Moody’s Upgrades North American Chemicals Industry
Moody’s: North American and EMEA chemicals industry outlook changed to stable
New York, September 01, 2016 — The outlook for the North American and EMEA chemicals industry has been changed to stable from negative, Moody’s Investors Service says in a new report. Earnings are likely to rise through next year as the industry benefits from cost-cutting and acquisitions, as well as from global economic growth.
Moody’s industry outlooks reflect the agency’s expectations for the fundamental business conditions in a given sector over the following 12 to 18 months.
“The upward outlook revision for the North American and EMEA chemicals industry is based on diminished global macro risks, the still-strong performance of diversified and specialty chemical companies, and the apparent bottoming of several commodity chemicals,” says Moody’s analyst, Joseph Princiotta. “Diversified and specialty producers should continue to see above-average earnings, while most other chemicals companies will post at least breakeven results over the next few months.”
Commodity prices are off the bottom hit in the first quarter of 2016, though for companies whose products are made from crude oil or that supply products to the oil and gas industry, low demand growth and additional production capacity will limit price and margin gains through next year. Meanwhile, diversified and specialty chemicals companies will continue to benefit from still-low commodity prices, but will need to keep augmenting organic growth with cost-cutting and bolt-on acquisitions to generate attractive shareholder returns. Producers of fertilizers and agricultural chemicals will remain under stress.
Diversified and specialty producers in Europe are expected to outperform North American peer companies as the continued relative weakness of the euro against the US dollar, combined with incremental efficiency gains from restructuring, helps shore up their competitiveness.
Over the next 12 to 18 months, Moody’s expects M&A activity to remain brisk in the agricultural, paints and coatings and chemicals distribution sectors, as well as in some smaller quasi-commodity chemical sectors of the overall chemicals industry. With China still accounting for more than 30% of global demand for most commodities, a pick-up in Chinese economic growth remains key to unlocking improving profits in the commodity chemicals sector.
Moody’s research subscribers can access the report, “Chemicals – North America and EMEA: Outlook Turns Stable Amid US Resilience Despite Sluggish Macro Conditions” at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1039332