Two of the world’s biggest chemical companies, BASF and Dow, posted strong results for the third quarter as the world’s economy continues to recover from the effects of the COVID-19 pandemic. But both firms, among the first chemical makers to report earnings for the period, say inflation and supply chain disruptions are starting to weigh on the industry.
BASF reported a 42% increase in sales and a massive 160% increase in earnings in the third quarter from the same period a year ago, when governments around the world were imposing lockdowns to stem the spread of COVID-19. Increased sales volumes were responsible for 6% of the sales rise and increased prices another 36%.
BASF’s increase in sales in the third quarter
Dow’s increase in sales in the third quarter.
However, earnings at BASF, the world’s largest chemical company, declined 23% from the second quarter. “Our downstream businesses are still confronted with further rising raw material, energy, and freight costs,” BASF Chairman Martin Brudermüller told analysts. “Price increases in most downstream businesses could only partially offset these higher costs.”
Moreover, a global shortage of the computer chips used to build cars impacted BASF’s Surface Technologies segment, which makes automotive coatings and catalysts. Brudermüller noted that the market research firm LMC Automotive recently cut its 2021 global car production forecast to 76.7 million vehicles from 87.6 million earlier this year. “We cannot rule out the possibility of production of only 75 million vehicles this year,” he said.
Dow, the largest US chemical firm, posted a 53% increase in sales in the third quarter from last year’s quarter and a 451% jump in earnings. But the earnings figure was flat compared to the second quarter.
Howard Ungerleider, Dow’s president and chief financial officer, told analysts on Oct. 21 that the company started to feel the effects of higher raw material and energy costs during the quarter and that they will persist.
Jim Fitterling, Dow’s CEO, noted that the industry is still trying to recover from hurricanes on the US Gulf Coast as well as logistics issues. “There are bottlenecks everywhere,” he said. “Especially when it relates to marine pack cargo or export and as it relates to product being shipped by truck. It’s a little hand-to-hand combat right now.”
Jefferies Group stock analyst Laurence Alexander told clients in a research note that market conditions remain robust for chemical makers. “Favorable demand trends will likely keep pricing and margins elevated” through the first quarter of next year, he wrote.