Stabilisation in the Chemical Industry Economic Recovery Brings Stable Growth for Chemicals

Editor: Dominik Stephan

With improving economic stability in several core markets, the chemical industry is looking forward to witnessing a period of stable growth: Market analysts Moody's expects companies EBITDA to rise by about 2.5%-3.5% on average through mid-to-late 2015.

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(Picture: PROCESS)

But there are some dark clouds that could spoil the sunny outlook: Especially the tensions between Russia and Ukraine and continued signs of a modest slowdown in China pose serious risks for economic developments. Especially companies with in Ukraine or Russia, including BASF, Syngenta, Akzo Nobel and Solvay will have o plan their steps carefully, Moody's states.

Apart from these uncertainties, producers of chemicals will benefit from improving economic growth in 2014 with global GDP growing 3%, up from 2.2% in 2013. Europe’s recovery will be slow by historical standards, the analysts believe. GDP growth in China, the world’s second largest economy and a large consumer of chemicals, will slow to a still-healthy 7.0% in 2014 from 7.7% in 2012-13.

US Chemical Industry Enjoys Gas Induced Boom

Companiesin the US will experience higher growth in earnings, while 'Old Wold' firms will have to watch their costs carefully: Profitability for some European chemical companies will depend on their cost-cutting and restructuring activities. North American chemical producers will continue to enjoy feedstock advantages, due to the boom in unconventional shale gas.

The profitability of chemical companies is, therefore, largely dependent on global macroeconomic conditions and input costs: North American producers of ethylene, methanol and ammonia-based fertilizers—including Chevron Phillips Chemical, Agrium, CF Industries, Dow Chemical, Methanex, LyondellBasell Industries, Westlake Chemical and NOVA Chemicals will show continued strength through 2015, amid low feedstock prices. European producers Akzo Nobel, Ineos and Kerling will all see continued strain from high feedstock prices and weak demand.

Chemical Industry – A Target for Big Money?

Shareholder activism will continue as chemical companies’ free cash flow increases. In fact, shareholder pressure will influence behavior even at companies that activists do not specifically target. Chemical producers generally have good liquidity today, giving them the financial flexibility to invest in their businesses and weather a cyclical industry downturn.