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Uncertain Business Environment Hits European Firms

Chemical Earnings: Second-quarter results a mixed bag for leading chemical makers

by Alex Scott
August 9, 2013 | A version of this story appeared in Volume 91, Issue 32

European chemical companies are reporting uneven financial performance for the second quarter of 2013. Producers of agricultural chemicals enjoyed solid growth, but other chemical sectors, including some polymers and performance chemicals, struggled under tough market conditions.

One company hit hard is Germany’s Lanxess, which saw a double-digit percentage sales decline and almost a triple-digit decline in earnings for the second quarter compared with the same period one year ago.

Sales in Lanxess’ performance polymers business plunged 17.4% as a result of weak end markets, notably in the European construction industry. With tough conditions showing no signs of abating, the firm is under­taking a program to reduce costs through actions such as consolidating its rubber production activities.

In contrast, Bayer was buoyed by its pharmaceutical business, where new products performed “well above expectations,” the firm said when announcing secondquarter results. Likewise, Bayer’s agriculture business is “maintaining its gratifying business development in a persistently positive market environment.” But Bayer’s performance chemicals business was buffeted by tough market conditions, lower selling prices, and higher raw material costs.

BASF, the world’s largest chemical company, expects little change from the difficult economic outlook forecast at the start of the year. “What we see right now is pretty much a flat development going into the second half,” Chairman Kurt Bock told stock analysts recently.

The firm experienced strong growth in some segments but reduced sales in others. BASF reported 18% growth in agchems in the second quarter, and oil and gas is “doing quite well,” Bock said. However, the firm’s performance products division, which includes plastic additives and leather chemicals, saw sales slip 1% for the quarter. Sales in BASF’s basic chemicals division fell 4%.

“Take nothing for granted right now. If you go through our segments, it’s quite clear that we have to work very, very hard to improve further,” Bock said.

Solvay sees a global demand slowdown characterized by inventory destocking amid a deflationary environment. Sales fell in each of the firm’s four segments of consumer chemicals, advanced materials, performance chemicals, and functional polymers. “While we see some weak signs of improvement, this has yet to be confirmed in our order book,” said CEO Jean-Pierre Clamadieu.

Clamadieu is initiating a cost-cutting program that he says will put Solvay “on a strong footing for when demand recovers.” Signals for when that will happen are faint. Commentary from chemical companies shows that the outlook in Europe is “incrementally positive,” Jefferies & Co. stock analyst Laurence Alexander wrote in a recent report.



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