Specialty chemical makers hit by slowing consumer demand
The continuing decline in world sales of speciality chemicals has been thrown into sharp relief by the various profit warnings, quarterly results and other financial communications issued by some of the industry’s best known names in recent weeks.
The ball was set rolling in early October by the French chemicals producer Rhodia, which reported that its shares had fallen in value by more than 45% since the US terrorist attacks of September 11. The company said consumer confidence had ‘evaporated’, wiping out any hopes of a recovery.
Quarterly results issued on October 18 by the Swiss speciality chemicals producer, Clariant, were barely more encouraging. Again citing the wider economic and political situation, the company warned that its second-half operating margin would be lower than that of the first. It was also not expecting any sales growth for the year as a whole.
Textiles, Leather and Paper Chemicals – the largest of the company’s six divisions – had experienced a ‘significant drop’ in sales of textile dyes, the company said, though ‘stable sales’ had been maintained within the company’s leather chemicals business. Textile, Leather and Paper Chemicals sales were 6% down in Swiss francs and down 1% in local currencies. Somewhat surprisingly, given its billion pound investment in the UK fine chemicals producer BTP early last year, Clariant said it was planning to scale back capacity in fine chemicals.
A similarly unsettling picture was presented a few days later by the US chemicals producer, Rohm and Haas, when it released its third quarter results. Citing weak demand for consumer goods that make use of its products, the Philadelphia-based chemical maker posted earnings of $53 million, or 24 cents per share, down from $84 million, or 35 cents, a year earlier. Revenue dropped to $1.35 billion, from $1.58 billion a year earlier.
Though double-digit growth had been experienced with some new products, including ‘opacifiers’ used in adhesives and paints, the gains were offset by "persistently weak demand for products that serve the automotive, paper, leather and industrial-power coatings markets." "We are protecting strong market positions around the world even as we ratchet back spending wherever possible," said Raj L. Gupta, Chairman and Chief Executive Officer.
On October 22, in an effort to bring some perspective to the situation, the German chemicals giant BASF issued a press interview with its Chairman, Dr. Jürgen F. Strube, in which Dr Strube admitted that the company’s second half earnings would be ‘considerably lower’ than those that had been predicted. (For a full transcript of the interview, see leatherbiz.com story: ‘BASF Chairman outlines company plans to counter world slump in demand for chemicals - 29.10.01’). He also forecast a ‘difficult’ 2002, in which any upturn would as much depend on the world political situation as economic factors.
Also during October, it was reported that Schroder Ventures and Goldman Sachs capital partners were preparing to renegotiate their offer price for the German speciality chemicals unit, Cognis. As a hedge against a further decline in market confidence, when the equity funds agreed the purchase terms of the company from the German household chemicals producer, Henkel, on September 13, they inserted a clause allowing them to reopen price negotiations before the end of November. (See leatherbiz.com story: Cognis Chemicals sold to TFL parent group 17.09.01) The fact that they are now looking to activate the clause would suggest that the market has suffered a further loss of confidence in the six weeks since the contract was signed.
