Volatile Time For Chemical Makers

Of a dozen chemical firms that have reported so far for the second quarter, half have hiked earnings compared with the year-ago quarter. Among the firms posting strong results are Dow Chemical, Cytec Industries, and PPG Industries. But supply and demand volatility, along with weak sales in Europe and China, took a bite out of earnings at firms such as DuPont and Albemarle.

In June, DuPont warned that a cold, wet spring would affect its agriculture business, but the segment proved resilient, and sales increased 7%. “While the weather caused us to incur more costs to service our customers … our leading products in both of our ag businesses performed at the top of their industries,” said CEO Ellen J. Kullman in a conference call with analysts.

DuPont increased the volume of chemicals sold by 1% compared with the second quarter of 2012, but lower prices for titanium dioxide dragged down profit margins. In total, its quarterly earnings dropped 16.3% to $1.2 billion. The firm announced that it may sell or spin off its performance chemicals division, which includes TiO₂ and fluorochemicals (see page 7).

Volatility was also apparent for firms that sell guar gum, a thickening agent used in food and in gas drilling. Earlier fears of shortages caused suppliers, including DuPont, to stock up on the ingredient. As a result, inventory costs dragged down earnings at DuPont’s usually strong nutrition and health segment. A slowdown in hydraulic fracturing for gas prompted sharply lower guar sales at Ashland, which saw overall earnings fall 19.0%.

On a brighter note, Dow raised quarterly earnings 18.6% to $770 million, just beating analyst expectations. A good crop chemical market helped Dow’s agriculture business boost sales 10% in the quarter. The firm reported that sales of specialty plastics were higher in North America, Latin America, and Asia, more than offsetting lower sales in Europe. Dow applied a $2.2 billion settlement from the failure of a Kuwaiti joint venture directly to its debt.

Other companies gained or suffered during the quarter depending on geography and industry served. Cytec’s sales soared 27.2% on demand for aerospace materials, driven by orders for the Boeing 787, and demand for process separation products used in metal mining. PPG reported higher sales of industrial and automotive coatings in North America and China.

In contrast, Albemarle’s lower quarterly earnings were because of “continued sluggishness across Europe, weak electronics and construction markets, and a much weaker China than most anticipated at the beginning of the year,” said CEO Luke Kissam.

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