Q2 results highlight continued uncertainty over outlook

Question markThe chemical industry continues to be the best leading indicator we have for the global economy. Whilst stock markets were continuing to move higher during H1, its depressed level of capacity utilisation was signalling that the economy was far more fragile than generally realised.

Company results for Q2 reflect this concern. Of course some, tied to specific market sectors or geographies, produced relatively good results.  Others, however, were already cutting back in anticipation of harder times ahead.

Yesterday’s relatively weak US Q2 GDP report confirms this mixed picture.   Q1 GDP was revised up to 0.6%, but Q2 disappointed at only 2.3%, meaning that H1 growth averaged just 1.5%.  And GDP growth between 2012 – 2014 was revised down to an average annual rate of just 2%.

In turn, this means the recovery since 2009 has been the weakest since World War 2, with growth averaging 2.2%.

As we move into Budget season, companies may be tempted to assume that “all will eventually come right”.  But this, I fear, would be a triumph of hope over experience.  The fault-lines created by central bank policies are opening wider and wider:

  • Clearly China’s economy is in a lot worse shape than many people had wanted to believe
  • The Eurozone debt crisis over Greece is on hold for the holiday period, but not solved
  • Oil prices look set to continue weakening as demand growth slows and Iran re-enters the market
  • And, of course, the US Federal Reserve probably has to start raising interest rates in September (before the 2016 Presidential primaries begin), risking further volatility in exchange and interest rates

Looking back to my Budget Outlook for the 2015-2017 period, its 3 Scenarios still seem robust – as does its Base Case of a demand-constrained world.  Similarly its forecast of deflation has come true, with prices for oil, commodity and the major petrochemicals all well down on a year ago.

More details of my usual survey of Q2 results are below.

Air Products. “Income rose on lower sales on higher pricing and volumes”
Air Liquide. ” positive currency effect was partly offset by the negative impact of energy prices”
Akzo Nobel. “Global economy remains challenging and shows a very mixed picture with different dynamics per region and customer segments”
Arkema. “Positive currency effects and earnings contributions from newly-acquired subsidiary Bostik”
Ashland. “Unfavourable exchange rates and lower demand from North American energy producers”
BASF. ““For the full year 2015, we now expect somewhat weaker growth for the global economy as well as global industrial and chemical production than was foreseen six months ago”
BP. “Stronger operational performance, improved margins and the benefits of our simplification and efficiency programmes”
Bayer. “Benefited from lower raw material prices due to the oil crude price decrease and improved demand, together with a positive currency exchange”
CP Chem. “Improved olefins and polyolefins cash chain margins as ethylene costs decreased on the crude oil price fall”
Celanese. “Growing uncertainty in the economic outlook of China”
Chemtura. “Reduced customer demand for certain products and a stronger US$ contributed to the fall in net income”
Clariant. “Expects the challenging environment characterized by an increased volatility in commodity prices and currencies, to continue”
Croda. ” Conditions remain uncertain in Europe”
Dow. ““This is not yet a [peak of the] cycle discussion but it’s starting to mimic one with outages. That’s what we saw in 1995… where supply outages created a mini cycle on the up”
Dow Corning. “Significant growth in its most profitable silicones segment product lines”
DuPont. “industry challenges in the agricultural sector and persistent currency headwinds”
Eastman. “Increase in sales, as well as relatively flat cost of sales”
ExxonMobil. “Performance underscored the resilience of the integrated business model”
Honeywell. “Sales were down 1% year over year because of delays in customer projects and lower catalyst shipments”
Huntsman. “Currency headwinds from a stronger dollar and the extended maintenance outage”
INEOS. “Strong, feedstock-advantaged North American markets and a weaker euro; markets in Asia have generally remained subdued”
Lanxess. “Making good progress with our realignment program”
LyondellBasell. “A spate of production outages in the industry added to tailwinds from abundant oil and natural gas supplies”
Methanex. “Drop in its revenue and average realized price”
Mexichem. “Difficult conditions on volumes and pricing in certain markets”
Olin. “Benefited from insurance recoveries for property damage and business interruption”
OxyChem. “Improved margins across most product lines on the back of lower ethylene and natural gas costs”
PKN Orlen. “Better PX/PTA and polyolefin sales volumes after production limitations and improved market demand”
PolyOne. “Euro remains very weak against the dollar and demand appears to be slowing in Asia”
PetroRabigh. “Lower margin on petrochemicals due to price decline”
Praxair. “Slowdowns in China and Brazil and weak metals, energy and manufacturing sectors”
Reliance. “Petrochemicals business recorded a strong quarterly performance supported by high operating rates and margin strength in the ethylene chain”
SABIC. “Lower average sales prices despite the reduction in cost of sales”
Sahara. “Decline in demand and product prices”
Sherwin-Williams. “Improved operating results in the company’s paint stores and consumer groups”
Shell. “Supported by improved intermediates market conditions which more than offset lower base chemicals industry conditions”
Siam Cement. “Improved margins and inventory gains”
Tasnee. “Lower product prices and higher expenses”
Technip. “Launched a major restructuring plan across the Group to address the challenging market outlook we anticipate”
Tosoh. “Increased sales volume and decreased feedstock prices”
TOTAL. “Petrochemical margins were also higher, notably due to limited production capacity as a result of numerous shut downs in the industry”
Unipetrol. “Much lower crude oil prices combined with solid market demand”
Univar. “Significantly lower chemical demand in upstream oil and gas markets in the US and other regions”
Versalis. “Stronger margins, shortages of some products on the back of industry outages, and the restart of its Porto Marghera plant”
Yansab. “Lower production and sales volume from turnaround activities … and lower average sales prices”

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