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Industry Weathers Storms

Hurricanes and Wall Street crisis just graze chemical firms

by Michael McCoy and Patricia Short
September 29, 2008 | A version of this story appeared in Volume 86, Issue 39

Between hurricanes that brought the Gulf Coast to a standstill and a financial crisis that is bringing Wall Street to its knees, the U.S. economy is going through a lot these days. Surprisingly, though, the impact on the chemical industry's finances so far has been muted.

Hurricanes Gustav and Ike did figure in trimmed earnings estimates announced last week by Air Products & Chemicals and PPG Industries. For PPG weather was the biggest factor in a third-quarter earnings hit of up to $40 million, while Air Products also cited problems such as a fire at a South Korean plant, exchange-rate fluctuations, and a slowdown in electronics.

Neither company mentioned Wall Street's credit crisis, which doesn't surprise T. Kevin Swift, chief economist at the American Chemistry Council, the U.S. chemical industry's main trade organization. Although Swift calls the crisis "unprecedented," he says most chemical companies aren't in its clutches. "If you look at the balance sheet of this industry, it's in fairly good shape," he says. "Financially, this is a fairly conservative industry."

According to Swift, the crisis' main impact will be its effect on consumer and industrial spending or, as he puts it, "how the financial economy spills over into the real economy."

Turbulence in the U.S. financial market already seems to be spilling into Europe. Economists at the German Chemical Industry Association say in a recent report that companies in Germany have begun to feel the U.S. situation. Consequently, the association is forecasting 2008 German chemical production growth of only 1.0%, down from a 2.5% forecast as recently as July.


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