By John Richardson
CHEMICAL company third quarter financial results point to what has been apparent at ground level for some time now – a struggle to achieve volume growth over 2010.
My colleague Nigel Davis, who edits in the Insight section of ICIS news, wrote in this article last week:
“In the fourth quarter of 2011, and running into 2012, chemicals becomes again (it always is?) very much a costs game. The demand growth spurt following the 2008/2009 slump appears to be well and truly over.
This raises important questions about the future and about just what will sustain chemical company fortunes. Times look as though they are about to become hard again and a tough operating environment will expose companies again to industry fundamentals and long-term trends.”
The demand spurt he was referring to was the result of economic stimulus in China and elsewhere – and inventory building and cost cutting in all regions since the economic crisis of late 2008.
Underlying emerging market growth has been very strong after the distorting effects of the China stimulus – which brought forward demand – are discounted.
But what is clear as we enter the fourth quarter is that the strength of the emerging markets is not by itself enough to compensate for long term weakness in Europe and the US.
And as we shall discuss tomorrow, as we summarise Chapter 6 of our e-book, Boom, Gloom & The New Normal, China and India faces long term challenges to their growth models. These challenges have affected chemicals volume growth during 2011.
Here are a few highlights from the third quarter results season that point to the problems we have highlighted above:
*Dow Chemical saw 15 per cent earnings per share growth in Q3, but volumes were either flat or declining across its various product divisions. CEO Andrew Liveris said that there were “jagged economic conditions over the near term”.
*SABIC saw a 53% growth in net profits in Q3 over the same quarter last year. But the company admitted that this was the result of volume gains from more stable production at new plants. Sequential sales and net profit growth were, however, flat.
*INEOS saw strong phenol and acetone demand on structurally tight markets. However, it added that polyolefin margins were weak in Europe with demand in Asia slowing down. Q3 EBITDA was down by 20 per cent.
*Akzo Nobel’s group earnings before interest, tax and amortisation were down by 12 per cent during the third quarter. It is being forced to implement Euros500m to maintain profits in the face of higher raw material costs, lacklustre demand and a margin shift in its product mix.