Top 50 U.S. Chemical Producers

The battery of data in C&EN’s annual ranking of the Top 50 U.S. chemical companies shows an industry in excellent health. All the right numbers—sales, profits, profitability, and stock prices—headed upward in 2013, the period covered by the survey.

Cheap shale gas and a robust domestic economy are combining to give U.S. chemical producers a lift. And nothing indicates that the trends will turn against the industry anytime soon.

Combined, the 50 firms posted a 1.1% increase in sales in 2013, to $321.9 billion. Though higher than 2012, the mark is still short of the record of $333.6 billion the industry tallied in 2011. Although 20 firms reported a decline in sales, only a handful of the declines were more than 10%. Fertilizer makers Mosaic and CF Industries posted reductions on weak prices. Chemtura and Rockwood Specialties also put up sharply lower revenue numbers, but this is because they have been aggressively selling off businesses to fine-tune their portfolios.

For the 42 firms that publicly report profit figures, combined results showed a 7.0% gain over 2012 for a total of $41.8 billion. This beats the earnings record of 2011, which totaled $39.6 billion.

No company reported a loss. But 19 firms posted a decline in profits. Eight firms saw increases of more than 50%. Three of these—Eastman Chemical, Monsanto, and Cytec Industries—more than doubled profits. Ferro Corp. saw its results swing from losses in 2012 to gains in 2013.

Operating profit margins—profits divided by sales—also climbed for the 42 firms. They reached 14.6%, an improvement from the 13.8% the industry racked up in 2012.

For the past few years, petrochemical firms have been flying high because of shale gas. Cheap ethane and propane feedstocks derived from shale formations have given U.S. petrochemical makers an edge over most foreign competitors, which primarily derive petrochemicals from oil.

A number of risks could bring the good times to an end for U.S. petrochemical makers, but they aren’t rising to a level of serious challenges, says Frederick M. Peterson, president of Probe Economics, a consulting firm that focuses on the chemical industry.

Peterson says the main risks to the chemical boom come from feedstock availability, excess petrochemical capacity, and a sharp decline in oil prices. Feedstock availability will depend on geology and how quickly new capacity will absorb the hydrocarbons coming out of the ground. Whether chemical makers will be able to sell all their new production when they start up their capacity will depend on the extent export markets will present matching demand.

An oil price decline could undermine the advantage that U.S. producers are now enjoying. Peterson says there is a 25% chance in the coming years that the price of oil will drop to about $75 per barrel. “There’s also a 25% risk that the price could go up to $150,” he notes.

But shale isn’t the only game in the U.S. chemical town. A relatively strong U.S. economy is ensuring that petrochemical makers don’t have a monopoly on profitability. Pure petrochemical makers such as Westlake Chemical and PetroLogistics are racking up profit margins in excess of 15%, but so are fertilizer makers such as Mosaic and CF, diversified players such as Eastman, industrial gas makers such as Praxair and Air Products & Chemicals, and specialty chemical producers such as FMC Corp., Cytec, and Albemarle.

Stock prices also reflect prosperity shared across the chemical industry. This year, C&EN ranked some 33 firms by market capitalization. As a group, value jumped by 25.7%, to $349.8 billion. DuPont, which led the market capitalization ranking for three years, posted a 43.5% increase this year to maintain its lead over number-two-ranked Dow Chemical, which posted a 37.6% increase.

Bets on a couple of firms paid off enormously. Axiall’s value more than doubled during the year. Ferro’s stock price tripled.

Speaking in March at the IHS World Petrochemical Conference, Paul A. Smith, who heads chemical investment banking at Citi, said Wall Street has been rewarding three types of chemical firms. “The companies with the strongest stock price performance over the last couple of years are those with the most exposure to the shale gas advantage,” he said, noting that the category includes LyondellBasell Industries, Westlake, and Huntsman Corp.

Companies with high exposure to the housing recovery, such as paint maker PPG Industries, have also been strong. Additionally, specialty chemical makers that have been able to demonstrate strong and consistent profit growth are also being sought after by investors. Smith mentioned Ecolab and FMC as examples.

C&EN’s Top 50 ranking this year showed little evidence of merger and acquisition activity. The list has the same top 10 players—headed by Dow—in the same order as it did a year ago. No deal among this group left much of a mark.

Further down in the list, examples of major changes are scarce. Axiall, formed from the merger in early 2013 of Georgia Gulf with PPG’s chlorine business, posted a greater than 50% sales gain and a jump in the ranking from 28th to 22nd. Ecolab got a bump from its purchase of oil chemical supplier Champion Technologies. OM Group was dropped from the list because divestitures made it too small.

Only one other company dropped from the list this year, Emerald Performance Materials, which was 50th last year. Its $755 million in sales were just not enough to meet the bar.

There were only a few additions. C&EN considered Momentive as two separate companies—Momentive Specialty Chemicals and Momentive Performance Materials because the latter declared bankruptcy. Silicas supplier PQ Corp. filed for an initial public offering and is now publicly disclosing its financial results.

Merger and acquisition activity could pick up pace, driven in large measure by activist investor hedge funds that have the chemical industry in their sights. Jana Partners has instigated some of Ashland’s portfolio moves, such as the sale of its water treatment business. After putting its chlorine-related businesses up for sale, Dow was pressed by Third Point to restructure further. This is a $5 billion enterprise that would be in the upper half of C&EN’s ranking. So would DuPont’s performance chemicals unit, which the company is spinning off. DuPont is being pushed to restructure by Trian Fund Management.

Citi’s Smith said the 20% average returns that activist funds earn for their investors will mean that they will increasingly attract more capital and target more companies. “This will continue to be a theme through 2014 and possibly beyond,” he said.  

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