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Q3 results suggest need for new strategies, business models

Chemical companies
By Paul Hodges on 09-Nov-2015

ACC Nov15

Global chemical production growth continues to slow from the peak of 3.7% seen in April 2014.  September’s reading from the American Chemistry Council was down to 3%, with most major regions showing a decline:

  • Asia has halved from 6.4% to 3.2%; ME/Africa has fallen from 6.1% to 3.5%; Latin America is negative at -3.2%
  • W Europe has fallen from 4.1% to 3.2%, with Germany having more than halved from 4.7% to 2.1%
  • N America peaked at 5.3% in February 2015, but has also since halved to 2.4%
  • Only Central/Eastern Europe is seeing strong growth at 9.2%, with the rouble’s collapse pushing Russia up 15%

Unsurprisingly, the slowdown is reflected in my quarterly round-up of chemical company profits.  A year ago, I suggested that Q3 2014 results seemed like “the end of an era“, and there seems little reason to change that view today.  Most companies are now suffering from the slowdown, with BASF speaking for many when they report that “We remain cautious, as at this point in time the outlook is very difficult to interpret“.

As I noted then, 2 key issues are driving the downturn:

  • China’s slowdown is causing major problems for those dependent on exports for growth
  • The return of oil prices to more normal levels has wrecked N American hopes of a shale gas-based boom

There are also few signs of improvement on the horizon.  Companies have rightly not panicked at the first sign of trouble.  But there comes a point when new strategies and business models have to be developed, to cope with a rapidly changing world.  I suspect that this will become a major theme as we move through 2016.

The full summary of reports is below.

AkzoNobel. “Many markets in which the company operates in have become more challenging over the last quarters with very difficult performance in key countries like France”
Alpek. “Better than expected margins in plastics and chemicals”
Ashland. “Decline due to the divestment of non-core product lines, unfavourable exchange rates and lower demand from energy markets in North America”
Axiall. “Reducing headcount in both our Chlorovinyls and Building Products businesses”
BASF. “We experienced a pronounced summer lull and no volume momentum in September..We see a pronounced slowdown in Asia/China. We remain cautious, as at this point in time the outlook is very difficult to interpret”
BP. “Result for the quarter was impacted by a weaker environment”
Borealis. “Polyolefins chain margins that bolstered the company’s performance had started to soften in the second half of the quarter”
Celanese. “Dramatic year-over-year currency headwinds, stress in global macroeconomic environments, and the recent slowdown in China”
Clariant. “Challenging environment, characterised by an increased volatility in commodity prices and currencies, to continue”
Covestro. “(Covestro, formerly Bayer MaterialScience), posted EBITDA growth of 16.5% in the third quarter, with sales 0.9% lower.
DSM. ““It is increasingly difficult to predict macroeconomic developments”
Dow Chemical. “We see demand from China’s consumer economy rather than from the export economy”
DuPont. “Amid the current challenging macro environment, our priority is to aggressively manage what is within our control”
Eastman. “Lower selling prices and unfavourable foreign exchange rates”
Evonik.“Strong margins and higher selling prices of products”
ExxonMobil. “Overall sales and earnings shrank on the back of unfavourable currency exchange effects and low crude oil prices”
Honeywell. “Successful retention of margins from lower raw materials costs for the resins and chemicals division”
Kemira. “Lower sales volume were compensated by higher selling prices”
Linde. “Increased sales and better performance by its gases division”
LG Chemical. “Satisfactory performance of differentiated products in accordance with stabilized feedstock price and spread”
LyondellBasell. “Markets rebalanced following tight second quarter supply and the price of crude oil declined”
Mexichem. “Face substantial headwinds from the depreciation of key currencies”
Olin. “Drop in chlor-alkali sales and volumes”
Mitsui Chemical. “Higher sales volumes, improved price margins and a weaker Japanese yen”
Oxychem. “Lower costs for ethylene feedstock in the company’s vinyls production chain slightly offset by lower vinyls prices”
PPG. “overall moderation in global economic conditions”
PKN Orlen. “Petrochemical installation shutdowns and inventory revaluations that restrained profitability”
PEMEX. “Production fell across every segment except aromatics and ethane derivatives”
PetroChina. “Better margins as the falling oil prices translated into lower cost of production”
Petron. “Higher sales volumes amid stable prices”
PolyOne. “To drive growth in a challenging macro-economic environment, we have increased our sales force by 6%”
Praxair. “Weaker underlying industrial activity in Brazil and China and in the metals, energy and manufacturing end-markets in North America”
Petronas. “Higher sales volumes, favourable exchange rate movements and lower feedstock costs”
PetroRabigh. “Lower margin of petrochemical products, continuous decline in crude oil prices, low lifting by marketers as well as building inventory level to sell during the total complex shutdown in Q4”
Reliance. “Strong polymer deltas and healthy polyester chain deltas had supported earnings alongside higher volumes”
SABIC. “Lower average sales prices despite the reduction in cost of sales”
Saudi Kayan. “drop in production, sales volumes and selling prices”
Sahara. “increased production and sales”
Siam Cement. “Strong margins boosted earnings at its chemicals segment”
Shine-Etsu. “A recovery in polyvinyl chloride (PVC) demand in the US”
Sipchem. “Lower selling prices and profit margins”
Shell. “lower oil and gas price outlook and the firm steps we are taking to review and reduce Shell’s longer-term option set”
Sinopec. “Ethylene prodocution rose 5.3%…China’s equivalent consumption rose 3.2% over the course of the first nine months of the year”
Solvay. “Weakness observed in the Asian markets was not expected by the beginning of the year”
Tasnee. “Sales volumes and average selling prices of products declined”
Technip. “Overall, we reiterate our expectations for a prolonged and harsh downturn”
Trelleborg. “Margins improved on the back of stringent cost controls”
TOTAL. “Strong demand for polymers and the fall in oil-linked raw material prices”
Unipetrol. “Partially made up for the Litvinov decline with improved refinery product sales”
Wacker. “Lower special income from solar sector customers”
Westlake. “Oil market volatility and an uncertain global recovery”

WEEKLY MARKET ROUND-UP
My weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments: 
Brent crude oil, down 54%
Naphtha Europe, down 50%. “An unexpected spur in transatlantic gasoline trade following refinery outages at the US Gulf Coast”
Benzene Europe, down 55%. “In the second half of the week the mood turned bearish as both energy and global aromatics values eased”
PTA China, down 41%. “Market fundamentals are expected to turn increasingly balanced for the last two months of this year, as PTA plants in northeast Asia resume production”
HDPE US export, down 35%. “Prices for domestic exports remained stable”
¥:$, down 20%
S&P 500 stock market index, up 7%