FocusGlobal downturn haunts chems firms

31 October 2008 10:35  [Source: ICIS news]

By Bohan Loh

 

SINGAPORE (ICIS news)--As the third installment of the earnings season draws to a close, it seems no big names in the global petrochemicals industry have been spared the horrors of the worldwide economic downturn, sources said on Friday.

 

“The contraction in growth is not surprising. However, the extent of the [expected] recession may not have been fully reflected in those numbers yet,” said Fang Lei, a petrochemical analyst from Shanghai-based brokerage Industrial Securities.

 

BASF, the world’s largest chemical company, on Thursday reported a 37.5% plunge in third-quarter net profits to €758m ($583.67m), marking its first period of earnings contraction since the fourth quarter of 2007, where it booked a mere 5.6% fall.

 

“The impact of the global financial crisis on the real economy is speeding up and hitting harder,” said BASF chairman Jurgen Hambrecht.

 

Belgian’s Solvay group extended its poor showing since the beginning of the year and reported a 68% plunge in net earnings on investment impairments in troubled Fortis bank, which had recently been partially nationalised.

 

The chemicals arm of Royal Dutch Shell was the first to go into the red, meanwhile, and this week booked a $79m loss for the third quarter on margin erosion and weakening sales volume amid the global downturn.

 

In the Middle East, traditionally feedstock cost advantageous Saudi Basic Industries Corp (SABIC) ended eight consecutive quarters of continuous growth in earnings on an international decline in demand for products and finished its third quarter with a 2% fall in net profits.

 

"The expected global recession may lead to a decline in demand for products in most of the international markets," SABIC’s vice-chairman and CEO Mohamed al-Mady said.

 

Chinese majors have not been immune to the crisis, with Sinopec hit by free-falling chemicals prices and persistently squeezed refining margins, which led to it posting a 39% fall in third-quarter earnings on Thursday, even after receiving yuan (CNY) 11.7bn ($1.71bn) in government subsidies meant to offset losses arising from its tight rein over domestic oil product prices.

 

Rival state-owned PetroChina reported a 30% rise in net profits at company level but did not provide the financial performance of its chemicals segment.

 

Shanghai Petrochemical extended its losses from last year to CNY2.3bn for the three-month period ended 30 September and warned investors of even more significant losses for its fourth quarter over uncertainty about financial subsidies for its oil refining operations.  

 

In the US, Dow Chemical’s third-quarter earnings per share (EPS) slumped 29% on damages to its facilities sustained from hurricanes Gustav and Ike in the US Gulf coast in December, coupled with a staggering 48%, or $2.6bn, surge in feedstock and energy costs.

 

"In our view, we will likely see a global recession through most of 2009," said Dow CEO Andrew Liveris.

 

Oil and gas giant ExxonMobil forecast a $500m cut in fourth-quarter earnings as a result of the negative impact of Gustav and Ike, following the announcement on Thursday that its chemicals business recorded a 9.5% fall in net profits amid margin and volume erosion.

 

“Looking back, I think the storms in the US Gulf just added insult to hurt,” said Fang.

 

DuPont also marked a 30% decline in earnings to $367m and attributed the depressed numbers to the weakened global economy coupled with hurricane damage.

 

“There are no signals to indicate that demand for petrochemical products will recover anytime soon, prices of some products may have room to decline further,” Fang said.

 

Judith Wang contributed to this article

 

($1 = €0.77/$1 = CNY6.84)

 

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Author: Bohan Loh
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