INSIGHT: Capturing volume growth difficult in the second half of 2013

29 July 2013 15:00  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Achieving volume growth against the backdrop of an under-performing global economy will be the big challenge for chemical producers in the second half.

Too few businesses are growing strongly. Those linked to manufacturing and industrial production, particularly, are in the doldrums. A problem for some western players is that businesses more closely linked to the consumer - making intermediates for the home care and personal care markets, for example - tend to be ones that have attracted intense competition and battles for market share from players in the emerging markets.

The European economy continues to contract, US growth is moderate at best, and China’s growth has stalled. Relatively upbeat forecasts made at the start of the year have given way again to more moderate views. A similar reassessment took place in 2012.

However, in 2013, slower and re-directed economic growth in China is making life tougher for chemicals makers alongside most other businesses. And as the Chinese government seeks to encourage domestic consumption and lessen the country’s reliance on the export of manufactured goods, suppliers of intermediates are finding the going even tougher.

The big chemical companies have given inklings of what it is like to have to operate both commodity and more specialised material businesses in this still relatively uncertain macroeconomic and industrial environment.

BASF’s sales volumes in the second quarter were 5% up on the similar period of 2012, it said last week. Sales prices overall were stable, it added, with negligible portfolio effects.

On a business-by-business basis it was the company’s Agricultural Solutions and Oil & Gas segments that produced strongest volume growth in the quarter, but sales volumes were up slightly in Chemicals; up in the so-called Care Chemicals businesses; and up slightly in the Functional Materials & Solutions segment.

BASF does not comment on regional sales volumes on a quarterly basis but its data show sales to customers Europe rising by 2% year on year in the quarter, although sales to its home market of Germany shrank by 7%. Sales to customers in North America were up 9% year on year, the company said; sales to the South America, Africa, Middle East region up 3% and sales to Asia Pacific down 2%.

The year-on-year comparisons will have been affected by the maintenance-necessitated shutdown of the Port Arthur, Texas, joint venture cracker in the second quarter of last year, and an acrylics outage in Malaysia in the most recent quarter, but there are signs that BASF is facing headwinds in China, which it will have to work harder to overcome.

BASF is planning to expand production at its large joint venture production site at Nanjing in China.

CEO Kurt Bock told journalists on 25 July that BASF’s China business was profitable but that its performance had been weaker in the second quarter of 2013 compared with the year before. BASF was optimistic for the future of the market, he said.

BASF seems to be seeing somewhat subdued business in China in contrast to Dow Chemical which also reported on the second quarter and first half on 25 July.

Dow’s sales volumes in the second quarter were up 1% in North America, down 2% in Europe, Middle East, Africa, up 12% in Latin America and up 7% in Asia Pacific.

There had been early signals of a summer inflection in China, with local consumption improving, Dow said.

“Emerging markets are a surprising pillar of strength and we expect there will be growth in the second half that was not seen in the first half, especially in Asia, with China appearing to be stabilizing,” Dow CEO Andrew Liveris said in  a call with financial analysts.

“The leadership there is in place and very focused – and we are confident they will course correct… with positive signs beginning even in this recent quarter,” Liveris added.

“However we maintain the view that while growth continues in China, we all have to reset expectations below historical rates,” he noted.

Dow did say that polyurethanes were benefitting from growth in western China, and that this regional China growth seemed to be related to domestic consumption.

This raises the question of whether a two-track China is emerging, with the high demand growth rates from export-led manufacturers seen in the more developed coastal provinces diminished and new growth emerging in the west.

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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