Issue Date: July 25, 2011
Global Top 50
In the U.S. and Europe, the economic recovery has been slow and fragile. Monthly job reports show persistently high unemployment and anemic job creation. Economists fret over whether the Chinese government will be able to cool down economic expansion to a sustainable level without causing a crisis that slows growth everywhere. And the sovereign debt crisis in Greece has been inviting comparisons to the U.S. subprime mortgage meltdown of a few years ago.
Foreboding trends, but economists would be hard-pressed to find clues to them by looking at the data contained in C&EN’s survey of the Global Top 50 chemical companies. The statistics, based on 2010 company results, show that the chemical industry has made a strong recovery from 2009. In fact, the industry is performing better than it has in more than a decade.
Combined sales at the 49 firms in the survey with comparable year-over-year results reached $857 billion in 2010, an increase of 25.3%. The companies achieved their combined sales peak in 2008 with $892 billion in revenues. Of the 50 firms in this year’s survey, only two—Sasol and Mosaic—posted declines in sales.
Profits made 2010 an outstanding year for chemical makers. Operating profits for the 47 firms with comparable results soared 80.4%, reaching $93.6 billion. Although 2008 was the high-water mark for industry sales, profits for the Top 50 chemical firms were only $60.0 billion that year.
The aggregate profit margin for the group in 2010 was 11.4%. One would have to go all the way back to 1995, when the industry posted a 13.7% margin, to find better profitability.
Individual company results were even more amazing. Only one company, Eni, posted a loss, and only Syngenta and Mosaic posted profit declines. Twenty firms posted at least triple-digit gains in profits. Three companies—Borealis, Arkema, and Showa Denko—had gains of more than 1,000%.
Still, with sluggish growth and job creation in the U.S., an unsettled debt crisis in Europe, and questions over China’s economic sustainability, economists have concerns about the strength of the recovery and even the prospect of another economic downturn.
Frederick M. Peterson, president of Ha nover, N.H.-based consulting group Probe Economics, says such factors may dampen the recovery but won’t scuttle it. “The recovery is maturing somewhat,” he says. “It has certainly hit a soft spot right now and has been in one for a while.”
The leading-edge performers in this year’s Global Top 50 tend to be petrochemical companies. Observers had long expected that all of the new capacity petrochemical makers were opening in 2010 would haunt the industry, but that didn’t happen. Developing countries, particularly China, proved to have an insatiable need for chemicals to fuel their industrial expansion.
The petrochemical makers in the top 10—Sinopec, ExxonMobil, Shell, Formosa Plastics, Saudi Basic Industries Corp. (SAB IC), and LyondellBasell Industries—each posted gains in revenues of at least 30%. All of them also enjoyed strong profit gains.
Petrochemical makers with operations in the U.S. benefited from cheap raw materials resulting from the development of shale natural gas. This new gas source has shifted the center of gravity of the global petrochemical industry toward the U.S. again. Since the beginning of the year, Shell Chemicals, Dow Chemical, and Chevron Phillips Chemical all have announced ethylene cracker projects tied to shale.
Probe’s Peterson cautions that the U.S.’s newfound advantage probably won’t last forever. Although the U.S. was the first country to develop shale resources, shale gas formations exist all over the world, even in China. It is only a matter of time before these are developed. He also says lower prices will induce greater consumption of gas in the U.S. “You can project a five-year advantage,” he says. “I don’t think you can project a 10-year advantage necessarily.”
Despite the volatile changes in sales, the pecking order in C&EN’s ranking is little changed from previous years. BASF, Dow, and Sinopec are the top three chemical firms once again this year. Nearly every other firm is ranked close to where it was in last year’s survey.
Mergers and acquisitions normally leave a big mark on C&EN’s ranking, but few large transactions were consummated in 2010. The only dramatic acquisition-related change to the ranking is Brazil-based Braskem’s rise from 37 to 22, thanks to its purchases of Sunoco’s polypropylene business and of its Brazilian rival Quattor.
Deals promise to make a larger impact in the future. For example, Solvay’s planned purchase of Rhodia for $4.8 billion should create a company that would have had 2010 sales of $15.9 billion, enough to rank it at number 20.
In February, Clariant, number 45 in the ranking, launched a $2.6 billion bid to buy Süd-Chemie, an acquisition that should raise Clariant’s rank next year. Ashland inked a deal to purchase International Specialty Products for $3.2 billion. The two companies combined for $5.6 billion in 2010 chemical sales, a size that will put Ashland within striking distance of future rankings. DuPont recently completed its purchase of Danisco for $6.6 billion, but the deal is largely nonchemical.
Alasdair Nisbet, global head of chemicals at the investment bank Lazard, had been expecting a number of midsized transactions of $500 million. Many such deals have been struck, with strategic buyers and private equity firms active on both sides of the transactions. There have also been a number of bigger ticket mergers.
“Many companies have been strongly cash generative and built up surplus cash to spend whilst private equity are keen to invest their committed capital,” Nisbet says in explaining the deal activity. “Most of the companies that I talk to at the moment are either worried about being bid for or about how they can deploy the cash that they have on their balance sheet.”
In petrochemicals, companies have been choosing to deploy that cash in capital projects rather than acquisitions, especially in the shale-rich U.S., Nisbet says. This is one reason many of the bigger deals have been in the specialty chemical sector. “There have been a number of announcements of new capacity in the U.S. rather than acquisitions,” he says. Two other sectors due to see transactions are coatings and fertilizers, he notes.
The rising number of transactions should create more excitement next year. And if sales and profits improve further in 2011, C&EN’s Global Top 50 chemical companies may set even more records.
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