The ability of chemical firms to persevere in the face of tepid economic growth was sorely tested in 2012, when shipments of chemicals slowed in the U.S. and Europe. Still, many companies were able to increase earnings compared with 2011. Moreover, most firms strengthened their balance sheets coming out of the recession and have used that money to invest in plants and equipment, a signal that they expect demand growth to return in the future.
Weak demand was most evident in the U.S. After increasing by 9.1% in 2011, chemical shipments declined by 1.5% in 2012. The two areas of growth were agricultural chemicals, thanks to high commodity prices, and coatings and adhesives, because of healthy demand for automobiles and other durable goods. In Canada, a strong farm economy boosted chemical shipments in the agriculture sector by 4.1%, but for all other sectors shipments were lower than in 2011.
In contrast, shipments of chemicals in Europe grew by 3.6%, close to the 4.0% average for the decade. Individual country data show a wide range of growth rates, from a low 0.9% for Germany to 10.5% for Poland. Italy’s chemical shipments shrank by 4.1% for the year.
One reason that the sluggish economy did not take a bigger bite out of chemical company earnings last year was that prices remained stable. In the U.S., the overall price index for chemicals increased 0.6%. Paint materials posted a significant 13.2% increase compared with the previous year. That helped about half of U.S. chemical firms expand sales and earnings in 2012. Among them, Axiall (formerly Georgia Gulf), Cabot, Cytec Industries, and Westlake Chemical also saw profit margins increase significantly during the year.
Despite the often-discussed sovereign debt problems in Europe, chemical sales and earnings in the region held up remarkably well in 2012. Of the firms tracked by C&EN, only AkzoNobel posted a loss for the year. Earnings grew at Air Liquide, Arkema, Clariant, Lanxess, Linde, and Syngenta. Some growth came through acquisitions—particularly at Solvay, which bought Rhodia in 2011—and overseas operations.
European chemical firms also pumped funds into their facilities and equipment. Combined, they boosted capital investments by more than 50%, or a whopping $7.0 billion, in 2012, significantly more than the previous year’s $2.6 billion increase. U.S. companies tracked by C&EN increased capital spending by only 6.5%, or $627 million.
In Japan, Mitsui Chemicals, Sumitomo Chemical, and Teijin posted losses for the year, while most other firms had stable or increased earnings. The firms tracked by C&EN increased capital spending by just over 4%, less than their counterparts in Europe and the U.S.