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Economy Stabilizes, Performance Falters

by Alexander H. Tullo
December 23, 2013 | A version of this story appeared in Volume 91, Issue 51

Map shows that chemical production in different regions of the world are mostly predicted to go up in 2013.
Most regions should see an increase in 2013. SOURCE: American Chemistry Council

If chemical industry executives yearn for one thing, it’s stability. Steady variables simplify planning. And global economies for the most part delivered stability during the year. U.S. companies posted strong results, although spectacular growth was noticeably absent. European firms saw painful declines.

U.S. chemical companies reported hefty profit margins for the first half of the year. But perhaps because previous years logged so much growth, the industry made only modest sales gains. The 24 firms that C&EN tracks posted a mere 2.1% increase in sales during the first half. Earnings climbed by just 1.3%.

Results perked up during the third quarter. For example, Dow Chemical, the largest U.S. chemical firm, posted a 20.5% jump in earnings for the three-month period versus the year before. Chief Executive Officer Andrew N. Liveris credited his company’s ability to “execute in the face of uncertainty.”

In the end, the U.S. chemical industry, excluding pharmaceuticals, will have posted a 3.2% increase in output for 2013, according to projections by the American Chemistry Council, a leading trade association.

Capital spending arising from shale-gas-related projects is expected to peak in 2015. SOURCE: American Chemistry Council
Bar graph shows that capital spending arising from shale-gas-related projects is expected to peak in 2015.
Capital spending arising from shale-gas-related projects is expected to peak in 2015. SOURCE: American Chemistry Council

In Europe, 2013 brought job cuts, plant closures, and even a prominent bankruptcy in the chemical sector. Saudi Basic Industries Corp. said it was cutting 1,050 jobs across its European facilities. The company blamed slow growth in Europe as well as stiff competition from Asia and the U.S. Total said it will close an ethylene cracker in France.

Also in France, Kem One, the former European polyvinyl chloride business of Arkema, filed for bankruptcy. The firm’s new parent, the investment firm Klesch Group, is suing Arkema for misrepresenting the unit’s finances prior to selling it.

This fall, all eyes in the European chemical industry were on a drama playing out in Scotland, where Ineos’s Grangemouth petrochemical plant faced harsh economic realities. Ebbing natural gas supplies from the North Sea, high operating costs, and poor local markets have been pushing the plant $16 million deeper in the red each month, the company claimed.

Ineos executives unveiled a survival plan for the site that promised investment but demanded worker concessions. When the site’s union protested, Ineos threatened to close it. Union workers called the move “economic vandalism” but nevertheless accepted Ineos’s plan.

Executives across Europe were exasperated with their poor performance. “While we see some weak signs of improvement, this has yet to be confirmed in our order book,” said Jean-Pierre Clamadieu, Solvay’s CEO, in announcing first-half results.

But the European chemical industry may finally be coming around. The region’s output for the first three quarters declined by 0.7%, according to the European Chemical Industry Council, a trade association. However, the industry logged a 0.7% output gain in September versus the same month last year. The council’s economists are taking this as a hopeful sign. In 2012, output fell by 2.0%.


“Sometimes I look at the biotechnology world as a large casino table where you can put your money down and take your chances. It is very difficult to find the right balance between risk and opportunity.”

- Jean-Pierre Clamadieu, CEO Of Solvay, on investing in biobased industrial chemicals

In Asia, chemical executives began the year worried about slow economic growth in China. Growth had been 7.7% in 2012, says the International Monetary Fund, a robust figure in any country except China, which has enjoyed enough boom years to make companies expect 10% growth. Restrictive economic policies meant to rein in China’s inflation were eased early in 2013, but economists still anticipate growth of about 7.6% this year.

Executives at Japan’s long-beleaguered firms see some signs of a turnaround. Earnings at Japanese companies jumped in their fiscal first half, which ended in September. Company leaders credited the yen, which had dropped 26% in value over 12 months and made Japanese exports more competitive.


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