Market Overview - With the euro crisis biting ever harder, the US economy still staggering under a formidable debt burden and even the Chinese growth engine sputtering, the chief executives of European and North American chemical producers would have been forgiven for conjuring up a spectre of doom and gloom in presenting their respective business forecasts for the remainder of 2012.

But this largely did not happen when Q2 and H1 figures were presented in July and August, even if the company chieftains did exercise a reasonable degree of caution about the outlook, and surveys on both sides of the Atlantic saw business confidence starting to wane. Most chemical companies had nothing immediate to complain about. For the industry's majors in particular the numbers published so far this year have been on course or only slightly weaker.

Even if chemical output in the European Union sank by 2.4% year-on-year from January to June, selling prices were 3.4% higher, says the industry association Cefic in its Chemicals Trends Report. In the first five months of this year, the region's net trade surplus increased by €3.6 billion year-on-year to €19.9 billion. Up to May, chemical sales were nearly 6% higher than in pre-crisis 2008.

Export-oriented North American chemical players are increasingly worried that problems in the euro zone as well as in China and in other parts of Asia, as well as Latin America, could compound their home-made woes. First-quarter growth in the US was "mediocre" and the second quarter may have been even worse, says the American Chemistry Council. Chemical companies such as Dow and DuPont, however, continued to benefit from their presence in international markets.

The euro's weakening had positive and negative influences on European chemical business. A cheaper euro would increase feedstock prices in already volatile markets but it could also make regional producers more competitive internationally even as the lower valuation reduces euro-denominated sales revenue.

Major Chemical Companies Report Q2 Results

The world's largest chemical producer, BASF, increased sales revenue 5.5% to €19.5 billion in Q2, despite slackening global growth. The German group's euro-denominated income before special items (EBIT) rose 11% to €2.5 billion, even if EBIT of four business segments tumbled. Business drivers in the second quarter were the agricultural solutions and oil & gas segments, while chemicals, plastics, performance products and functional solutions deteriorated.

In his results presentation, CEO Kurt Bock said BASF is still targeting a year-on-year increase for sales and earnings in the second half of 2012, compared with the 2011 period. But as management does not expect an upturn in demand against the year's first six months, to achieve this goal a boost from cost-saving and the group's STEP excellence program -- designed to add €1 billion to earnings annually up to 2015 -- will be needed. The STEP scheme is being accelerated, Bock said.

World's number two and North America's number one chemical player Dow Chemical saw its sales turnover decline by nearly 10% to $14.5 billion in Q2, with volume sales down 5%. Pre-tax profit receded to $984m from $1.3 billion in the same period of 2011, while EBITDA hovered around $2 billion. CEO Andrew Liveris blamed sluggish demand in the euro zone and China for the earnings weakness. Prolonged maintenance turnarounds also pressured volumes. As at BASF, the plastics business was among the weakest.

Dow likewise does not expect the global business environment to recover substantially in the second half year. Liveris said the US group, too, will accelerate its cost-saving and efficiency programs. This will mean implementing disciplined price and volume management, further reducing costs and capital spending, while continuing to de-leverage the balance sheet and generating strong cash flow.

While based in The Netherlands, LyondellBasell, which was recently added to the US Standard & Poors 500 index, has a broad footprint on two continents. In Q2, the company benefited from its considerable upstream presence in petrochemical markets. Performing strongly in the US in particular, it also improved olefins margins in Europe. EBITDA rose 11% year-on-year to $1.77 billion, while sales fell by 15% to $11.2 billion. Amid global uncertainty, CEO Jim Gallogly said LyondellBasell will "continue efforts to improve its relative cost position" in Europe.

US-headquartered DuPont, also a giant in many international markets, saw Q2 net profit fall 3.3% year-on-year to $1.2 billion. A better performance by the company's life science and agriculture segments offset weakness in some industrial markets. Sales increased by 7% to $11 billion, with selling price 6% higher and volumes 1% lower. CEO Ellen Kullman said DuPont expects full-year earnings to be toward the lower end of its existing outlook range of $4.20-$4.40 per share.

Volatile feedstock markets plagued France's Arkema in Q2. While succeeding in lifting sales by 15.4% and EBITDA by more than 20%, the company booked a net loss of €12m. This was blamed on the divestment of its vinyls activities, however. In presenting quarterly results, CEO Thierry Le Henaff expressed concern about the "challenging economic environment," which he said was marred by the European sovereign debt crisis and volatile raw materials markets.

Belgium's Solvay reported flat sales revenue of €3.3 billion for the second quarter, despite a 6% rise in volumes. Selling prices were up 2% and the currency effect was 4% positive. REBITDA (recurring earnings before interests, taxes and amortization) rose 8% against Q1 2012 but were down 6% against the 2011 period. The specialty polymers and consumer chemicals businesses were driven by "strong pricing power." The integration of recently acquired Rhodia will help Solvay weather any storms on the horizon and hold REBITDA steady at the pro forma 2012 level, said CEO Jean-Pierre Clamadieu.

Along with Solvay, Germany's Bayer was among the more optimistic chemical players at Q2 reporting time. Following a better-than-expected first half, when currency effects pushed group sales forward by 10% and EBITDA pre-exceptionals rose by 6.7%, CEO Marijn Dekkers raised the full-year forecast. Management now expects a "high-single-digit percentage" rise in EBITDA for 2012 despite the fact that healthcare is likely to see grow only in emerging markets and storm clouds are forming on the Chinese horizon.

North American and European chemical companies will begin reporting Q3 results in late October.