Market outlook: Better times ahead for chemical players

26 April 2013 10:06  [Source: ICB]

Germany's big three are expecting improved performance in 2013 and 2104, as global economies recover growth and the eurozone crisis eases

After a difficult but still profitable 2012, Germany's major chemical producers BASF, Bayer and Evonik Industries are optimistic for an improvement in 2013, based on a gradual easing of the eurozone situation and growth in world markets. They are also anticipating top-line growth due to their on-going investment in new capacities.

In its quarterly report for the end of 2012, the German chemical industry association VCI said "the business year 2012 ended with an encouraging fourth quarter for the German chemical industry as demand for chemicals rose slightly. Production, chemical prices and sales improved as compared with the third-quarter 2012."

It adds that "with rising orders from industrial customers at home and abroad, the mood is brightening for chemical companies. This tendency should last in the present year."

"Chemical and pharmaceutical companies assume that upswing forces will prevail in the economy," said VCI director general Utz Tillmann. "Expectations are high especially for the demand from customers outside Europe, but so far our industry is confident about domestic business too."

VCI is expecting chemical production to increase by 1.5% in 2013. In the present year, prices are likely to rise by 0.5% so that [German] chemical industry sales should climb by some 2% to an estimated €190bn ($250bn).

Evonik Industries expects sales to be higher in 2013 on the back of new production capacities and rising demand, as it noted at its annual results conference earlier this year. It added that operating results for the full year should be in line with the levels reported in 2012.

Evonik said: "At present, a rapid recovery of the global economy does not seem very likely. Moreover, the smouldering sovereign debt crisis in Europe is still causing considerable uncertainty that could hold back economic development. Nevertheless, Evonik expects to report another successful performance in 2013."

In 2014, the group expects that, driven by higher demand, sales and the operating results will be considerably higher than in 2012 and 2013. For 2012, Evonik reported net income of €1.16bn, up by 15% from 2011, although full-year sales fell by 6% to €13.6bn, which was mainly due to the divestment of the group's carbon black business in July 2011.

Evonik's organic sales growth weakened slightly in the second half of the year. Although selling prices were slightly higher (+1%), 2012 organic sales slipped slightly by 1% as a result of a 2% decline in volumes partly because of a volume shortfall following an explosion at its cyclododecatriene (CDT) plant at the Marl chemical park, Germany, in April 2012.

Adjusted EBITDA in 2012 declined by 6% to €2.59bn, mainly because the prior-year figure contains earnings from the carbon black business for the first seven months. Accordingly, adjusted EBIT dropped 7% to €1.95bn.

BASF is basing its 2013 outlook on global chemicals production growth of 3.6% and global economic growth of 2.4%. The company had a relatively good year in 2012 but was buoyed by a sharp rise in profitability from its oil and gas businesses. For the full year of 2012, BASF posted a net profit of €4.88bn, compared with €6.19bn in the previous year, partly due to a decline in its chemicals business. BASF's sales in 2012 rose 7.1% to €78.7bn compared with 2011, while EBIT before special items improved by 5.1% to €8.88bn. Chemicals operating profits were down 30% year on year as were profits from plastics. Agriculture profits were up 27% and oil and gas profits up 85%.

CEO Kurt Bock commented: "Worldwide economic growth will be bolstered... by low interest rates and government stimulus measures in emerging markets. We expect a gradual decline in economic uncertainty and an increase in investor and consumer confidence."

Growth in Asia is vitally important to the sector now. 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.

BASF revealed that sales to customers in the Asia-Pacific region had grown by just 3.6% in 2012 compared with 15.2% in 2011. The region accounted for 19% of sales by customer location for the company in 2012 compared with 18% for North America, 55% for Europe and 8% for South America, Africa and the Middle East. The company said it anticipates only slight growth in EU chemicals production in 2013 of 0.3% before an expansion to average production growth of 1.0%, just under expected GDP growth.

At Bayer, net income for the full year 2012 slipped by 1% €2.45bn, while sales were up by 8.8% at €39.8bn. "For 2013, Bayer anticipates currency and portfolio-adjusted sales growth of between 4-5%. This corresponds to group sales of around €41bn," the company said.

By: John Baker
+44 20 8652 3214

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