Germany Petrochemicals Report Q3 2009

A collapse in demand from industrial customers in the automotive and construction sectors will see a decline in sales and output of up to 20% in some polymers as Germany heads towards its worst economic performance for decades, according to BMI's latest Germany Petrochemicals Report.

According to the Verband der Chemischen Industrie (Chemical Industry Association, VCI), revenue in the German chemicals industry dropped 22% year-on-year (y-o-y) in January-February 2009 as industrial orders collapsed. In terms of output, volume was down 20% y-o-y in the period and barely changed from the December low. The VCI's forecast of a 6% fall in revenue and 3.5% drop in output could prove to be optimistic as it suggests the beginning of a recovery in H209. BMI forecasts a GDP contraction of 4.6% and a meagre recovery in 2010. The recession is set to be broad-based, with the consumer, export and investment sectors slumping badly. In this environment, it is highly likely that the fall in chemicals revenues will be in double figures, and BMI maintains its forecast of a 10% drop in chemicals sales in 2009. Within this, speciality polymers, PVC and PP will be particularly badly hit by the sharp downturn in the construction, automotive and consumer durables industries and could see declines of around 20%.

The petrochemicals industry has suffered as a result of the financial crisis that began in Q308. Major industrial consumers were among the first to feel the shock, with an immediate impact on the petrochemicals industry which supplies inputs. Entire value chains slowed down sharply and capacity utilisation fell from 86% to 75% in Q408. Manufacturers of basic chemicals were particularly hard hit, with a production decrease by around 20% in Q408 compared to the previous quarter. Cracker shutdowns affected feedstock availability across the petrochemicals industry. However, the positive performance in H108 meant that figures for the year as a whole were still positive, with output down 1.5% y-o-y and sales values up 1.6% to over EUR176bn, assisted by growth in external demand and higher prices. The economic shock late on in the year led to a 2.5% y-o-y drop in polymer output to 20mn tonnes in 2008, worth EUR22.8bn. Polymer exports, of which the EU accounted for 70%, fell 2.2% y-o-y to 13.1mn tonnes, while imports fell 2.3% to 8.4mn tonnes; the polymers trade balance was a surplus of EUR7.5bn.

The collapse in petrochemicals demand has translated into a decline in the profitability of German majors, despite cost-cutting measures. In Q109, BASF's profits fell 68% y-o-y to EUR375mn, but it still managed to beat consensus forecasts as it continued its cost-cutting exercises. Sales declined 23% y-o-y to EUR12.22bn. BASF had cut its production and inventories, helping to reduce net debt by around EUR1.5bn in the first three months of the year. It is also expecting cost-cutting measures to lift earnings by around EUR1bn per annum (pa) from 2012 and plans to cut at least 2,000 jobs by the end of 2009.

Sales were supported by the agricultural segment, but there were indications that petrochemicals were suffering. Lanxess has reported a net loss of EUR14mn in Q109, compared with a net profit of EUR104mn in Q108. Sales fell by 31% to EUR1.05bn, while EBITDA fell 70% to EUR66mn. In performance polymers, its sales fell 35% y-o-y to EUR448mn and in the advanced intermediates segment sales fell 22% to EUR58mn. Sales in the performance chemicals segment, which is most exposed to construction, automotive, consumer goods and steel industries, fell 32% to EUR338mn. Lanxess has launched its 'Challenge09' package of measures, which is a combination of technical measures and reductions in employee compensation and working hours. Lanxess expects the programme to cut costs by about EUR250mn in 2009 and in 2010. A core feature of the measures is flexible facilities management, which focuses on products that can be flexibly manufactured to respond quickly to fluctuations in demand. Lanxess says it expects a 'significant improvement' in Q209 compared to Q109, but it will still be down y-o-y.