Outlook Bright For Chemicals

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.