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Chemical industry facing headwinds
Source:CPRJ Editorial Team    Author:By Victor Cheng    Date:01.Oct.2019

Despite robust operational performance and efficiency, the chemical industry had a tough second quarter of the year. Remarkable drops in sales and revenues for the quarter were reported by some major chemicals and materials producers.

Analyzing the financial reports announced by these big names, four main obstacles can be identified:

  • slowdown in global economic growth

  • decline in prices due to increase in supply capacity and competition

  • automotive industry developed weaker than expected

  • global trade conflicts 

SABIC’s revenue dropped 17%

SABIC’s revenues for the second quarter reached SAR 35.87 billion, representing a decrease of 4% compared to previous quarter and a 17% decrease year-on-year (YOY).

Meanwhile, net income during the second quarter amounted to SAR 2.12 billion, a decrease of 38% compared to the first quarter of the year.

According to Yousef Al-Benyan, SABIC Vice Chairman and Chief Executive Officer, the slowdown in global GDP growth coincides with a decline in petrochemical prices due to a significant increase in new supply capacity, thus resulting in lower product prices and margins in key product lines.


Sales declined 16.9% for Covestro

Due to lower selling prices as a result of increased competition, Covestro Group sales for the second quarter fell to €3.2 billion, representing a drop of 16.9% when compared to the same period of last year. Nevertheless, the core volumes rose by 1.1% YoY.

As said, the decline in earnings resulted mainly from lower margins in the Polyurethanes and Polycarbonates segments.

In the Polyurethanes segment, core volumes grew by 0.7% while sales declined 24.3% to €1,489 million. Core volumes in Polycarbonates rose by 4.4% over the prior-year quarter while sales were down 15% to € 898 million.

Covestro explained that whereas the electrical and electronics industry and the construction sector contributed to the volume growth of Polycarbonates, volumes in the automotive industry declined.

The company also emphasized that the results for the first six months were well under the previous year’s level, but this was because 2018 was marked by exceptionally high margins in some product groups.

Dow’s net sales fell 14%

Dow reported its net sales down 14% versus pro forma results in the year-ago period.

Dow reported that the net sales were US$11 billion in the second quarter, in-line with the company’s guidance and down 14% versus pro forma results in the year-ago period. The primary reasons are local price declines in polyethylene, siloxanes and isocyanates, and lower sales of hydrocarbon co-products.

For the Performance Materials & Coatings segment, net sales down 12% versus pro forma results in the year-ago period. Volume and local price each declined 5%. For Industrial Intermediates & Infrastructure, net sales down 16% with volume declined 1% and local price decreased 12%.

For Packaging & Specialty Plastics segment, net sales down 15% with volume declined 4% and local price declined 9%.

DuPont reported net sales down 7%

DuPont announced financial results for the second quarter, reporting that net sales for the quarter totaled US$5.5 billion, down 7% versus the same quarter last year.

On an organic basis, net sales were down 3% with 2% higher pricing being more than offset by 5% lower volumes. Currency and portfolio headwinds decreased sales by 3% and 1% respectively.

For the segment highlights, the Transportation & Industrial recorded the highest percentage of drop in net sales (-10%). Volumes declined 12% due to lower autobuilds, primarily for the China market, weak electronics demand and continued de-stocking in both the automotive and electronics channels.

In addition, Europe and Asia volumes were down mid-teens as China tariff concerns coupled with inventory destocking impacted demand.

BASF Group sales lower in second quarter

When compared with the second quarter of last year, BASF Group sales decreased by 4% to €15.2 billion. Prices were down by 2%, mainly driven by the isocyanates and cracker products businesses. Sales volumes declined by 6%. 

As in the entire first half of 2019, earnings in the second quarter of 2019 were significantly negatively impacted by the lower volumes and margins in the Chemicals and Materials segments. In total, the two segments accounted for 83% of the overall earnings decline in the second quarter of 2019.

Growth in BASF’s customer industries in the first half of the year was significantly below expectations. The company commented that the growth in industrial production slowed considerably around the world.

For example, the original overall forecast for automotive production in 2019 was plus 0.8% but it declined worldwide by 6% in the first half-year. In China, there was even a drop of 13%. BASF now expects a global decline of 4.5% over the full year.

The global trade conflicts, particularly between the United States and China, are also a serious concern for the company, stated BASF.

Future outlook

In view of the challenging environment and second-quarter performance, DuPont and BASF adjusted the 2019 outlook for the companies.

DuPont now expects full year organic sales to be slightly down versus prior year. In addition to actions it took in the second quarter, the company is taking new cost actions in the second half to mitigate headwinds.

Meanwhile, BASF now anticipates a slight decline in sales. For EBIT before special items, the company expects a considerable decline of up to 30%.

For Covestro, the company continues to project core volume growth to be in the low- to mid-single-digit percentage range in fiscal 2019.

Looking ahead, Dow still sees global growth, but the pace of that expansion has slowed, as buying patterns remain cautious due to ongoing trade and geopolitical uncertainties.

Despite headwinds, SABIC remains optimistic on industry fundamentals over the long term and will continue to invest for growth.



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