Commentary: Geographic disconnects in outlooks among chemical players

08 March 2013 09:29  [Source: ICB]

There are some interesting disconnects between how players in one geography view conditions in another, and how local players see their own market dynamics.

For example, major European chemical companies have a rather optimistic outlook on growth in China and the rest of Asia, pinning their hopes on the region to drive earnings growth in 2013 and beyond.

World cogs Rex Features

 Rex Features

Global economies are intertwined, but sentiment differs

Kurt Bock, CEO of Germany-based BASF, expects China GDP growth of about 8% in 2013, with chemical demand typically higher. Belgium-based Solvay CEO Jean-Pierre Clamadieu said that "China is strengthening", pointing to gains in the company's order book.

Bayer CEO Marijn Dekkers is predicting that strong demand growth, particularly from Asia, will help to drive global capacity utilisation back to about 90% within the next four years.

Yet the sentiment is far less sanguine in Asia, where some recent chemical price declines are being attributed to a slowing rate of manufacturing growth in China. Monoethylene glycol (MEG) and purified terephthalic acid (PTA) prices in Asia plunged last week on high inventories and weak demand. Polymer demand has also been weak following the Lunar New Year holiday period.

The HSBC China Manufacturing Purchasing Managers' Index (PMI) fell to a reading of 50.4 for February - down from 52.3 in January and a four-month low. However, the PMI showed that China's manufacturing economy is still in expansion mode, as any reading over 50 indicates. But it is a slower pace of growth.

However, even a slower pace of growth looks stellar in comparison to no growth or a decline. Europe itself is facing another year of recession, while the US is going through a painfully slow recovery, especially on the employment front.

Interestingly, players in Asia are pointing to the US budget "sequestration" as a source of concern. Around $85bn in US government spending cuts kicked in on 1 March when the president and Congress failed to reach an agreement.

Yet in the US, businesses have largely shrugged off the impact and stock prices have surged. The Dow Jones Industrial Average hit an all-time high on 5 March and were continuing higher in mid-week. There was nary a word about the sequester in US chemical company fourth-quarter earnings calls.

As the Americas and Europe look to Asia for growth, Asia looks right back at its largest export markets.


By: Joseph Chang
+1 713 525 2653



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