Solvay Sees Market Recovery After Q4 Inventory Hit

Chemicals and plastics firm Solvay said it was experiencing a broad market recovery after a sell-off of inventories depressed its fourth-quarter profit.

Solvay, the world's largest maker of soda ash, an ingredient for glass, said that while conditions in Europe and some market segments were uncertain it was witnessing a gradual overall recovery.

"Some confidence is coming back on one side, and on the other side there is also an actual need to buy products because their inventories are empty," said Jacques van Rijckevorsel, the head of the plastics division, which took the biggest hit at the end of the year.

Solvay said fourth-quarter recurring core profit fell 23% to €355 million ($464 million), well below the €411 million average forecast in a Reuters poll.

However these results, now incorporating results from recently acquired French specialty chemicals group Rhodia, included a €50 million hit from converting inventories into cash designed as a defense against in uncertain economic times.

"Initially you could say this is a very weak set of numbers," said Petercam analyst Jan van den Bossche.

"But you need to balance this with the fact that there was €50 million of inventory impairments in the overall group profitability, so if you extract that then you would come much closer to the consensus."

Solvay said that sales of vinyls fell by 10% in Europe in the fourth quarter as the sovereign debt crisis made customers cautious about holding stocks of vinyls, a plastic used in building and consumer goods.

Its buy-out of Rhodia last year lifted its exposure to faster growing markets such as China and Brazil to 40%, and allowed it to further tap into higher-margin specialty chemicals.

Dutch peer AkzoNobel NV also saw its shares swing from negative into positive territory during the day as investors took a second look at disappointing full-year profits and took heart from the fact the company was passing on raw material prices.