Third-quarter 2022 was difficult for chemical makers

Chemical makers have been struggling to keep up in a weakening global economy, and many are reacting by trimming costs. According to earnings announcements from major producers, the chemical industry has been facing higher energy prices, particularly in Europe, where the war in Ukraine has led to dwindling supplies of natural gas from Russia. In addition, many firms are contending with softening demand for their products in Europe and other regions as consumers ease up on spending.

The world’s largest chemical maker, BASF, saw revenues increase nearly 12% during the quarter versus the year-earlier period—mostly because of higher selling prices. Volumes slid for nearly all its segments except agricultural chemicals.

BASF’s adjusted earnings rose 11%. That figure eliminates one-time items, in particular the firm’s financial interest—by way of its Wintershall Dea oil and gas unit—in the recently destroyed Nord Stream 1 pipeline, which carries natural gas from Russia to Germany under the Baltic Sea. Counting everything, BASF’s third-quarter profits were down 27%.

The firm says its spending on natural gas in Europe has climbed $2.2 billion so far this year compared with 2021; its European operations posted a loss for the quarter.

To cope, BASF says it will implement a $500 million cost savings program focused largely on its German manufacturing operations. “We cannot stick our heads in the sand and hope that this difficult situation will resolve itself on its own. We as a company must act now,” CEO Martin Brudermüller said in a recent conference call with analysts.

Dow, the largest US chemical maker, saw sales slip 5% and earnings tumble 61% during the quarter. The company attributes about two-thirds of the decline in pretax profits to Europe.

In Dow’s core packaging and specialty plastics business, volumes were flat and prices declined because of lower prices and unfavorable exchange rates. Pretax profits in this segment dropped 60% because of higher raw material and energy costs.

Dow is trimming costs as well. It has reduced natural gas consumption in Europe by 15% and has idled about 15% of its polyethylene capacity. It’s also temporarily shutting down some cracker furnaces. The company aims to save $1 billion on an annual basis over the next year, largely via such temporary shutdowns of underused assets.

“In the fourth quarter, we expect to continue navigating high inflation, supply chain constraints, and the impact of geopolitical tensions,” Dow president and chief financial officer Howard Ungerleider said in a conference call with analysts. “In Europe, high energy and feedstock costs are driving record eurozone inflation, reaching a new high of 10% in September. As a result, we see reduced industrial production and consumer spending.”

Petrochemical maker LyondellBasell Industries posted a sales and earnings decline that was similar to Dow’s. Its European olefin and polymer business operated at a loss. The company plans to run its facilities in that region at 60% of capacity. LyondellBasell is also delaying the restart of an idled ethylene cracker in France until next year. It is similarly pulling back in North America, where it plans to run its assets at 75% of capacity.

Polymer maker Trinseo had a difficult quarter, posting a loss of about $103 million and a sales decline of 7%. The company cited the European problems, strict COVID-19 lockdowns in China, and a slowing of the US construction market.

Trinseo’s base plastics division, which houses its polycarbonate and acrylonitrile-​butadiene-styrene businesses, had a 25% sales decline that it blamed on weak markets in construction and consumer durables.

Eastman Chemical aims to rein in costs by $150 million next year; most of the cuts will come from adjusting its manufacturing plants to accommodate higher costs and slowing demand.

“Our current assumptions for next year contemplate a mild recession with a significant amount of inventory destocking complete by the end of 2022,” Eastman said in its announcement, noting that the biggest risk to its outlook is “a more severe recession.”T

he quarter wasn’t without its bright spots. Solvay’s sales rose 40%, and its profits surged 86%. The company attributed the gains to higher pricing and strong demand in automotive, electronics, civil aviation, health-care, mining, and agricultural markets.

Results at Kemira were also positive. The Finnish firm reported a 40% increase in revenues, mostly due to higher selling prices in pulp and bleaching chemicals. Profits rose by over 50%.

Kemira has been able to avoid the energy problems that have beleaguered other European chemical makers. “In terms of energy, Kemira is in a relatively good position, particularly in Finland, given our high level of backward-integration in electricity,” the company notes in its earnings release.