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Outlook Bright For Chemicals

by Melody M. Bomgardner
June 23, 2014 | A version of this story appeared in Volume 92, Issue 25

An uptick in the global economy will help U.S. and European chemical firms expand earnings by an annual rate of 2.5–3.5% over the next 12 to 18 months, according to an analysis by Moody’s, a credit rating firm. Moody’s expects global gross domestic product growth to reach 3.0% in 2014, up from 2.2% in 2013. U.S. firms should perform better than their European counterparts because of low-cost feedstocks from shale gas, with the strongest improvement for makers of ethylene, methanol, and ammonia-based fertilizers. Specialties producers in both the U.S. and Europe will see modest growth, the report notes. In Europe, profitability will hinge on cost-cutting and restructuring. Companies with operations in Ukraine or Russia face risks from regional tensions and Western sanctions. In China, GDP growth is expected to slow to a “still healthy” 7.0% in 2014, compared with 7.7% in 2012 and 2013. A further slowing of that growth, however, would “present a meaningful risk to [the] forecast because China is the world’s second-largest economy, the largest contributor to global GDP growth, and a large consumer of chemicals,” the report cautions. Meanwhile, Moody’s says activist investors will continue to target U.S. chemical makers for share buybacks and divestments.


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