S&P Sees European Growth Slowing In 2009

Standard & Poor's, the credit rating service, sees conditions for European chemical companies remaining good until 2009. There is now a risk, however, according to an S&P analysis, that demand could be hit and the industry outlook could be less promising if current financial market turmoil spreads to the broader economy.

Even without such a hit, S&P expects a downturn in the petrochemical cycle in 2009 as a result of overcapacity, assuming that demand grows at an annual rate of 3.5%. The report says weakening demand would affect all chemical companies, including specialty chemical and industrial gas producers, although these two sectors would suffer less severely than others.

Companies with lower credit ratings are more vulnerable to supply-and-demand changes, and they face the greatest risk in the coming quarters.

S&P also expects a slowdown in merger and acquisition activity following high activity in the past two years due to low interest rates and active participation by financial sponsors. Nevertheless, the report says, merger and acquisition activity is expected to continue at a moderate rate as chemical companies optimize and diversify product portfolios and target market share gains.