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Chemical Industry Recovery Gaining Steam

While few people are getting overly excited about an economic recovery, 2010 is looking a lot better than 2009.

At the height of the financial crisis, Saudi Basic Industries posted a loss of $258 million for the first quarter of 2009. SABIC blamed the economic downturn and a write down of assets. The loss was shocking because SABIC has a low-cost position making products, such as polyethylene, in Saudi Arabia and exporting them to fast-growing Asian markets. If SABIC was in trouble, what hope was there for everybody else?

However, that loss has now swung to a $1.5 billion profit for the first quarter of 2010. Before the recession, SABIC’s profits peaked in the second quarter of 2008 at $2 billion.

SABIC CEO Mohamed H. Al-Mady says volumes and prices for petrochemicals have seen strong improvement. “We are overcoming the impacts of the global financial crisis,” he said.

A good barometer for the health of the chemical industry as a whole is DuPont. It has products ranging from agricultural chemicals to automotive coatings and generates more than 60% of its revenues outside of the U.S. Standard & Poor’s improved its outlook for the company’s investment-grade “A” credit rating from “negative”, which means that its rating is in danger of declining, to “neutral”.

Ratings analyst Cynthia Werneth expects the economic recovery, cost reductions, and growth in agriculture will offset an expected $700 million decline in DuPont’s pharmaceutical licensing income. DuPont sold its pharmaceutical business to Bristol-Myers Squibb in 2001 but retained rights to the hypertension drugs Cozaar and Hyzaar, which it licensed to Merck. Patents for these drugs expire this year.

A large DuPont acquisition, the report said, is unlikely. “We believe that management is committed to achieving and maintaining credit measures in line with the [credit] ratings, which would not support a large debt-financed acquisition or significant share buybacks at this time,” Werneth said.

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