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Chemical firms exit 2016 with some bruises

Demand was strong for some specialties, but results showed the impact of slow growth and lower prices

by Melody M. Bomgardner
March 13, 2017 | A version of this story appeared in Volume 95, Issue 11

U.S.-based chemical firms failed in their attempts to boost profits in 2016 in the face of an uneven and slow-growing global economy. The 19 chemical companies tracked by C&EN largely met earnings expectations for the final quarter. But for the full year, sales declined 5.3%, mainly because of lower raw material costs, while earnings fell 8.7%.

The picture looked rosier for the 17 firms that are not in the fertilizer business. Their combined earnings slipped by only 1.8%. And most specialty chemical makers, thanks to their value-added products, more than made up for lower materials costs to post significant earnings gains. In contrast, the fertilizer sellers Mosaic and CF Industries were hit hard by much lower selling prices and excess global supply.

The power of specialties to generate higher profits was particularly evident for companies that sell into consumer markets. In the fourth quarter, DuPont saw volume growth for sweeteners and probiotics aimed at the food industry and for performance materials used in automotive manufacturing. The firm also benefited from the popularity of its Solamet brand of metallization paste, used in solar cells.

Overall, DuPont’s 2016 sales dipped slightly compared with 2015—not every specialty was in high demand—but earnings shot up by more than 27% to $2.9 billion. Chief Executive Officer Ed Breen credited the success to new product introductions as well as to the company’s efforts to aggressively slim down in advance of its planned merger with Dow Chemical. In a conference call with analysts, he said DuPont trimmed 11% from its operating costs, including a 41% cut in corporate expenses.

The year in chemicals

Specialties firms mainly had a good year, but basic chemicals and fertilizer companies struggled.







Air Products

$9,051 $1,580 -1.6% 13.7% 17.5% 15.1%


2,677 483 -5.3 10.0 18.0 15.5


4,978 415 -3.5 -11.7 8.3 9.1


5,389 963 -5.0 5.0 17.9 16.2

CF Industries

3,685 109 -14.5 -87.8 3.0 20.8


5,400 187 -5.5 30.8 3.5 2.5


1,616 111 -5.3 9.9 6.9 5.9

Dow Chemical

45,108 4,221 -3.4 4.1 9.4 8.7


24,594 2,934 -2.1 27.5 11.9 9.2

Eastman Chemical

9,008 1,003 -6.6 -8.1 11.1 11.3

FMC Corp.

3,282 380 0.2 14.1 11.6 10.2

W.R. Grace

1,599 192 -1.8 8.5 12.0 XXX

Huntsman Corp.

9,657 377 -6.2 -23.4 3.9 4.8


29,183 3,865 -10.9 -20.0 13.2 14.8


7,163 298 -19.5 -70.2 4.2 v


2,049 243 -4.3 1.7 11.9 11.2


10,534 1,576 -2.2 -6.0 15.0 15.6


1,766 98 -0.6 24.1 5.5 4.4

Westlake Chemical

5,075 399 13.7 -38.2 7.9 14.5


$181,814 $19,434 -5.3% -8.7% 10.7% 11.1%

a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales. c Percentages were calculated from combined sales and earnings.

The year was also a good one for DuPont’s former performance chemicals businesses, Chemours. In its first full year of financial results, Chemours reported an earnings boost of 31% to $187 million, compared with the 2015 pro forma figures.

Chemours CEO Mark Vergnano wrote in a note to investors that “2016 was about transformation; our five-point transformation plan delivered results on all fronts—cost reductions, portfolio rationalization, growth opportunities, focused capital investments, and cultural change.” The company focused on lowering the cost of producing the white pigment titanium dioxide and growing its sales of Opteon, its line of low-greenhouse-gas-potential refrigerants.

Vergnano was also pleased about a recent agreement to settle thousands of lawsuits in Ohio and West Virginia over drinking water contaminated with perfluoro­octanoic acid released from a former DuPont plant. DuPont and Chemours agreed to split the $670 million settlement, thus “addressing a key contingent liability” on Chemours’s books, Vergnano wrote to shareholders.

Meanwhile, results at Dow were modestly higher on mixed performance in its diverse businesses. As at DuPont, consumer specialties blossomed: Sales were up 25% compared with 2015, and earnings more than doubled. Dow’s purchase of all of Dow Corning amped up silicone sales to auto and consumer care markets. Plastics used in packaging continued their strong run. The firm also introduced ingredients for gluten-free products that were well received by the food industry.

But demand was lower for Dow’s refining chemicals and performance monomers. Overall, Dow earned $4.2 billion for the year, up 4% from 2015.

For firms with portfolios tied more closely to basic chemicals, 2016 was not a great year. Huntsman Corp., LyondellBasell Industries, and Westlake Chemical all saw earnings shrink compared with the prior year. And for Eastman Chemical and Ashland, large specialties portfolios couldn’t offset poor performance in commodity businesses.

Two Eastman specialties, Tritan copolyester and Saflex acoustic interlayers, benefited from strong demand, but its sales of fibers and lower-value copolymers fell. And lower raw material and energy costs decreased selling prices for its additives business, dampening results. Lower selling prices took a bite out of revenues at Huntsman’s performance products and advanced materials businesses and affected sales of olefins at Westlake.

Mark Costa, Eastman’s CEO, said the company is working to improve its mix of advanced materials to contain more high-margin products. The strategy will help the firm in 2017, according to Charles Neivert, chemicals analyst at the investment bank Cowen & Co. He noted in particular Eastman’s success in developing and marketing high-performance tire resins and additives.

“Improved portfolio management should support additional earnings growth with lower volatility,” Neivert wrote in a research note about the firm.

Ashland’s specialty businesses had a strong year, yet overall earnings slipped 12% from 2015 as substantially lower selling prices dogged its butanediol operations. Its specialty ingredients division saw volumes increase 6% in the latter part of the year. In a note to investors, the company said, “Consumer specialties continued to drive growth across multiple end markets, notably hair care and oral care.” Demand was also strong for Ashland’s industrial specialties, mainly coating, adhesive, construction, and energy-related products.

In 2017, higher-cost petroleum plus an expansion in petrochemical manufacturing capacity could put pressure on profit margins in the industry, according to Laurence Alexander, chemicals analyst at the investment bank Jefferies. Still, he expects chemical firms to flex their muscles and raise prices as soon as they can.

“Our leading indicator for chemical sector pricing power is now the strongest since 2011, which supports chemical company aspirations to pass through higher input prices” in the second half of the year, Alexander wrote in a note to investors.

An increase in U.S. industrial manufacturing would strengthen pricing power by creating demand for larger quantities of raw materials supplied by the chemical industry. A second boost could come if manufacturing firms increase investments in equipment in addition to just churning out more products.

Both changes appear to be under way. In January, manufacturing activity expanded for a third straight month, according to the American Chemistry Council (ACC), the main trade group for U.S. chemical companies.

“Production was higher in several chemistry-intensive manufacturing industries, including food and beverages, appliances, construction supplies, machinery, electronics, semiconductors, petroleum refining, iron and steel products, paper, structural panels, printing, and furniture,” ACC said in a weekly economics report.

Data on business investments are updated less frequently, but according to an index published by the U.S. Bureau of Economic Advisors, spending increased in both the third and fourth quarters of 2016. These measures and other indicators caused ACC’s Chemical Activity Barometer to rise by 0.4% in February, which the group considers a “strong gain.”

The chemical industry had embarked on a large round of deal-making when it looked as if economic growth would be slow for years. Now, it can look to postdeal restructuring as a way to capture more profit from a rebound in manufacturing.

Dow and DuPont continue their efforts to clear regulatory hurdles ahead of their historic merger, which is now expected to close some time in the first half of the year. In his conference call with analysts, DuPont’s Breen reiterated his confidence that the deal will proceed and said the focus of regulators is mainly on the two firms’ overlapping crop protection offerings.

But a flurry of other deals is also happening. Albemarle sold its surface treatment business to BASF in the fourth quarter of 2016. In January of this year, Air Products completed the sale of its performance materials division to Evonik Industries, making Air Products a pure-play industrial gas firm. And Air Products’ main gas-selling rival, Praxair, will transform if a merger with Linde comes to fruition.

Ashland officially spun off its retail ­motor oil and service brand Valvoline into a publicly traded company last year. On Feb. 1, Chemtura’s shareholders agreed to sell the company to Lanxess. Finally, Huntsman is working to spin off its TiO2 business, to be called Venator, later this year. 


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