INSIGHT: Growth is slow and uncertain

25 November 2013 16:41 Source:ICIS News

By Nigel Davis

LONDON (ICIS)--Kurt Bock on Friday reiterated BASF’s cautious outlook for this year and the next. Financial analysts and others may have questioned the chemical giant’s sober assessment of the global economy when the third quarter financial results were released in October but the analysis put forward then holds true.

“We are still highly uncertain about the course and direction of the economy,” the BASF CEO told journalists in London. “We have seen volumes going up a little bit. Maybe in some countries the recession is behind us,” he said. But the volume increase BASF reported for the third quarter was accompanied by an overall price decline.

Bock would be a lot more confident if there were signs of a real upturn taking hold, in other words a good upswing in volumes and prices. The company right now does not see that.

“We are cautiously optimistic going into 2014,” Bock said, adding that BASF believes there could be some upturn in Europe next year and the US can continue to grow. “At least in our case, in China we have seen quite good volume development in 2013 and we have no reason to believe that 2014 will be worse,” he added.

To capture more growth - the company wants to grow at two percentage points above global chemicals growth - BASF has increased its capital spending budget over the past two years, Bock said. “I don’t think there are reasons to be concerned [about growth] overall,” he added.

BASF’s demand growth is likely to be driven by megatrends such as increased urbanisation, the demand for increased mobility and possibly different types of vehicles, energy conservation and the demands put on agricultural efficiency worldwide.

And new geographies are opening up for the company. Bock highlighted Africa where BASF has re-entered markets in Nigeria and Kenya. “This is a completely new frontier for chemicals,” he said, where BASF wants to double sales.

Industry data bear out Bock’s comments on the major regional economies and chemicals demand growth.

The latest economics report for the American Chemistry Council (ACC), for instance, shows that the US government shutdown had an impact on economic growth in September. One regional US manufacturing survey suggested slower growth in November.

The ACC highlighted the OECD’s concerns about the risk to global economic recovery that uncertainty over future US fiscal and monetary policy pose. The focus of negativity has shifted from the euro area to the US.

The latest chemical industry data from the US also are not encouraging with the ACC’s US Chemical Production Regional Index (US CPRI) edging lower in October following a revised decline in September.

Adding some colour to that, there is some encouragement to be had by the fact that the pace of decline had slowed in all regions of the US and that US Gulf Coast production was up in October. And there was growth in important industrial end-use markets. “Despite the partial government shutdown during the first half of the month, manufacturing production expanded at its fastest pace since February,” the ACC said.

Generally weaker growth in North America had helped keep the ACC’s global chemical production index (Global CPRI) flat in September.

On the encouraging side, chemicals output was stronger in Latin America, western Europe, Africa and the Middle East and Asia Pacific.

But industry growth is still constrained and only up 3.0% globally on a three-month moving average (3MMA) basis.

Global chemicals capacity utilisationGlobal capacity utilisation data illustrate the overall demand weakness. In September chemical capacity utilisation globally fell by 0.1 percentage points to 87.5% which is well below the 1987 to 2012 average of 91.0%.

Capacity utilisation is nowhere near pre-crisis levels although, again on a three-month moving average basis, was up 2.0% year on year in September.

The upward trend in chemicals demand growth and in capacity utilisation are encouraging signs for 2014 but not sufficient to engender great optimism in companies such as BASF.

In October, the company said it expected chemicals growth in 2013 to average 3.1% based on global industrial production growth of 2.7% and GDP growth of 2.0%.

It expected the Brent oil price to average $103/bbl.

Production Volumes (% Change Y/Y - 3MMA)

June 2013

July 2013

Aug 2013

Sept 2013

World Total – Chemistry

3.1

3.1

3.1

3.0

North America

2.0

2.3

2.2

1.7

United States

1.5

2.0

1.9

1.4

Canada

10.5

10.5

7.9

5.4

Mexico

-0.5

0.3

1.4

2.0

Latin America

0.3

-0.2

-1.6

-3.2

Brazil

1.6

1.1

-1.2

-4.1

Western Europe

0.6

0.8

0.4

0.3

Central & Eastern Europe

0.5

1.5

1.6

0.9

Russia

1.6

2.9

3.9

2.9

Africa & Middle East

3.3

2.8

2.2

1.6

Asia-Pacific

5.6

5.4

5.5

5.9

Japan

1.8

2.0

2.2

3.1

Asia-Pacific ex. Japan

5.4

5.5

5.7

6.2

China

6.3

6.0

6.1

6.5

India

9.1

8.8

8.6

7.7

Korea

4.6

4.7

4.4

4.1

Other Asia-Pacific

6.4

7.9

9.5

9.7

Source: American Chemistry Council

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By Nigel Davis