Issue Date: January 9, 2012 | Web Date: January 12, 2012
European Debt Affects Chemical Industry
The Eurozone—the 17 countries that have adopted the euro—will likely enjoy the dubious distinction of being the world region with the lowest rate of economic expansion in 2012. According to many econo- mists, any growth at all would be a good outcome.
The region’s chemical industry will suffer as a result. The European Chemical Industry Council (CEFIC) projects 1.5% growth in chemical output in 2012, down from an already paltry 2.0% for 2011. CEFIC bases its outlook on an underlying increase of 1.0% in European GDP. The association blames the continuing debt crisis in Europe and the high level of debt in the U.S. for undermining the economy at large.
In addition, “Companies are hoarding cash. The uptrend in oil prices has halted, reducing the incentive to buy ahead,” CEFIC President Giorgio Squinzi said at a press conference last month.
Indeed, chemical output has been relatively flat since the first quarter of 2011. In the third quarter, Germany’s BASF reported a decline in earnings. The big company’s report to investors presaged CEFIC’s dim predictions when it said: “BASF’s customers planned more cautiously, reduced inventories, and partially delayed orders in expectation of falling prices.”
Still, most chemical firms are in good financial health, and exports should stay strong in 2012. Even construction markets may rebound this year, CEFIC says.
Florian Budde, European chemical leader at consulting firm McKinsey, says companies up and down the supply chain have learned to manage downturns more smoothly than in 2008. “The chemical industry and its downstream customers have been much more careful about managing inventories. Sales are unlikely to drop off a cliff as deep as they did last time, and chemical firms will be much better prepared,” he predicts.
The larger concern, Budde says, is that chemical companies are used to seeing earnings grow in tandem with global GDP. But for that to continue, they must accelerate their expansion into developing markets, especially China, and that’s not easy. “There is a lot of regulation and approval required to make new investments or even to make acquisitions.”
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