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Global demand slowdown hits chemical industry results

Chemical companies
By Paul Hodges on 15-Aug-2016

ACC Aug16Its not been a great 6 months for the global chemical industry, and my usual quarterly survey of company results confirms the disappointment.

The first half of the year is typically the strongest, for seasonal reasons, as companies come back to work after the Christmas holiday and prepare for the peak car-buying and construction periods – before consumers head off on their summer holidays.  But as the chart of global capacity utilisation (CU%) shows, the CU% has fallen every single month since January.  This has only happened twice before – in 2001 and 2008 – in the 30-years that the American Chemical Council has been collecting the data. And neither year turned out well for the global economy.

This downbeat macro environment has had its effect on company results.  Akzo Nobel report that “the market environment in 2016 remains uncertain”, whilst industry leader BASF talks of “challenging market conditions”. Unusually, reports from major distributors are also downbeat, with Brenntag describing “persistently weak demand in N America” and Univar talking of “sluggish industrial demand”.

And since Q2, we have had the Brexit vote, and the continuing turmoil in currency, oil and bond markets.  It would be a surprise, to say the least, to see a recovery being reported at the end of this quarter.  Realistically, companies and investors would be wise to assume, as their base case, that the best of 2016 is already behind us in terms of both volume and profits.

Air Products. “Sales revenue was down slightly”
Akzo Nobel. “The market environment in 2016 remains uncertain, with challenging conditions in several countries and segments. Deflationary pressures and currency headwinds are expected to continue.”
Arkema. “Varied geographical exposure allows it to weather subdued economic growth in Europe”
Ashland. “Weak energy markets also dragged down sales”
Axiall. “Representing the fourth consecutive quarter of losses, company performance remains weighted by lower PVC, VCM and chlorinated derivatives prices”
BASF. “A continuation of the currently challenging market conditions along with substantial risks”
BP. “Stronger operations and margin optimization in a petrochemicals environment similar to the same period of 2015”
Braskem. “Sales rose due to higher volumes, whilst the Brazilian real weakened 14% year on year.
Brenntag. “Persistently weak demand in North America”
Celanese. “Lower general expenses and a decline in spending for research and development”
Chemours. “Lower costs were offset by asset-impairment charges”
Chevron. “Reflected lower oil prices and our ongoing adjustment to a lower oil price world”
Clariant. “Continued challenging economic environment”
Covestro. “plant utilization rates are improving, allowing us to realize higher core volumes and increase profitability,”
Croda.” we remain cautious given the continued economic uncertainty”
Dow. “Pace of economic growth remained uneven across the major geographies”
DSM. “Global macro-economic developments remain a concern”
DuPont. “growth in volumes was more than offset by pressure from local prices, currency exchange issues and product portfolio”
Eastman. “olefin spreads have decreased and the company is facing more competition from the Asia Pacific region”
ExxonMobil. ““Volume and mix effects increased chemicals earnings”
Hexion. “Diversified portfolio largely offset economic volatility in Latin America and softer oilfield proppant results.”
Honeywell. Segment margins contracted 20 basis points, to 21.1%, on lower volume and continued investments for growth.
Huntsman. “Our MDI margins are expanding, our Performance Products margins are healthy and our advanced materials business is maintaining strong margins”
INEOS. Stronger market conditions in Europe because of a weaker euro were offset by market weakness and turnarounds in Asia
Kronos. “Manufacturing and raw-material costs had fallen year on year”
LG Chem. stabilising feedstock prices and peak seasonal demand for its products
LyondellBasell. “Continued strong polyolefin performance and seasonally stronger fuel margins”
Medichem. “Costs arising from the explosion at the Parajitos vinyl chloride monomer plant”
Olin. “Net loss narrowed amid lower restructuring charges”
Mitsubishi Gas. Higher earnings from its engineering plastics-related subsidiary”
OMV. “Lower propylene margins”
Oxiteno. “Sales fell while costs remained steady”
PKN Orlen. “Devaluation of the Polish currency helping to counter negative outcomes such as decling petrochemical margins”
PPG. “stronger earnings from performance and industrial coatings”
PTT. “Lower product prices and an outage at a cracker unit”
Pemex. “Pemex is producing less feedstock, be it methane, ethane, olefins or aromatics”
Petron. “Higher sales volumes and strong margins”
Petronas. “Product prices fell in tandem with plunging crude oil prices”
Phillips 66. “Higher polyethylene sales prices and margins”
Polyone. “Overall, economic conditions remain sluggish”
Praxair. “Globally, consumer-related end-markets remained healthy”
Reliance. “Strong operating performance from refining and petrochemicals businesses coupled with favorable exchange rate movement enhanced the operating profit,”
Repsol. “Sales volumes rose by 3.7% year on year”
S-Oil. “higher margins offset the decline in revenues”
SABIC. “Lower average sales prices”
Sahara. “strong sales and production”
Saudi Kayan. “lower feedstock costs and improved operational performance”
Shell. “Weaker intermediates demand and reduced availability”
Sherwin Williams. “good sales on store
Shin-Etsu. “Shipments of PVC increased overseas, but domestic shipments fell amid plant turnarounds”
Siam Cement. “strong earnings growth from its core chemicals business”
Sipchem. “ lower selling prices of products offsetting higher production and sales volumes”
Solvay. “A context of lower raw material and energy costs”
Sumitomo. “Weighed down by the strength of the Japanese yen”
Synthomer. “Total volumes in Europe were broadly flat”
Tasnee. “ operational improvement and lower feedstock costs”
Technip. “Strong subsea performance”
TOTAL. “refining and chemicals business posted a 23% year-on-year drop in its adjusted operating income”
Trinseo. “Lower costs in raw materials partially offset by higher sales volumes and favourable exchange rates”
Tronox. “We believe pigment inventories are normal or below normal at both customer and producer levels across the globe”
Ube. “Weak caprolactam market conditions”
Univar. “As expected, we continued to face challenges in the second quarter with sluggish industrial demand, negative comparisons in upstream oil and gas, and lower average selling prices”
Wacker. “Risks for the global economy remain high”
Westlake. “Production problems, costs associated with recent acquisitions and pending acquisitions”

My weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments:
Brent crude oil, down 57%
Naphtha Europe, down 58%. “Naphtha market long; gasoline price gains falter, resume”
Benzene Europe, down 51%. “The spike in European pricing in July was driven by production problems in the region”
PTA China, down 41%. “Given the current macroeconomic factors and rangebound crude oil levels, prices are not expected to swing upwards by much”
HDPE US export, down 33%. “Talk circulated of lower prices”
S&P 500 stock market index, up 12%
US$ Index, up 17%