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Top 50 U.S. Chemical Producers

The full effects of the recession are evident in C&EN's annual ranking of U.S. chemical firms

by Alexander H. Tullo
May 10, 2010 | A version of this story appeared in Volume 88, Issue 19

Credit: Dow
Dow Chemical, with headquarters in Midland, Mich., leads the Top 50 U.S. ranking again this year.
Credit: Dow
Dow Chemical, with headquarters in Midland, Mich., leads the Top 50 U.S. ranking again this year.

It is obvious from C&EN’s latest survey of the Top 50 U.S. chemical firms that the industry got creamed by the recession.

Revenues plummeted last year during the depths of the recession
Revenues plummeted last year during the depths of the recession
Only two foreign firms posted an increase in U.S. chemical sales in 2009
Only two foreign firms posted an increase in U.S. chemical sales in 2009

The ranking is based on chemical company revenues for 2009, a year that began at the height of the recession and credit crunch. It was a horrible time for chemical makers. Customers panicked and stopped buying raw materials, opting instead to work off inventories and preserve cash. Chemical prices and volumes collapsed. The industry was in much better shape by the end of the year, but still not back to normal.

“What a difference a year makes,” Dow Chemical’s chief executive officer, Andrew N. Liveris, told analysts in February. “As you recall, this time last year we were facing unprecedented demand destruction and, of course, steep declines in manufacturing activity across virtually all sectors.”

Combined, the 50 companies in the survey saw a 21% sales decline versus the prior-year period, to $247.5 billion. The figure is the lowest total since C&EN’s 2004 survey, when the Top 50’s sales were $206.4 billion. The last year-over-year decline for the 50 firms was in the 2003 survey, when they posted a 2% sales decrease.

Interestingly, aggregate operating profits for the 45 companies that reported them declined only 15%, to $24.0 billion. A couple of factors help explain the discrepancy: Many chemical companies slashed costs more severely last year than the recession cut into their top-line revenues. And low prices for raw material natural gas meant that some chemical makers enjoyed decent profitability during the year.

Of the 50 companies surveyed, only four posted increases in sales, and each rise can be explained. Mosaic, number five on the list, posted a 5% jump in sales to $10.3 billion. But this is because the fertilizer maker’s fiscal year ended on May 31, 2009, and a lot of its results were booked before the full effects of the economic crisis kicked in. Its peers CF Industries and Terra Industries, which have calendar fiscal years, reported sales declines of 34% and 45%, respectively.

Sigma-Aldrich reported a 6% increase in sales. Sigma-Aldrich both makes and buys the lab chemicals it distributes, but C&EN reports only on the portion the firm actually manufactures. That number increased from 60% in 2008 to 65% last year.

Ashland reported a 42% increase in sales, to $3.6 billion, allowing it to leapfrog to the number 18 spot from 32 last year, the biggest jump in the survey. The explanation: Ashland acquired Hercules in November 2008 and enjoyed a full year of Hercules’ operations on its ledgers in 2009.

Meanwhile, SK Capital came out of nowhere to make the list for the first time this year. The New York City-based private equity firm purchased Solutia’s Ascend nylon business in June and thus racked up $950 million in revenues during the year versus $150 million in 2008.

But in a deeply recessionary year, a big acquisition was no guarantee of increased sales. In April 2009, Dow acquired Rohm and Haas, which was number 10 on last year’s ranking with $8.4 billion in sales. However, the economic decline hit Dow so hard that it posted a 22% decrease in revenues to $44.9 billion. Dow still managed to once again head the survey by a wide margin over number two, ExxonMobil Chemical.

In the meantime, the gap between Exxon­Mobil and number three DuPont closed considerably. ExxonMobil posted a 30% sales decline, to $26.8 billion, whereas DuPont posted only a 15% decrease, to $26.0 billion. More than $8 billion separated the companies in last year’s survey. ExxonMobil deals heavily in commodity petrochemicals, products that are more prone to price fluctuations than DuPont’s more specialized product line.

A newcomer to the top of the list is Dow Corning, which came in at number 10. The maker of silicon-based materials posted a mere 7% decline in sales. Its results might as well be considered a gain compared with the 21% decline the rest of the industry suffered.

Of the 50 companies, the largest decline was at OM Group, which lost half of its sales. The company’s cobalt- and nickel-based chemicals are sensitive to fluctuations in metals prices. With $872 million in sales, OM ranks number 48. It was 39 in C&EN’s previous survey.

Testifying to the extent of the industry-wide sales decline, OM was one of seven companies with less than $1 billion in sales. Last year’s ranking had only one, phosphorus chemicals maker Innophos.

In addition to Rohm and Haas, one firm, Tronox, dropped off the list. The bankrupt titanium dioxide maker ranked 43 in last year’s survey but has since shrunk in size.

And Arizona Chemical, the former pine chemicals arm of International Paper, joins SK Capital as a newcomer on the list. Its parent, private equity firm Rhône Capital, is launching an initial public offering for the company, and thus its financial records were published recently in a prospectus, putting them within reach of C&EN’s survey.

A number of large firms are not on the list because their chemical results are not disclosed publicly. The biggest of these is probably Koch Industries. Other companies in this category are 3M, Procter & Gamble, Baker Hughes’ Petrolite division, PQ Corp., and Goodyear Tire & Rubber. Some of these firms made the list in previous years when they disclosed their chemical sales.

C&EN also ranks the publicly traded members of the Top 50 by market capitalization, a metric that offers a vastly different picture of how the industry fared last year. Even though revenues slumped and stayed down for most of the year, values of companies on stock markets rebounded strongly in 2009.

An investment in the U.S. chemical industry early in 2009 would have earned exceptional returns by the end of the year. As a group, the 32 companies with publicly traded shares enjoyed a 65% increase in their stock market values to $201 billion. Eleven companies, including Dow, saw their market capitalization more than double. Only one company, chlorine maker Olin, lost market value during the year.

Not all of this was because of increases in stock prices. Because of the downturn, a number of companies issued more shares or sold off treasury stock to raise money, thereby diluting the interests of existing shareholders. For example, Georgia Gulf posted a nearly 1,500% gain in market capitalization. But that is because the company, which was staring down bankruptcy last year, worked out a deal with creditors to swap debt for equity. Because of the dilution, an investment of $10,000 in Georgia Gulf shares on Dec. 31, 2008, would have been worth about $6,500 at the close of 2009.

Methodology: Compiling The 50

C&EN ranks U.S. chemical producers by sales of chemicals and allied products except pharmaceuticals. Ranking the companies by chemical sales is the only way that privately held companies and some diversified producers can be included.

C&EN also ranks U.S. firms on the basis of market capitalization. The ranking includes 32 companies that have had listings on major U.S. stock exchanges over a comparable year-over-year period and that generate a majority of their revenues via chemical manufacturing.

Because companies don’t necessarily report chemical and nonchemical sales separately, nonchemical products often creep in. For instance, DuPont’s agricultural and nutrition segment includes sales of both seeds and agrochemicals. Monsanto, on the other hand, reports seeds and agrochemicals separately.

C&EN does not normally restate prior-year results other than to update foreign company results for current exchange rates or, occasionally, for changes in accounting procedures that otherwise would prevent year-over-year company comparisons. Neither does C&EN routinely restate prior-year rankings.

In the ranking of foreign-owned companies, C&EN uses sales administered by the firms’ U.S. headquarters. These figures are as close to U.S. sales as possible, but companies don’t post regional sales consistently. For example, Israel Chemical provides sales for the U.S., whereas BASF reports them for North America. A global ranking of chemical producers is scheduled to appear in the July 26 issue of C&EN.

To compile the survey, C&EN uses, for the most part, official company documents such as annual reports and 10-K filings with the Securities & Exchange Commission. For privately held and some foreign-owned companies, C&EN also interviews companies directly.

During the year, Dow took the market capitalization lead from DuPont. The rest of the Top 50 moved largely in tandem, though there were a few big gainers. Celanese, which saw a 160% market cap gain to $4.6 billion, jumped from number 14 to number nine. W.R. Grace saw a 325% gain to $1.8 billion, catapulting it from 29 to 17.

C&EN also ranks foreign companies by their U.S. or North American revenues, and once again, BASF tops that list. A newcomer is LyondellBasell Industries, which has its headquarters in the Netherlands and recently emerged from bankruptcy. Other companies that are new to the foreign ranking are France’s Arkema, which published results in time to be included, Norwegian fertilizer maker Yara, and Swiss fine chemicals firm Lonza.

A few companies have dropped off the foreign list. Because of a corporate reorganization, Shell no longer breaks out its chemical sales. Ciba was acquired by BASF. And, shrinkage in U.S. revenues knocked Clariant and Cognis off the survey this year.

Under normal circumstances, acquisitions leave a big mark on the Top 50. That wasn’t the case for the current survey, but Paul de Janosi, managing director and global head of private equity at Celerant Consulting, expects 2010 to bring a hefty increase in mergers and acquisitions. “We are probably going to surpass all of last year by the middle of this year,” he says. Overall, de Janosi expects 800 to 900 transactions this year, a 40–50% increase over 2009. However, most of them will be smaller deals valued in the millions, not billions, of dollars.

Now that the chemical industry has put the economic downturn behind it, companies are “replatforming” their businesses to focus on new markets and geographies, de Janosi explains. “The companies that have been successful in the past two years have been focusing on cost management and streamlining their existing businesses as much as possible,” he says. Now they are shifting emphasis to market opportunities.

One example of such replatforming is Eastman Chemical. The company is seeking a buyer for its polyethylene terephthalate business (C&EN, May 3, page 11). At the same time, it recently acquired non-phthal­ate plasticizer maker Genovique Specialties from Arsenal Capital Partners.

De Janosi says private equity firms will be active this year. Because financing hasn’t been available for them to complete transactions, they have a lot of cash on their hands. They also can move faster and have a higher tolerance for risk than strategic buyers in the chemical industry.

Past activity by private equity players created leading firms such as Hexion Specialty Chemicals, Nalco, Celanese, Rockwood Specialties, and Innophos. If de Janosi’s prediction holds true, more firms assembled by financial players will enter the ranks of the Top 50 in the year ahead.


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