Power performers

05 September 2005 00:01  [Source: ACN]

A YEAR of strong growth for the chemical industry was topped in 2004 by sharp profit increases for many producers. After the deep slump of recent years, the return to stronger profitability had to be welcome.

Volume demand climbed for most firms, quarter by quarter, across the first nine months of the year at least. Stronger demand put pricing power back in the hands of producers, after it had been weakened over years of poor results in the deepest downturn in more than 20 years. At last prices were pushed higher, to help combat steeply rising raw material costs. Sales values expanded and, with stricter cost control, so did profitability.

The ICIS Top 100 chemical listing charts the fortunes of the leading global chemical producers in 2004 and, for some, in fiscal 2004-05. It captures the financial performance of different companies in different parts of the world but it equally offers unique insight into industry and chemicals sector trends.

This is apparent from the current listing. BASF is placed at the head of the league table of chemicals producers as it has by far the highest sales in terms of US dollars. But the tabulations do not attempt to split out purely chemicals operations from chemical producer’s results for the year, so as to obtain the fullest data sets for each company. Only the chemical interests of the oil majors, however, are included.

SALES GROWTH

The data are grouped to give a feel for sales growth and profitability, both in absolute sense and relatively, as percentage changes are shown for each entry. Key performance ratios can be derived from the full data set.

Analysis of the compiled results shows that the leading companies in terms of sales growth in 2004 were Lyondell and Lubrizol, each with top line growth greater than 50%. The petrochemicals majors benefited greatly in 2004 from rising volume demand and rising prices, pushed through on the back of much higher feedstock costs.

Among the top ten in terms of sales growth were Sabic, Shell, ExxonMobil, National Petrochemical Company (NPC) of Iran, Sinopec, Repsol and Chevron Phillips. Indeed no petrochemical firm produced sales growth below 10% in a banner year for the segment.

SPECIALITY PRICES

The fact that top line growth was lower among the speciality chemicals makers is hardly surprising, given the fact that prices in this sector remained under pressure throughout 2004. Firms were battling price erosion rather than the other way round. Only in the first half of 2005 has it been broadly possible for speciality companies to push through price increases sufficient to help combat the general downward trend.

Some speciality firms also have their own problems linked to the popular life science intermediates segment where overcapacity is rife. The impact of this was seen in 2004, with companies such as Lonza and Rhodia reporting a contraction in sales.

Driving growth through to the bottom line is never easy, but chemical companies have become smarter and indeed more ruthless in recent years. The 2004 numbers reflect the profits many petrochemicals players were able to achieve on the back of particularly strong sales growth. Some took the opportunity to push through more restructuring and book the consequences as exceptional charges for the year.

Distinct profits growth was also not confined to petrochemical players. Companies such as ICI and newly-created Lanxess (the Bayer chemicals spin-off) reported sharp net profit improvements.

Part of the strategic battle in recent years sector-wide has been to tackle organisational and production-related costs. Few companies employed more people in 2004 than in 2003, apart from those making more acquisitions than divestments.

On the cost front, 2004 was another year of restrained capital investment but the data show that many companies began to push spending higher. Capital spending in general for the sector has dropped below depreciation as companies have become more conscious of what they can achieve with existing assets. That is not to say, however, that key projects are passing internally set projected rates of return.

The industry mood was more buoyant in 2004 than it has been for a number of years. It remains so in 2005. Supply/demand balances in many product chains are tight and look likely to remain so in the medium term despite companies’ ambitions to capture more growth with their own production facilities.

In the midst of the upturn in 2004, many companies were conscious of the rising cost of simply doing more business. That having been said, the focus remained very much on controlling selling, general and administrative costs.

THE VIEW FROM ASIA

Asian petrochemical companies in general enjoyed a robust 2004, with a number featuring prominently on the Top 100 list.

Despite what many companies saw as a challenging operating environment due to rising feedstock costs, sales growth rose for leading regional producers thanks to strong product demand.

Large players led the way. Sabic sales soared 46.5% to US$18.28bn, its highest ever figure. Sinopec’s sales rose 39% to US$17.86bn, due in part to growing domestic demand for synthetic resins, synthetic fibres and synthetic rubber. Double-digit sales increases for some Japanese companies were also attributed to strong domestic demand.

Operating profits for 2004 rose across the region, and Japan’s larger companies posted considerably better operating profits than in 2003, attributed by some analysts to corporate restructuring programmes which have trimmed costs. Other reasons were higher prices and increased shipments, bolstered by the recovery of the Asian market, which was led by buoyant demand from China. Operating profits for Sinopec’s chemicals segment was noteworthy for its massive 428% increase to US$2.31bn, the result of what it claimed was ‘remarkably better production margins and record prices for many chemical products. Sabic, meanwhile, announced its highest-ever net profits of US$3.8bn, citing technology upgrades, operational cost reductions and improved marketing.

Comparable employment figures among Asia’s leading companies were mixed. Staffing levels fell at some Japanese majors in 2004, a reflection of cost cutting and divestments, though recruitment did occur elsewhere as a result of asset acquisitions and expansion.

The capital investment picture was also mixed. Sinopec spent 50% more in 2004 than in the year before, acquiring chemical assets from its parent Sinopec Group, which added 437 000 tonne/year of ethylene capacity. On the other hand, Japan’s Asahi Kasei spent 20.7% less year-on-year.

EUROPE HAS A BONANZA

Europe’s top chemical producers had a bonanza of a year in 2004. BASF increased its lead at the top of the pack, with a 12.5% sales growth pushing turnover to more than US$50bn. Operating profit was up 83% to US$6.6bn. In sales terms, BASF is now 25% larger than nearest EU rival Bayer, which saw sales rise 4.2% in 2004 to US$40.3bn.

Behind these two lies a group of petrochemicals businesses owned by the three main oil majors, Shell, BP and Total - all with turnover in the US$20bn range. A strong surge in petrochemical volumes and pricing saw sales rise strongly, by 16% at Total, 32% at BP and 42% at Shell. Earnings at the latter, however, were marred by large adjustments for ongoing restructuring in preparation for the 2005 divestments of Basell and Innovene.

In the second half of the Top 10, we find Europe’s worldscale speciality chemical concerns, namely Akzo Nobel, Degussa, Air Liquide, ICI and Solvay. Sales advances here are more subdued, and in the case of Akzo Nobel and ICI there are slight declines as a result of ongoing divestments. All show positive earnings development in 2004. Just outside the Top 10, but still with sales over $10bn, comes DSM, which saw sales grow 28% in 2004 and earnings increase 17%.

THE US PERSPECTIVE ON COMPANY WINNERS/LOSERS

The Top 10 US-based chemical companies had a banner year in 2004. After a painful four-year trough, 2003 saw the start of a recovery in the US. In 2004 it roared ahead. The petrochemical cycle had finally turned in earnest amid robust economic recovery.

Dow Chemical continued to lead the pack with a strong 23% gain in sales to $40.2bn. Meanwhile, ExxonMobil Chemical edged out DuPont for the number two slot as revenues surged 38% to $27.8bn on sharply higher petrochemical and plastics prices.

Huntsman, before going into 2005, saw sales gain 62% to $11.5bn. This was on the back of stronger prices and volumes, as well as the integration of the former Vantico business, now known as Huntsman Advanced Materials.

Rohm and Haas continued to represent the speciality pack, with 14% higher sales of $7.3bn, while industrial gas companies Air Products and Praxair continued their steady gains. Each had 18% sales growth.

While sales increased strongly, profits rose to new heights. Industry bellwether Dow Chemical came in with 62% higher profits of $2.8bn. But ExxonMobil Chemical more than doubled its after-tax earnings to $3.4bn.

Financial performance in 2004 may have been impressive, but 2005 promises to be even better in terms of both sales and profitability. Wall Street and most companies expect the US chemical industry to post further strong gains, especially on the commodity chemical side.

After a tough inventory correction in the second quarter of 2005, commodity prices are rebounding and profitability looks to be back on track to surpass strong 2004 levels.

THE TOP 100

	Sales	Operating profit or EBIT	Net profit	Total assets	R&D	Capital spending	Employees
Company	$m	Change, %	$m	Change, %	$m	Change, %	$m	Change, %	$m	Change, %	$m	Change, %	Number	Change, %
1 BASF	50 818	12.5	6574	82.7	2549	106.9	45 915.5	0.9	1588.0	6.2	2612.8	-15.8	81 955	-6.0
2 Bayer	40 286	4.2	2441	-	816	-144.3	51 179.1	1.0	2852.5	-12.4	1726.1	-26.7	113 000	-2.1
3 Dow Chemical	40 161	23.1	-	-	2797	61.7	45 885.0	9.5	1022.0	4.2	1333.0	21.2	43 203	-6.8
4 Shell Chemicals	29 497	41.7	1339	-583.4	930	-545.0	-	-	-	-	705.0	17.7	8600	0.0
5 ExxonMobil Chemicals	27 781	37.6	-	-	3428	139.4	-	-	-	-	690.0	-0.3	-	-
6 DuPont	27 340	1.3	-	-	1780	77.6	35 632.0	-3.8	1333.0	-1.2	1232.0	-28.1	60 000	-25.9
7 BP	21 209	31.9	-900	-258.5	-	-	-	-	-	-	2289.0	195.4	12 400	-22.3
8 Mitsubishi Chemical	20 421	13.7	1386	51.4	517	60.3	18 379.1	-1.6	832.1	0.8	626.1	-3.2	33 261	-0.7
9 Total	20 042	16.1	888	158.3	888	158.3	-	-	-	-	1225.2	-18.8	-	-
10 Sabic	18 279	46.5	6269	121.7	3791	112.3	33 322.7	14.3	-	-	-	-	2300	0.0
11 Sinopec	17 862	39.0	2311	428.0	-	-	-	-	-	-	1330.0	50.0	-	-
12 Akzo Nobel	17 177	-2.8	1760	22.2	1159	42.2	16 793.9	3.8	165.2	-7.6	745.9	-5.2	61 400	-5.0
13 Degussa	15 222	1.5	952	6.5	403	-214.2	18 456.4	-2.9	471.1	4.2	1016.7	-3.5	44 566	-1.7
14 Asahi Kasei	12 849	9.9	1080	90.1	527	104.0	11 845.3	1.7	473.0	4.7	638.7	-20.7	23 820	-4.8
15 Air Liquide	12 694	11.7	1729	6.8	1053	7.2	19 528.6	31.1	139.8	-36.0	1351.1	-	35 900	12.5
16 Sumitomo Chemical	12 090	11.9	981	57.9	-	-	15 377.7	6.4	-	-	1173.1	14.2	20 195	6.1
17 Huntsman	11 486	24.1	184	117.5	-228	-28.8	9437.0	8.0	-	-	227.0	18.8	11 500	-11.5
18 Mitsui Chemical	11 448	12.7	751	49.4	244	109.6	11 240.4	1.4	325.5	6.1	439.3	3.1	12 228	-1.0
19 ICI	10 732	-4.2	918	11.4	402	950.0	9457.4	-5.2	281.7	-2.0	287.4	8.7	33 820	-6.6
20 Solvay	10 664	4.2	1075	17.2	732	25.8	13 588.1	3.4	559.1	2.2	763.5	1.6	29 300	-2.8
21 DSM	10 495	28.1	662	66.3	355	88.5	12 097.6	-4.9	387.2	6.7	452.2	-83.3	24 180	-7.4
22 Dainippon Inks & Chemicals	9354	2.9	449	9.9	99	66.8	9315.5	-1.8	-	-	-	-	26 757	0.9
23 Chevron Phillips Chemical	9238	33.7	-	-	626	8842.9	6872.0	10.1	-	-	201.0	-9.9	5300	-2.8
24 Lanxess	9169	7.0	80	-	-16	-	6197.0	1.0	166.5	-26.8	372.3	-10.5	19 659	-3.7
25 Basell	9071	17.5	-	-	-	-	-	-	-	-	-	-	6600	-0.8
26 Shin-Etsu	9023	16.2	1415	20.8	869	24.5	13 768.4	6.5	260.4	6.1	1028.5	-2.9	17 384	0.0
27 Johnson Matthey	8876	3.6	399	3.6	-	-	2578.0	-1.9	-	-	-	-	-	-
28 BOC	8320	6.4	1012	27.6	478	20.5	8440.3	-4.5	-	-	-	-	43 383	-2.5
29 GE Advanced Materials	8290	17.1	710	15.3	-	-	-	-	-	-	-	-	-	-
30 Sekisui Chemical	7992	5.2	340	57.9	208	48.4	6983.7	0.0	213.6	-3.4	240.6	7.1	17 002	0.1
31 Merck	7917	-18.6	1051	5.4	892	216.6	7746.4	-18.1	810.9	-1.0	316.8	-16.7	28 877	-15.6
32 Clariant	7475	0.2	483	-9.8	131	-6.8	6839.5	-2.5	240.1	-11.0	-	-	24 769	-6.1
33 Air Products	7411	17.7	880	48.0	604	52.1	10 040.4	6.0	126.7	4.6	816.0	-30.3	19 000	0.0
34 Polimeri Europa	7350	20.7	368	nm	-	-	-	-	-	-	134.0	-29.8	6565	-6.9
35 PPG Industries	7309	10.6	-	-	-	-	-	-	-	-	-	-	15 700	-1.3
36 Rohm and Haas	7300	13.7	-	-	497	77.5	10 095.0	6.1	263.0	10.5	322.0	-5.0	16 691	-3.2
37 Syngenta	7269	11.4	541	3.8	460	84.0	12 008.0	9.5	809.0	11.4	166.0	-21.3	19 536	2.5
38 Rhodia	7149	-10.0	-471	286.0	-846	-53.7	7402.6	-16.3	211.2	-16.6	269.4	-14.6	20 577	-10.8
39 LG Chem	6886	25.7	505	10.4	518	48.1	5486.9	19.3	-	-	-	-	10 000	0.0
40 Reliance Industries	6866	2.7	860	10.6	860	10.6	3356.0	2.0	-	-	23.0	-71.0	-	-
41 Yara International	6703	12.4	555	30.3	582	72.0	4260.0	3.4	21.0	7.9	-	-	7067	-4.9
42 Praxair	6594	17.5	1103	19.6	697	19.1	9878.0	18.9	77.0	2.7	-	-	27 020	6.2
43 Eastman Chemical	6580	13.4	-	-	-	-	5872.0	-6.0	154.0	-11.0	248.0	7.8	12 000	-20.0
44 Ineos	6500	-	-	-	-	-	-	-	-	-	-	-	10 000	-
45 Borealis	6265	26.0	376	612.8	150	1168.8	4250.9	0.3	55.5	2.5	259.9	61.3	4939	-1.9
46 Ciba Specialty Chemicals	6158	-3.8	455	3.5	273	-9.6	-	-	252.4	2.5	-	-	19 338	3.6
47 Sherwin-Williams	6114	13.1	632	10.1	393	18.4	4274.0	16.1	34.0	0.0	107.0	-8.2	28 690	11.3
48 Lyondell Chemical	5968	57.0	105	-	54	-	15 928.0	108.7	41.0	10.8	83.0	-69.0	10 800	222.4
49 Linde	5419	4.2	866	7.0	-	-	-	-	-	-	714.8	33.0	17 570	0.9
50 Transammonia	5300	32.5	-	-	-	-	-	-	-	-	-	-	-	-
	Sales	Operating profit or EBIT	Net profit	Total assets	R&D	Capital spending	Employees
Company	$m	Change, %	$m	Change, %	$m	Change, %	$m	Change, %	$m	Change, %	$m	Change, %	Number	Change, %
51 Nova Chemicals	5270	33.5	264	-452.0	262	835.7	5047.0	14.4	48.0	6.7	147.0	-6.4	4100	-4.7
52 Sasol	5255	-6.5	188	-23.9	-	-	-	-	-	-	-	-	-	-
53 Celanese	5069	10.1	130	10.2	-175	-218.2	-	-	-	-	210.0	13.5	9000	-5.3
54 Tosoh	5052	22.0	501	94.0	-	-	4794.0	13.0	-	-	409.0	116.0	-	-
55 Mosaic	4673	-	265	-	86	-	-	-	-	-	-	-	-	-
56 Engelhard	4166	12.1	-	-	231	0.9	3179.0	8.4	99.9	7.4	123.0	7.9	6500	0.3
57 UCB	4154	3.4	655	-0.6	491	6.8	7275.3	73.9	509.0	39.3	3425.1	286.9	11 403	-1.4
58 Repsol	4095	35.1	343	63.2	-	-	-	-	-	-	396.7	261.7	32 376	5.7
59 Kaneka	4085	9.4	402	34.3	231	58.4	3703.8	1.2	-	-	215.9	0.8	6649	0.8
60 Occidental Chemical	3675	18.9	-	-	-	-	-	-	-	-	-	-	2974	-3.7
61 Mitsubishi Gas Chemical	3624	14.1	288	106.7	352	99.8	4612.7	4.1	-	-	-	-	2277	-
62 Honeywell Specialty Materials	3497	10.4	-	-	184	35.3	-	-	-	-	156.0	8.3	-	-
63 Kuraray	3466	6.9	324	18.6	180	21.7	4443.0	10.1	136.0	1.5	446.0	41.9	6919	2.4
64 Wacker-Chemie	3443	3.0	264	-432.1	108	-183.7	3323.6	-2.0	205.8	0.0	494.1	9.9	14 688	-6.0
65 Orica	3430	14.3	401	25.1	238	224.8	3008.4	16.8	22.5	3.3	144.2	65.8	10 111	0.0
66 Kemira	3429	-7.5	194	30.2	76	0.3	2563.0	-0.9	-	-	-	-	7137	-32.0
67 Dow Corning	3373	17.4	442	29.8	238	34.9	-	-	-	-	-	-	8800	0.0
68 Showa Denko	3210	0.7	239	39.0	-	-	3599.0	-1.2	43.0	-1.6	74.0	-	-	-
69 Lubrizol	3159	53.9	-	-	-	-	4566.0	135.1	191.0	14.4	133.0	50.3	7779	54.6
70 NPC (Iran)	3138	37.4	-	-	121	-57.1	17 359.0	23.5	26.0	10.2	1404.0	-64.9	16 499	0.6
71 Cognis	3073	4.2	134	98.0	-46	-52.1	3404.8	-4.0	125.9	-7.9	178.7	8.2	8059	-6.9
72 Nalco	3033	9.6	-	-	-	-	5934.0	-3.7	-	-	92.0	-8.9	10 000	-4.8
73 Potash Corp of Saskatchewan	2901	17.6	-	-	268	248.1	5127.0	12.3	-	-	0.0	46.4	4906	0.0
74 JSR	2848	11.0	423	39.0	257	42.4	3031.4	5.3	149.5	6.2	169.1	5.7	4362	0.4
75 Agrium	2838	13.6	467	2124.0	276		2656.0	16.9	N/A	N/A	82.0	-17.2	4617	-1.1
76 Grupo Alfa	2738	24.0	209	19.0	44	124.0	2527.0	1.6	-	-	-	-	-	-
77 Israel Chemical	2715	19.6	355	74.9	251	143.7	3062.0	2.0	32.0	10.3	119.0	-5.6	8546	-2.6
78 Solutia	2697	11.0	5	-112.8	-115	27.8	2076.0	-15.1	-	-	61.0	-21.8	5700	-9.5
79 Givaudan	2680	-1.3	424	42.4	307	62.0	3767.2	-5.5	-	-	130.6	-5.7	5901	-1.3
80 Crompton	2550	16.7	-	-	-	-	2678.7	5.9	-	-	-	-	4800	-13.1
81 Valspar	2441	8.6	-	-	143	26.5	2634.0	5.5	76.0	8.6	-	-	7504	7.0
82 Asahi Glass	2349	25.9	-	128.3	-	-	-	-	-	-	146.1	53.7	-	-
83 Denki Kagaku Kogyo (Denka)	2342	3.0	200	19.1	98	121.1	-	-	46.2	-4.6	-	-	-	-
84 Ube	2312	15.2	-	-	-	-	-	-	-	-	-	-	-	-
85 WR Grace	2260	14.1	-	-	-402	628.8	3539.0	23.1	-	-	-	-	6500	3.2
86 PolyOne	2162	10.0	-	-	-	-	-	-	-	-	-	-	5233	-20.1
87 Tessenderlo Group	2078	5.4	137	23.2	58	-1.6	2235.1	4.0	28.2	2.9	238.3	47.9	8181	-0.6
88 FMC	2051	6.8	271	24.3	160	492.6	2975.0	5.2	93.0	6.9	85.0	-2.3	5300	0.0
89 IFF	2034	7.0	-	-	196	13.3	2363.0	2.4	175.0	10.1	71.0	7.6	5212	-4.4
90 Hercules	1997	8.2	227	-11.0	27	-40.0	2710.0	-0.0	43.0	10.3	77.0	60.4	4947	2.5
91 Cabot	1934	7.7	-	-	124	55.0	2426.0	4.3	53.0	-17.2	119.0	-7.8	4400	0.0
92 Lonza	1912	-9.9	188	-28.8	121	51.6	2927.7	0.9	62.2	2.9	-	-	5668	0.2
93 Millennium Chemicals	1888	11.9	7	-112.3	-31	-83.3	2497.0	4.1	-	-8.7	55.0	14.6	3420	-5.0
94 Honam Petrochemical	1886	33.7	314	124.1	517	154.1	2240	37.1	-	-	-	-	-	-
95 British Vita	1837	2.0	94	-9.3	113	84.4	-	-	-	-	-	-	7839	-5.1
96 PKN Orlen	1663	21.0	244	92.0	-	-	894.0	30.0	-	-	185.0	14.0	-	-
97 EVC	1654	18.4	52	-0.3	-72	103.8	471.3	-8.6	-	-	-	-	2918	0.2
98 Great Lakes Chemical	1604	12.5	53	-184.9	63	-222.4	919.0	20.9	-	-	-	-	3700	-2.6
99 Kemira Growhow	1567	1.5	71	37.0	45	-6.7	-	-	-	-	104.0	46.0	2901	-5.0
100 Asahi Denka Kogyo	1416	7.4	137	24.2	71	75.1	1661.3	6.0	-	-	-	-	-	-

US TOP 10

Company	Sales 2004	Change,?%	Net Profit 2004	Change,?%
Dow Chemical	40 161	23	2797	62
ExxonMobil Chemical	27 781	38	3428	139
DuPont	27 340	1	1780	78
Huntsman	11 486	62	-228	-320
Chevron Phillips Chemical	9238	34	707*	830
GE Advanced Materials	8290	17	710*	15
Air Products	7411	18	604	52
PPG Industries	7309	11	1068*	13
Rohm and Haas	7300	14	497	78
Praxair	6594	18	697	19
* operating income
SOURCE: ANNUAL REPORTS

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