06 September 2013 10:12 [Source: ICB]
After a fantastic year of recovery for chemicals in 2011, 2012 proved to be much tougher
Sluggish global petrochemical demand in 2012 has left the participants of the ICIS Top 100 listing feeling deflated following the celebrations of a record 2011 sales year.
Clearly a challenging year for the industry, 2012 had many obstacles impacting on global markets, none more so than the eurozone crises. The decline in sales of the listing reflects the lower global chemical production over the 2012 period. According to the American Chemistry Council (ACC), chemical production (excluding pharmaceuticals) dropped by 0.53% to $3.88 trillion.
HEADS AND TAILS
Through intelligent portfolio management and exploitation of varying market conditions around the world, the elite companies have managed to tread turbulent waters and have maintained their dominance at the top of the listing. However, the scars are there to be seen, with eight of the top 10 achieving lower sales numbers (in reporting currency) compared with 2011.
Despite a 1.9% dip in sales, BASF has extended its innings at the head of the pack and has increased its advantage over Sinopec to $30.2bn. The state-owned Chinese number one has consolidated its runner-up position in the global listing after relinquishing Dow Chemical of that position in 2011. Familiar faces remain at the top as positions 1 through 4 are unchanged. SABIC has moved up one spot to complete the top five. DuPont and INEOS are the only companies with increased revenue, in this part of the table, for the term. The former owed most of its improvement on better performing agriculture, nutrition and health and industrial biosciences segments, which were offset by a decline in the performance chemicals subsidiary.
After considering a 4.0% fall, the top 10 impressively maintains a 37.2% share of total sales. The bottom 50 has improved its share by more than 1% to 20.7% aided by new entrants from last year's bubbling under section. On the whole, shares are similar to 2011, displaying how companies at the top and the lower end of the table have equally been affected by global conditions.
Positions 90-100 are made up of mainly downstream sellers and most notably five Japanese companies. These companies, especially plastic producers, have felt the full effects of buyers staying away from the market and evidence of this lower demand relates further upstream in global ethylene production. The ICIS Worldwide Ethylene Plant Report shows a decrease in olefin production across the major producing regions (North America, Europe, Japan and China) in 2012.
LOWER PRICES AS DEMAND DWINDLES
If the record sales figure in 2011 was primarily the result of higher chemical prices, conversely lower sales volumes paired with reduced prices was the theme in 2012.
The ICIS Petrochemical Index (IPEX), a pricing index that comprises a basket of 12 key petrochemicals in the US, northeast Asia and western Europe, is in-line with lower demand and chemical production.
Dollar-based prices fell for most of the 12 petrochemicals with global butadiene prices seeing the biggest drop at 17.7%. The suffering auto industry impacted the tyre market, which is the primary user of butadiene.
Lower PVC prices are also symptomatic of the slower emergence of China, which has had its smallest gain in GDP in over a decade. Despite the region having the world's biggest PVC market, the impact from the damaged construction sector has been felt further upstream.
Average operating margins were about 1.0% lower compared with 2011, with the lower sales values having an impact on this figure. The top end of the graphic is once again dominated by companies with fertilizer ties due to the improved scope within the industry since 2010. It is worth mentioning that the world potash sector has recently been disrupted due to the break-up of one of its biggest exporting organisations, which may result in lower prices in the near future. On the other end of the table is evidence of the slower growth of the Asian emerging markets. Despite compiling the second highest sales total, Sinopec is surprisingly third from bottom following a 98.5% fall in operating profit (in reporting currency).
Companies looked to reduce costs to compensate for the reduction in sales and a common expense targeted would be selling, general and administration (SG&A) costs. The total percentage SG&A of sales amongst the top 100 has remained relatively flat, indicating how overheads rarely decrease. LyondellBasell has maintained SG&A as a percentage of revenue at 2.0% from last year and leads the group.
Extracting the best out of the workforce is imperative in pushing efficiency. Lotte Chemical (formerly Honam Petrochemical) has remained in the top position even after considering a $1.6m lower value per employee. Eight of the players remain unchanged in the top 10 and a good period for Yara, which enters at the number 8 spot. The average sales/employee for the total listing of 2012 (of declared data) is down about 6%, at $930,000 per employee. This is, however, an improvement on the 2010 number of $730,000 per employee and illustrates the continued emphasis companies place on efficiency.
The fertilizer industry also was not exempt from the global financial challenges with most companies registering lower sales volumes in 2012. Farming conditions played a part in the performance of the industry in 2012 with one of the worst droughts hitting North America in recent times. Buyers also stayed away from the market as stock from the previous period was utilised well into the first half of the year.
There has been a move by most fertilizer companies to invest in expansion as there is a real need to increase the global food capacity. This is in line with the Zero Hunger challenge launch in July 2012 by the United Nations which has been welcomed by governments around the world.
The general feeling is that the demand for more crops is inevitable and companies would spend to increase capacity in order to cope when the time comes.Download the pdf of the ICIS Top 100 Chemical Companies
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