Weal and Woe - Despite pressure from the currency crisis, volatile markets and weak demand in some countries, the performance of the European chemical industry in 2012 was better than generally expected. In its trend report published at the end of February, the federation of chemical industry associations, Cefic, said EU-wide production contracted by 1.5% in last year's first 11 months, less than the 2% predicted in its December 2012 forecast.

Industry-wide trade data shows a trade surplus of €45.9 billion for the period, €9.4 billion higher than in 2011. Presenting another encouraging figure, Cefic said that late in the third quarter production began to rebound slightly from its earlier slump. With selling prices 2.7% higher, chemical sales made good strides in January to November 2012, and months of 2012 and were nearly 5% higher than the full-year record set in crisis year 2008. However, revenue was down 1% against 2011.

Across Europe, chemical producers' confidence about 2013 now appears to be waning. Cefic's EU chemical industry confidence indicator (CCI) was lower in January 2013 than in December 2012. Based on data from the European Commission's business and consumer survey published in January, the organization said underlying data point to worsening in assessment of order book levels from European customers.

In Germany, the EU's largest chemicals economy, the industry association VCI struck a less dissonant chord. In its report on the 2012 fourth quarter and the outlook for 2013, the industry association VCI said that, after an "encouraging" finish to 2012, it now sees "light at the end of the tunnel."
VCI general manager Utz Tillmann said member companies, which include both chemical and pharmaceutical producers, "assume that upswing forces will prevail." Expectations are higher outside Europe, but "so far our industry is confident about domestic business, too." Altogether, the association forecasts a 1.5% rise in output and a 2% increase in sales to around €190 billion this year.

European multinationals cautious about 2013

Reporting on 2012, most of Europe's multinational chemical producers said that, amidst a volatile and contrast-rich macro-economy, positive currency effects cosmetically enhanced 2012 figures, which were also touched up by the consolidation of new acquisitions and internal efficiency measures.
Extreme caution was perhaps the common thread running through the companies' guidance for 2013. Several CEOs - some indirectly - acknowledged that they may not have been cautious enough in the outlook for 2012. With visibility for the next 9 to 12 months murky, many preferred to focus their forecasts on 2016 or even 2018.

At Germany's BASF, the world's largest chemical producer, booming business in oil & gas following the end of the Libya crisis as well as a thriving agriculture business padded the bottom line in 2012, CEO Kurt Bock said at the annual press conference in Ludwigshafen. The performance of chemicals and plastics businesses was weaker, reflecting slower growth in global economy.

BASF's group sales increased by 7% to EUR 78.7 billion. However, EBIT before special items grew by only 5% to €9 billion. Net income sank, due partly to higher taxes on oil and gas earnings balanced against a tax-free divestment in 2011. Bock said the group expects to top its 2012 results in 2013. However, after last year's somewhat disappointing development, he declined to be precise.

Bayer, Germany's second largest chemical producer, lifted its 2012 group sales by 5% to a record €39.8 billion, but EBIT declined by 4% to €4 billion, due to legal expenditure for US lawsuits surrounding an oral contraceptive. Group EBITDA before special items rose 8.8% to EUR 8.3 billion, in line with the 8% rise in HealthCare earnings. CropScience profited from a portfolio realignment and a favourable market environment, while earnings of MaterialScience rose, thanks to a strong polyurethanes economy and efficiency measures.

For 2013, the Leverkusen group expects EBITDA before special items to improve by a "mid-single-digit percentage and core earnings per share by high single-digit percentage figure." "Our optimism lies mainly in our life science businesses," said CEO Marijn Dekkers, stressing at the same time that Bayer benefits from dividing its assets between three distinct markets.

Lanxess predicts lower earnings in 2013

In its preliminary report on 2012, Lanxess - split from Bayer in 2004 - said it achieved EBITDA pre-exceptionals of €1.2 million, a rise of 7%, on sales 4% higher at €9.1 million. The performance matched CEO Axel Heitmann's earlier guidance of 5-10% annual earnings growth. Heitmann said that, against the usual seasonal trend, soft underlying demand in the second half of 2012 has continued into 2013. In contrast to a forecast made in early March, management now expects "a significantly lower" EBITDA pre-exceptionals" in the first quarter.

At Essen, Germany-based Evonik, 2012 EBITDA declined 6% to €2.6 billion. Sales dropped 6% to €13.6 billion, reflecting the divestment of carbon black activities. CEO Klaus Engel said the group expects higher sales for 2013, with operating income at last year's "very good" level.

Belgium's Solvay, now incorporating French chemical producer Rhodia, increased its recurring EBITDA (REBITDA) 2% in 2012 to just over €2 billion, on net sales up 2% to €12.4 billion. Despite the difficult trading conditions in its more cyclical businesses, cost efficiencies resulting from the integration of Rhodia allowed the group to meet profitability goals and exceed cash generation expectations, said CEO Jean-Pierre Clamadieu.
Toward its commitment to achieve its €3 billion REBITDA target in 2016, Clamadieu said Solvay will continue reshaping its portfolio, thereby optimizing its industrial footprint and enhancing the implementation of operational excellence initiatives.
In view of macroeconomic conditions last year, Dutch chemical producer DSM delivered a "solid operational performance," with growth across the portfolio except in the merchant caprolactam business," said CEO Feike Sijbesma. This was one of the reasons why sales were flat at €9.1 billion and EBITDA down 16% to €1.1 billion. For 2013, management expects slight improvement in EBITDA to around €1.4 billion. Sijbesma said DSM will focus on operational performance and integration of last year's acquisitions.
Based in Rotterdam, although its management operates largely from the US, LyondellBasell reported record EBITDA of $5.9 billion for 2012, a rise of 5%, as sales revenue eroded by 6% to $45.3 billion. CEO Jim Gallogly said business was driven by the olefins and polyolefins businesses in North America, while operations in Europe and Asia were beset by lower volumes and margins. The benefits of LyondellBasell's "focused back-to-basics strategy" were "clearly demonstrated", Gallogly said, with reliable manufacturing operations allowing the group to take advantage of favourable market conditions.With business off to a good start in 2013, the CEO said the fundamentals in place during 2012 will continue, suggesting that this will be "another strong year."

Arkema touts strong performance despite dip

France's Arkema's turned in what it called a "strong financial performance" in 2012, despite the nearly 4% decrease in EBITDA to €996 million and the 8.4% decline in sales to €6.4 billion. Speaking in Paris, CEO Thierry Le Hénaff said the weaker performance, which was "in line with guidance," reflected the less favourable and more volatile economic environment compared with 2011. Although the EBITDA margin eroded from 17.5% to 15.6%, it was "among the highest in the industry," he asserted.

Le Henaff said Arkema is "confident" that it can repeat its 2012 performance in 2013, although it is "cautious about the macro-economic environment." Toward its goal of becoming a world leader in specialty chemicals and advanced materials by 2016, the French producer will focus its efforts on organic growth, investing mainly in new capacity.

In Basel, Harriolf Kottmann, CEO of Swiss specialty chemicals player Clariant, reported EBITDA of Sfr. 802 million for 2012, a decline of 4% on sales 8% higher at Sfr. 6 billion. The driving force behind sales growth of 5.5% to €6 billion was Munich-based Süd-Chemie, acquired in 2011. Flagging European demand squeezed margins in cyclical businesses such as additives. Kottmann said Clariant expects its trimmed-down portfolio to deliver higher margins and net income in 2013, with emerging markets providing most of the growth.

In an unaudited statement, privately owned Ineos, the former British group now based in Switzerland, blamed the 11.5% decline in 2012 EBITDA in part on the weaker performance of its Olefins & Polyolefins (O&P) business in Europe, as the leak-related closure of the Elgin gas field in the North Sea necessitated imports of feedstock for its Grangemouth cracker. By contrast, O&P margins in North America were padded by the use of cheaper natural gas feedstock.
Ineos said it is continuing to focus on cash management and liquidity, reducing net debt to about €6.2 billion at the end of December.