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Chemical industry results confirm major recession is underway

Economic growth
By Paul Hodges on 30-Apr-2023

The chemical industry is always the best leading indicator for the global economy. It is the third largest industry in the world after energy and agriculture.

And its products go into every country, and most application areas – including pharmaceuticals, plastics, paints, adhesives, textiles and a vast range of others.

It successfully forecast the Great Financial Crisis in 2008, as well as most of the key events since then. And today, with Q1 results being reported, it is clear that a major downturn is now underway as the chart confirms:

  • Dow Chemical.GAAP loss per share was $0.13; operating earnings per share was $0.58, compared to $2.34 in the year-ago period.  GAAP net loss was $73m …, with declines in all operating segments due to lower local prices and reduced operating rates to match market dynamics. Our actions to deliver $1bn in cost savings in 2023 are progressing, reinforcing our low-cost-to-serve operating model and continuing to maximize cash flow generation.”
  • BASF“Global chemical production stagnated in Q1 2023. Sales decreased considerably, mainly due to lower volumes. Earnings declined, mainly due to lower contributions from upstream businesses. Measures to increase competitiveness are being implemented.”
  • ExxonMobil Chemicals.  “Compared to the same quarter last year, earnings decreased by $1bn ($371m versus $1.4bn) on weaker industry margins and lower sales, reflecting softer market conditions.
  • Covestro. “Persistently weak demand, driven especially by lower consumer spending. The adverse macroeconomic conditions impacted above all on the volumes sold in the Europe, Middle East, Latin America regions. Group sales were down 20.1% to €3743m versus €4683m due to lower volumes sold (as well as) the lower selling price level.

These 4 companies represent a wide range of business areas.  BASF is European-based and is the largest chemical company in the world, with a wide variety of products. Dow is the largest US-based company, and 3rd largest in the world.

ExxonMobil Chemicals is the 7th largest with excellent upstream integration into oil and gas feedstock. Europe-based Covestro is a top 20 company with a focus on major consumer-facing businesses.

And they are not alone. China-based Sinopec is the world’s second-largest chemicals business. And despite the end of the Zero-Covid policies, it posted a Q1 operating loss of RMB 1.8bn (-$260m) versus Rmb 1.3bn profit in Q1 2022. It said this was due to:

“Severe challenges resulting from the concentrated release of chemical capacity and fierce competition.”

Essentially, therefore, all the world’s major economies are in a major downturn. And we can now expect to see a second leg of the downturn start, as companies cut back spending and fire people.

In turn, we will now see second and third-order impacts – just as waves crash into each other when they reach the shore, creating backwash and dangerous currents.

Interest rates have been rising for a year in Western economies. And real estate, autos and other key areas are already suffering. In turn, the banking system is coming under pressure with Credit Suisse, Silicon Valley Bank and First Republic already casualties.