Europe chems companies to underperform North America in 2015: Moody’s

LONDON (ICIS)–Chemicals industry earnings in Europe, the Middle East and Africa (EMEA) and North America are likely to grow by 5-7% year on year in 2015, but European companies are likely to underperform their North American rivals, ratings agency Moody’s said on Wednesday.

Stronger North American domestic growth and the feedstock advantage conferred by the development of the shale gas industry are likely to buoy earnings before interest, taxes, depreciation and amortisation (EBITDA) for North American players above their European counterparts, Moody’s said.

However, a growing trend for shareholder activism in deciding the strategic direction of chemicals producers, as long as mergers and acquisitions activity and the potential for a deeper economic slowdown in China, pose risks for producers in all regions, the agency added. The prospect of further economic sanctions for Russia could also have an impact on chemicals industry EBITDA, Moody’s added.

Private equity ownership in the sector is likely to continue to increase, with divestments from European company restructurings likely to drive that trend, while new ethylene capacity is likely to keep pace with reduced growth, limiting margin improvement.

The limited scope for ethylene margin recovery means that European capacity should be rationalised more aggressively than is currently anticipated, Moody’s added, estimating that 6% of current capacity in the region is slated for shutdown.

“European growth will weaken, but commodity margins will make modest improvements in 2015, thanks to weaker oil prices,” said John Rogers, senior vice president at Moody’s.

“Financial policies will constrain companies’ investment and organic growth and exports will be challenged despite a weaker euro,” he added.

Europe is to remain the highest-cost region for ethylene, and European naphtha remains the highest-cost petrochemicals production feedstock compared to Asian naphtha, North American natural gas, and US ethane and propane, according to Moody’s.


Source: Moody’s

Producers of specialty chemicals for the medical and personal care, food and beverage, and coatins markets will see some of the strongest performances of 2015, along with North American ammonia producers, while producers of materials for the European construction sector are likely to face the weakest 2015, Moody’s added.

The forecast is based on underlying assumptions that global GDP growth in 2015 will by 2.5%, and factors in a continuing slow European recovery. A global slowdown with recession in the US and Europe would be likely to reduce producer earnings by more than 10% below their current levels, Moody’s added.