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Oil, costs, lack of growth and M&A all reflected in top 100 performance
Posted on October 7th, 2016 by Matt Weber in Chemicals Industry News and Analysis
The ICIS Top 100 Chemicals Distributors ranking reflects a market still under pressure from the global oil price collapse. Petrochemicals prices dropped in 2015 and 2016, down 28% and 7% from previous year averages, respectively. Petchem producers saw significant profit gains in 2015, while the performance of intermediate and specialty players was more a mixed bag. These segment variances are the result of different approaches to M&A, pricing strategies and product diversification.
By Nigel Davis
The major upstream players in petrochemicals and plastics had to ride out the oil price collapse last year and the significant impact on prices. Volumes remained under pressure with anything but minimal growth often difficult to find.
This year has been better from the sales point of view. Petrochemical prices have fluctuated but on average continued to fall. The ICIS Petrochemical Index (IPEX), which represents the regional movements in price for a basket of 12 petrochemicals and plastics, so far this year is down around 7% on the 2015 average. The regional range – between northeast Asia, the US and northwest Europe – is from minus 6.6% to minus 7.0%.
So, the pressure has been on producers of all shades to perform. Petrochemical companies last year did remarkably well as cracker economics improved strongly for the naphtha players. The ethane and natural gas liquids NGLs) advantage persisted but was markedly reduced.
Downstream in intermediates and further on into specialties, the picture was different. Sales held up better because product prices did not move as much but volumes were under pressure. The feedstock cost advantage was diminished as it was, to some extent, fed down the chain.
The remarkable impact of the oil price collapse can be seen in the ICIS Top 100 listing of the major chemical industry players. This listing has been compiled since the late 1970s and, over the years, has reflected a fascinating story of change as chemical companies large and small have grown, diversified, combined and been split asunder.
The current table, which lists companies by sales (converted into US dollars) for the most recent financial year, tracks the influence of the movement in product prices on the major petrochemical and plastics players but also that impact downstream. It highlights, particularly, the much improved profit performance of companies that were able to capitalise on the change in oil-based feedstock economics.
A selection of data from the just published ICIS Top 100 is shown here:
Over the course of calendar 2015 the average Brent price fell by 47.3% while the WTI marker crude price fell by 47.6%. Petrochemical prices tracked downwards with crude with a delay of around six weeks. The annual average global IPEX fell by 28%.
Germany’s chemicals trade group, the VCI, called 2015 a “turbulent” year. And the struggle for growth was illustrated in data from the American Chemistry Council (ACC) which showed chemicals, excluding pharmaceuticals, production growth of 3.0% in 2015 compared with 2.4% in 2014.
Agricultural chemicals output expanded while consumer chemicals growth slowed, said the ACC. Organic chemicals (largely petrochemicals) production growth edged slightly higher and plastics growth of 4.5% year on year was the same as in 2014.
Rubber and man-made fibres rates of growth improved while speciality chemicals growth of 4.8% compared with 3.8% in 2014.
The ACC said that all segments of the ‘business of chemistry’ had improved from the depths of the recession. The most cyclical product segments recovered first but have in the past few years run up against global uncertainty.
Scanning the Top 100 table gives a flavour for the year from an operating point of view. The drop in sales in US dollars for the big petrochemical and plastics players almost tracked the drop in the IPEX.
ExxonMobil’s chemicals sales and LyondellBasell’s sales were down 26% and 27% respectively. Oil major Total’s petrochemicals sales were down close to 29%. It is estimated that Shell’s chemicals sales fell by a similar amount based on the shift in its product volumes coupled with the movement in prices in its product portfolio.
That having been said, the petrochemical and plastics players were able to push profits higher, sometimes to a remarkable extent. The profits increases reported by some of the downstream players – in specialties and coatings, for example – were also significant.
The large Japanese companies also can be seen to be improving. They had begun to capitalise on the new cost environment and were showing somewhat stronger growth, particularly those firms whose most recent fiscal year ended on 31 March 2016.
The ICIS Top 100 clearly reflects the impact of mergers, acquisitions and divestment on company performance.
Dow Chemical’s much improved profits performance, for example, is based to a great extent on the divestment the company made in 2015.
The split off of Dow’s chlorine chain chemicals netted the company more than $2.2bn at the pre-tax profit level.
There was a significant gain on the sale of the ME Global glycol joint venture to Equate and on other business divestment.
The transformation of Dow will continue to influence the rankings of companies in the Top 100 as the proposed merger with DuPont proceeds. Closing of that agreement is not expected now until January 2017.
The influence of ongoing M&A activity can be seen throughout the table.
The ICIS Top 100 presents a snapshot view of a vibrant and hugely diverse industrial sector highlighting the different operating, spending and profit dynamics of the business.
To find out how to read more news and analysis stories from ICIS, go to www.icis.com/about/news/
All opinions shared in this post are the author’s own.
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