from Asia, will help to drive global capacity utilisation back to around 90% within the next four years.
He said: "If you look back, 2006 and 2007 were very strong years, and a lot of people built extra capacity, particularly in Asia. Demand then suffered as a result of the [financial] crisis, but the capacity was being built and concluded, and in the last five years or so we have basically had a situation with overcapacity in a difficult economic situation.
"This overcapacity is gradually being filled now, and will reach more of a normal capacity utilisation, over 90% over the next few years, which will also help significantly with [Bayer] MaterialScience," he added.
BMS CHINA OPTIMISM
Bayer MaterialScience CEO Patrick Thomas told financial analysts that demand for its products in certain applications was picking up in China.
"We saw the usual slowdown around the Lunar New Year, but we're pretty confident looking forward," Thomas said. "Now that there is some semblance of stability in the [China] government, we're seeing the stimulus programmes kicking back into the food chain," he added.
Pull quote: China is the key growth market for chemicals and one that can swing the numbers either way
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