Cracks show in third-quarter earnings

A creeping slowdown in global industrial manufacturing is weighing on chemical businesses, an early batch of third-quarter earnings reports shows. Celanese, BASF, Dow, Wacker Chemie, and W. R. Grace saw demand and prices deflate for basic chemicals as well as for many industrial specialties.

Executives are not surprised by this development. Celanese CEO Lori Ryerkerk reminded analysts in a conference call that in the second quarter “we discussed persistently poor underlying demand fundamentals across all our businesses, which were further exacerbated by accelerated destocking in several key end markets, including automotive and electronics.”

At Dow, the dip hit all major divisions in all geographies—an unusual unity of bad news. Like Celanese, Dow saw slack demand from auto and electronics customers. Its overall sales dropped more than 15%.

Dow was able to flex its diversification muscles and wring strong prices from customers of its consumer-focused packaging and specialty plastics business. That helped the company beat analyst expectations, but its earnings of $347 million were about half of what they were in the third quarter of 2018.

Specialties were also bright spots at BASF, as its surface technology and care chemical businesses saw high margins and strong demand. But prices weakened in its materials and chemical businesses. Net income dropped 24% overall, to $1 billion, compared with the same period last year.

Like BASF, Wacker is fighting Germany’s shrinking manufacturing output, which IHS Markit says hit a 10-year low in September. Pricing for the firm’s silicones, solar polysilicon, and polymers decreased. Wacker managed to post higher sales volumes, but it expects 2019 earnings to be 30% lower than last year’s.

Ryerkerk says customer buying patterns show that underlying demand is worsening. Though the problem is pronounced in Europe, she adds, the resilient US manufacturing economy is now also suffering from global uncertainty.

Celanese enjoyed strong third-quarter sales for engineered materials by winning new business and for acetyl chain chemicals by selling into China, where prices have not declined. Overall, however, its earnings slid 22% from the year-earlier period, to $312 million.