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Chemical companies see difficult times ahead in 2016

Chemical companies
By Paul Hodges on 02-Mar-2016

New NormalThe chemical industry remains the best leading indicator for the global economy.  That much is clear from the warnings it has delivered over the past year:

It really is a clear and consistent track record.  And it is far superior to the performance of financial markets, who find themselves at the mercy of central bank manipulation – with vast amounts of electronic money being forced on investors, who have to then bid up prices in response – as happened again, yesterday.

So what do latest company statements tell us about the outlook in detail?

  • US companies are no longer confident of riding out the storm due to the collapse of their feedstock cost advantage and the rise of the US$
  • European companies see no recovery in end-user markets, but have been supported by lower oil prices and currency values
  • The Middle East has seen margins hit by lower oil prices, whilst Asia has been in the eye of the storm as China slows

The key issue is that we are moving into the New Normal world, as we discuss in our major new Study, Demand – the New Direction for Profit.  China’s slowdown and the collapse of oil prices highlight that we are seeing a paradigm shift in demand patterns.  Companies, as the chart highlights, can no longer rely on previously successful supply-driven business models.

Instead, as I will discuss on Monday, we all have to relearn how to operate demand-led models again.

The summary of 2015 company results is as follows:
Air Products. “Unfavourable currency and lower energy pass-through of 5% each more than offset volume and pricing increases of 1%”
Air Liquide. “Improved margins and revenue”
Akzo Nobel. ““We expect 2016 to be a challenging year. Difficult market conditions continue in Brazil, China and Russia. No significant improvement is anticipated in Europe, particularly in the Buildings and Infrastructure segment. Deflationary pressures continue and currency tailwinds are moderating”
Ashland. “Income down 11% due to a drop in sales”
BASF. “In the chemicals segment, the good earnings of the first three quarters of 2015 will not be matched and a significantly lower contribution is expected”
Axiall.”Sales fell because of lower values for chlorine and caustic soda”
BP. “Improved operational performance and benefits from our simplification and efficiency programmes leading to lower costs”
Braskem. “Brazil’s petrochemical industry should face a challenging year similar to the one in 2015, when domestic sales contracted 5.4% and domestic demand for chemicals fell 6.8%”
Celanese. “We took a number of steps to improve our competitive position”
CP Chem. “Reduced margins, as well as decreased equity earnings”
Covestro. “All three regions in which the company operates recorded comparable volume growth last year”
Dow. “Global economy continues to be volatile with consistent demand being driven by the consumer”
Clariant. “Have been able to offset the negative impact of the stronger Swiss franc”
DSM.”Intends to reduce costs and control its capital expenditure”
DuPont. “Lower ethylene prices and volumes, together with a negative currency impact of $19m, could not offset cost reductions, continued productivity improvements and increased demand in the auto sector”
Eastman. “Attributed the decline to propane hedges and lower sales volumes from acetate tow”
Enterprise. “2015 was very rough for our industry, and 2016 appears to be even more difficult given the low pricing environment”
ExxonMobil. “Lower margins, as well as unfavourable foreign exchange, tax and inventory effects”
Honeywell. “Favourable impact of raw materials pass-through pricing in its Resins & Chemicals business”
Huntsman. “We expect continued EBITDA pressure on our cyclical businesses”
INEOS. “Weakening markets in Asia, particularly China”
LG Chem. ““Overall sales have decreased due to slow recovery of the global economy and oil price plunge”
Lonza. ““Healthy market demand, combined with significantly better operational performance bolstered the strong results”
LyondellBasell. “Record performance from our olefins and polyolefins – Europe, Asia and International, intermediates and derivatives, and technology segments”
MOL. “Downstream general environment will be still supportive for our industry”
OMV. “Higher refining margin and petrochemical results”
Oxiteno. “Sharp slowdown in Brazil”
PPG. ““Results improved despite the persistent, unfavorable impact of weaker foreign currencies”
Petronas. “We expect the market to continue to be challenging moving forward”
PetroRabigh. “Petrochemical margins were low last year because of the slump in crude prices”
Praxair. ““The macro-economic headwinds faced in 2015 from negative currency translation and the slowdown in global industrial activity have not yet abated”
Reliance. “Falling feedstock costs have allowed for margin expansion”
Repsol. “Improved margins at the chemicals business”
SABIC. “Average selling prices of its products, particularly in the metals segment, slumped”
Sasol. “Negatively impacted by challenging and highly volatile global markets, marked by a steep decline in global oil and commodity chemical prices, partly offset by a weaker rand exchange rate”
Saudi Kayan. “Higher sales volumes were offset by declines in average selling prices of products”
Shell. “Contributions from the chemicals business fell mainly as a result of weaker base chemicals and intermediates industry conditions”
Sipchem. “Selling prices of its products declined”
Solvay. “Sales were mainly supported by a favourable impact of favourable exchange rates of 7%”
Synthos. “Weakening market conditions and the problems related to Litvinov”
Tasnee. “Steep decline in selling prices and higher expenses”
TOTAL. ““Petrochemical margins in Europe increased in 2015 due to strong demand for polymers and the decrease in raw material costs”
Unipetrol. “significant decline in petrochemical production and sales volumes of petrochemical products due to Litvinov outage”
Univar. “Sales fell across all regions it operates in during the fourth quarter”
Vopak. ““Looking ahead, we expect 2016 occupancy rates of our global terminal network to exceed 90%”
Westlake, “Higher sales volumes could not offset lower selling prices”