lorenzo63
Age quod Agis
Il settore chimico,ora veramente molto debole, da sempre subisce una forte dipendenza dai corsi petroliferi. E' in atto altresì, un riposizionamento delle produzioni a livello planetario, nel quale sono spostati plant in aree a piu' elevata richiesta con minori vincoli di ordine ambientale ed ovviamente con minori costi generali.Proprio per queste ragioni vi è anche una riorganizzazione attraverso fusioni/acquisizioni cessioni di attività.
NB: il report riportato a seguire è dell'aprile 2008
Industry Credit Outlook
Deteriorating macro-economic conditions in Europe's chemical industry ahead of the expected downturn in the
petrochemical sector in 2009 will reduce profits and cash flows of many of our rated companies over the coming quarters.
Nevertheless, most of them are well equipped for the obstacles ahead after several strong years for the chemical industry,
as indicated by the stable outlooks on about 80% of them. The six issuers in the 'B' rating category will be vulnerable,
however, because their balance sheets do not allow for a prolonged downturn, significant earnings deterioration, or
refinancing needs.
Some sectors of the chemical industry are less sensitive than others to general economic growth and supply-and-demand
balances. We expect agrochemical companies and industrial gas producers to continue their strong performance, while petrochemical producers will be most exposed to slowing economic growth, high raw-material costs, and a substantial addition of supply coming on stream from 2009.
To weather these difficulties, companies will need to strengthen their existing competitive advantages in technology or service so as to continue to differentiate products and absorb or pass through raw-material cost inflation. We also expect companies to adopt more conservative financial policies, moving away from the aggressive debt financing of 2006-2007, in preparation for the downcycle.
Geographic diversity will also help issuers to withstand a potential downturn. The U.S. accounted for only about 21% of
world chemical sales in 2006, while Europe and Asia remained the most important markets, accounting for 34% and 33% of
sales, respectively, according to Cefic, the European chemicals industry council. What's more, growth was strongest in Asia
and Eastern Europe.
While Standard Poor's Ratings Services expects most companies will still report strong results for the first quarter of 2008,
earnings are expected to weaken in the course of the year, reflecting weaker economic growth, high raw-material costs, and
unfavorable currency movements.
Weakening economic growth will put pressure on volumes sold
The downturn in the U.S. economy and weaker growth prospects for Europe will threaten capacity utilization, especially for
petrochemical producers and specialty chemical producers in the coming quarters, and therefore their profitability.
Performance in this industry is closely linked to economic growth and industrial production. That is why strong economic
conditions in recent years have increased operating rates across the industry, supporting the pass-through of higher energy
costs to customers. Consequently, a downturn will dampen prospects.
We expect softer demand to impinge on volumes in the coming quarters. Although they should have held up fairly well in
the first quarter of 2008, they are likely to weaken in the course of the year. In the last economic downturn in 2001, our
rated issuers faced about four quarters of weak volumes.
Strong euro will hit 2008 earnings
The significantly appreciating euro against the dollar will reduce earnings generated in the U.S. and increase competition
risk for some specialty chemical firms in Europe. On the positive side, companies can source cheaper raw materials because
they are largely dollar denominated. This is why profit declines so far have been moderate, despite the euro's significant
appreciation. All in all, though, we expect currency effects to have negatively influenced sales growth for most European
chemical producers in first quarter of 2008 for the seventh consecutive quarter (see chart 2).
Chart 2
New capacities and softer demand will weaken pricing power
In contrast to the past years, we expect the industry's pricing power to weaken as a result of softening demand and further
supply addition. Pricing power is closely linked to the supply-and-demand pattern of products. Therefore, we only expect
agrochemical companies to continue to enjoy strong pricing power in 2008 because their supply-demand balance remains
tight.
Rising energy prices could also become a more pressing issue for base and specialty-chemical producers, particularly in the
context of a slowing U.S. economy and the gradual weakening of the supply-and-demand balance for petrochemicals in the
coming years. Tougher economic conditions are likely to erode demand growth, and the large-scale capacity additions from
lower-cost regions will make it increasingly difficult for companies to cope with raw-material spikes.
Chart 3
Petrochemicals and plastics: New capacities and high input prices dim prospects for the coming
quarters
After several years of substantially strong performance in the petrochemical cycle, cracker margins did not manage to
recover in the fourth quarter of 2007 (see chart 4). Only polyolefin margins have held up. Our cracker margin indicator
shows a significant deterioration in the ethylene margins of Europe-based petrochemical producers in the last quarter of
2007, continuing into 2008. We expect the second quarter of 2008 to remain poor for ethylene, while propylene margins will
remain similar to those of the first quarter. However, naphtha prices look set continue rising, mainly because they are
closely linked to the development in oil prices. This will put further pressure on cracker margins in Europe in the second
quarter.
European petrochemical producers have benefited somewhat from an appreciating euro over recent quarters, while margins
of liquid crackers in the U.S. have suffered from the weak dollar.
Given the relatively weak start for petrochemical producers in 2008 and the new capacities on the horizon, we expect
petrochemical and plastic producers' full-year 2008 profits to be clearly below those of 2007. The length and magnitude of
the downturn in the cycle will depend greatly on how well economic growth holds up over the next few years. A meaningful
weakening of overall global economic activity for a prolonged period would most likely lead to a significant weakening of
cash flows for highly indebted petrochemical producers, such as LyondellBasell Industries AF S.C.A. (B+/Negative/--) and
Ineos Group Holdings PLC (B+/Stable/--). This would put pressure on their credit profiles. We recently revised the outlook
on LyondellBasell to negative, reflecting the risk of credit deterioration.
The Middle Eastern and Russian producers are currently benefiting from high oil prices because their feedstock costs are
fixed to low gas prices in their regions. Therefore, the cost curve in petrochemicals is becoming even steeper, with Middle
Eastern producers at the low end and European producers having the highest production costs. Saudi Basic Industries
Corp.'s (SABIC; A+/Stable/A-1) strong first-quarter 2008 results underpin this.
Chart4
High raw-material costs challenge specialty chemicals' business model
We expect European specialty-chemical producers to suffer from raw-material cost inflation in 2008. They are also more
sensitive than other sectors of the chemical industry to the depreciation of the dollar because they export a significant
proportion of products to dollar-denominated countries. However, innovation, internal cost restructuring programs, and a
likely easing of petrochemical prices in 2009 should help the majority of our rated specialty chemical producers cope with
these challenges and maintain their current credit quality.
Companies best positioned to ride out these difficult industry conditions are Sika AG (A-/Stable/A-2), Rhodia S.A.
(BB/Stable/B), and Royal DSM N.V. (A-/Stable/A-2). We consider these companies to be well positioned within their
markets, and to have a cushion in their credit quality to allow for some unforeseen events. We expect them to continue to
show solid performance in 2008 and to benefit from strong global economic activity in past years.
Others, meanwhile, are struggling with significant competition and are not able to pass on the higher raw-material costs to
customers. The credit quality of Ciba Specialty Chemicals Holding Inc. (BBB/Negative/A-3) and Clariant AG (BBB-/Stable/A-
3) has deteriorated over the past few years, largely because of their unsuccessful acquisitions and high levels of competition
in their business segments. We recently lowered the rating on Clariant by one notch and revised the outlook on Ciba to
negative from stable on concerns that the softening economic environment could hinder the operating improvements they
need to maintain their credit profiles.
Agrochemical producers on a strong upward trend
The agrochemical industry is enjoying a renaissance. Demand is exceeding production for key crops in global markets and
the price of wheat has more than doubled over the past 12 months. This puts farmers under extreme pressure to optimize
their yield and encourage the use of fertilizers and crop protection products. Our rated agrochemical companies are
benefiting from this situation and experiencing a significant increase in fertilizer prices and crop protection products.
Consequently, Syngenta AG (A/Stable/A-1), Qatar Fertiliser Co. (S.A.Q.; A+/Stable/--), Yara International ASA
(BBB/Stable/A-2), and EuroChem Mineral and Chemical Co. OJSC (BB-/Stable/--) all posted strong operating results and increased margins for 2007. Syngenta also reported a 20% organic sales growth in the first quarter of 2008.
Urea prices peaked recently, partly because of rising gas costs, which companies can pass on to customers (see chart 5).
The increase in urea prices was possible in spite of rising imports from China. After the Chinese government recently
increased the tax on fertilizers to 100%-135%, imports from China to Europe are expected to be reduced significantly,
further tightening the supply-and-demand balance within Europe on nitrogen fertilizers.
Chart 5
Industrial gases are a safe haven in turbulent times
We consider industrial gas producers well prepared to weather the current uncertainties over global demand, rising energy
and feedstock costs, and the likely weakening of the petrochemical cycle. Industrial gas producers generally benefit from
business models that allow them to pass through higher energy costs to customers either by contracts or their exceptionally
strong market dominance. They also serve a large variety of end-markets and have a high exposure to less economically
sensitive sectors, such as health care and energy. We recently raised our ratings on Linde AG (BBB+/Stable/A-2), following
its exceptionally strong debt reduction and more conservative financial policy.
In the past, the main threats to industrial gas companies' credit quality have been increased M&A activity and shareholder
friendliness. Although we believe mergers will continue play a major role, we think companies will concentrate on smaller
deals in the coming years. This will be encouraged by good organic growth opportunities in the industry. We expect
companies to retain conservative financial policies overall, supported by their long-term contracts with large high-rated
multinationals. Nevertheless, we consider it likely that both Linde and L'Air Liquide S.A. (A/Stable/A-1) will invest
significantly over the next few years, so that credit metrics show no substantial improvements from current levels.
Outlook stable on most companies
We currently rate 28 chemical producers in Europe, the Middle East, and Russia. We expect 80% of our rated chemical
producers to maintain their credit profiles over the coming year and we have assigned a stable outlook to those issuers. The
outlook on four companies is currently negative: LyondellBasell, Ciba, Lucite International Group Holdings Ltd.
The outlook on Sabic Innovative Plastics B.V. (BB/Positive/--) is positive because of a likely change in its financing
structure.
Since our last report card was published on Dec. 12, 2007, we have withdrawn the rating on Solutia Europe S.A./N.V. at the
company's request, after its debt was refinanced as part of parent company Solutia Inc.'s emergence from Chapter 11
bankruptcy.
So far in 2008, we have raised the ratings on Linde and Rhodia while we lowered those on Clariant. We expect downgrades
to outweigh upgrades in the coming quarters.
Chart6
Chart7
Issuer Review
Table 1
Company/Corporate credit rating*/Comments
L'Air Liquide S.A. (A/Stable/A-1) Francia
Air Liquide posted strong results for 2007, with sales increasing by 7.8% and EBITDA by
6.2%. In the first quarter of 2008, sales continued to develop strongly. This was aided by
good hydrogen demand and increased sales in the health care and electronics sectors. We
expect cash flow generation to remain strong in 2008, but FOCF generation will be modest in
the coming years due to the company's large capital expenditure plans, acquisitions, and
shareholder-friendly policy. We expect credit protection ratios to improve slightly from the
current levels, mainly stemming from improved cash flow generation.
Akzo Nobel N.V. (A-/Stable/A-2) Olanda
At year-end 2007, on a pro forma basis the combined Akzo/ICI entity had revenues of €14.4
billion, reflecting a 2% increase, with the majority of growth coming from the emerging
markets. In the North American markets, however, ICI's decorative segment was negatively
affected by the slowdown in the U.S. economy and was down by 6%. The pro-forma results
are slightly below our expectations, with pro-forma FFO to debt of about 30%. The ratings
could be negatively affected should the company's top-line revenues soften, resulting in a
deterioration in FFO and credit protection ratios. The company needs to achieve FFO to debt
of about 35%-40% through the cycle.
BASF SE (AA-/Stable/A-1+) Germania
BASF reported a strong first-quarter 2008, with sales increasing by 9% and EBITDA by
10.5% compared with first-quarter 2007. Profits were up in oil and gas, agriculture, and
plastics, while profits in chemicals were lower, reflecting lower cracker margins. Credit
protection ratios were strong, with funds from operations (FFO) to debt at about 60% at
Dec. 31, 2007, and debt to EBITDA about 1.2x. We expect credit protection ratios to stabiliz
in 2008 due to good operational performance, despite the company's shareholder-friendly
policy.
Carmeuse Holding S.A. (BB+/Negative/--) Belgio
The main news is the completion of the Oglebay Norton Co. acquisition in mid-February,
following the approval of the U.S. antitrust authorities. While this debt-financed growth has
depressed key credit metrics, we expect Carmeuse to improve its financials by year-end,
with notably asset disposals and the refinancing of the bridge loan. Operational performanc
should continue to be satisfactory in the first half of the year, with an EBITDA margin above 20%.
Ciba Specialty Chemicals Holding Inc. Svizzera
Acquisita e pienamente incorporata da BASF nel settembre 2008
Clariant AG (BBB-/Stable/A-3) Svizzera
We lowered the rating on Clariant, reflecting its weak underlying profitability and subpar
cash flow coverage. We expect the company to generate only moderate free operating cas
flow over the next two years. Clariant was only partly able to benefit from the strong
economic environment in recent years, with volumes supporting revenue growth. Despite
increasing its capacity utilization, the company did not cope with the effects of higher raw-
material costs and intense competition. Its profitability continued to decline across all
product segments and ranked among those at the low end of Standard & Poor's rated
chemical companies in 2007. We expect weaker economic growth and still-volatile and risin
raw-material costs to make it difficult for Clariant to restore its profitability in 2008. FFO to
debt is about 30% and is expected to remain about that level in the coming years.
Cognis GmbH (B/Stable/--) Germania
Cognis managed in 2007 to largely offset the higher raw-material cost prices, and its profit
margin only declined marginally to 10.2% from 10.8% on an unadjusted basis. The adjusted
EBITDA margin was reported unchanged at about 11.7%. Organic sales growth remained
strong, especially in fourth-quarter 2007, at 8.7%. Cognis is preparing to sell Pulcra
chemicals, which, together with Oleochemicals, shows the weakest profitability. Credit
protection ratios remain weak, with debt to EBITDA of about 8.1x and FFO to debt of about
5% for the 12 months ended Dec. 31, 2007. We expect a modest improvement of the
currently weak credit protection ratios in the coming quarters.
Dynea International Oy (B+/Stable/--)
We expect Dynea to post 2007 results in line with the rating, with an FFO to adjusted debt
well above 15%, and an EBITDA margin in the region of 8%-10%. The company continues to
have material leeway for debt-financed acquisitions or other cash-intensive measures.
EuroChem Mineral and Chemical Co. OJSC (BB-/Stable/--) Russia
The group should have posted a very good EBITDA margin in 2007, continuing the good
trend of the first nine months, when the margin surpassed 30%. This reflected very good
selling prices, robust demand for fertilizers, and still cheap variable costs (notably Russian
gas). As a result, cash flow metrics for 2007 should be comfortable for the rating and
accommodate the group's material capex plans for the next few years.
Evonik Degussa GmbH (BB/Stable/B) Germania
The difficult environment on financial markets does not support Evonik's plan for an IPO in
2008. However, a minority sale to an investor remains on the agenda. The uncertainty about
the future strategy of Evonik and of Evonik Degussa will therefore remain longer than
previously expected. While Evonik Degussa is likely to report clearly improved leverage
ratios in 2007 over 2006, the overall leverage remains aggressive in our view and
uncertainty about future business and financial strategy are also weighing on the assessment
of the company's current credit quality.
Ineos Group Holdings PLC (B+/Stable/--) UK
Di Ineos non imetto il commento di S&P perchè troppo superato (se ne parlerà + avanti).
Linde AG (BBB+/Stable/A-2) Germania
We raised the rating on Linde following the strong operating performance and conservative
dividend policy in 2007, which allowed it to reduce financial debt faster than we previously
expected. Linde exceeded its original debt-reduction target by more than €800 million in
2007. It also reduced its pension deficit by about €600 million by making extra contributions
and thanks to the strong performance of pension assets. Linde's cash flow protection ratios
already reached levels adequate for the 'BBB+' rating in 2007, with FFO to debt of 27.5%
and debt to EBITDA of 2.8x. We expect the company to use its operating cash flow over the
coming years to support its growth aspirations in industrial gases by making capital
expenditures to sales of about 13% per year. We therefore expect cash flow protection ratios
to stabilize.
LyondellBasell Industries AF S.C.A. (B+/Negative/--) <-----CH11!!
We revised the outlook to negative due to increased risks that LyondellBasell faces in 2008. Poi evoluto in CH11.
LANXESS AG (BBB/Stable/A-2)
LANXESS further improved its profitability in 2007, thanks to its initiated restructuring
measures, portfolio management activity, solid organic growth, and high capacity utilization
for key products. The EBITDA margin reached 10.9% in 2007 and a further improvement is
expected in 2008 due to the divestment of Lustran Polymers. LANXESS is not expected to be
significantly affected by the petrochemical downturn in 2009, as supply and demand for its
product portfolio seems not to be affected. However, we expect cash flow protection ratios to
weaken from currently strong levels in the coming years because the company is committed
to external and internal growth. The recent acquisition of Petroflex is an example of this.
Rhodia S.A. (BB/Stable/B) France
The main news is the one-notch upgrade to 'BB' because we expect Rhodia, after the
improved operational and financial results in 2007, will continue to improve its financials in
2008 and 2009, with an FFO to adjusted debt at about 20% and positive FOCF. This reflects
the continuing good polyamide cycles, and the material carbon credit cash proceeds. For the
first quarter of 2008, we expect EBITDA to be affected by raw-material and energy prices,
but thereafter we believe Rhodia will be able to progressively pass on an important part of
these costs.
Royal DSM (A-/Stable/A-2) Olanda
DSM displayed overall good operating results in 2007 and in the first quarter of 2008, while
the group's cash flow generation and key credit metrics remained strong and well above the
levels required for the current rating. This continues to give to the group material room for
potential acquisitions, higher shareholder distributions, restructuring expenses, and growth
and efficiency capital expenditure. Operating business performance is expected to have
remained broadly favorable for the first quarter of 2008. We continue to expect DSM to
achieve average FFO to debt of about 45% over the cycle to maintain its current rating.
Saudi Basic Industries Corp. (A+/Stable/A-1)
SABIC continues to post record results because it benefits from low gas prices, which are k
input costs for the production of its petrochemicals. This will further improve its
competitiveness against naphtha crackers in Europe in 2008. SABIC's decision to reduce it
dividend payout in 2008, despite increased cash flows, is evidence of its conservative
financing. Credit protection ratios declined, but remained strong, with FFO to debt of about
100% and debt to EBITDA of 1x. We expect a further weakening of the credit protection
ratios following a significant investment phase in 2008. However, coverage is likely to rem
comfortable for the ratings. SABIC's investment plans are on track and we expect the
company to increase capacity significantly in the second half of 2008 through the start-up
several plants.
Sika AG (A-/Stable/A-2)
Sika continued to perform well in 2007, with revenues of Swiss franc (CHF) 4.57 billion. Th
bulk of the growth was organic. Sika posted strong growth in most of its markets, with the
exception of North America, which only grew by 7% because the industry division in that
market was negatively affected by the automotive segment's performance, a condition tha
persisted in the first quarter of 2008. Sika was able to successfully pass on rising raw-
material costs and effect operating efficiencies, which resulted in an increase in EBITDA
margins to 14%, from 13.1%. This translated into strong cash flow generation and improv
credit protection ratios. FFO to fully adjusted net debt at year-end was a robust 62.8%. In
the first quarter of 2008, Sika's results were negatively affected by curency effects and
weather conditions in Europe. Nonetheless, the company achieved underlying organic grow
of 7.5% on revenues of CHF1,018 million. Sika's new facility in Switzerland recently opene
and will focus on research and development.
SPCM S.A. (BB-/Stable/--)
SNF (100% owned by SPCM) posted overall fair third-quarter operating results, reflecting
high raw-material and energy prices. The margin was down materially year on year, despit
higher sales, mirroring the acrylonitrile sales to Dupont, the margin of which is much
smaller, and that the Oman construction contract is chiefly in a start-up phase. Cash levels
and availability under the committed revolver line remained appropriate for the rating and
for the company's activities, at €77 million at the end of September. We expect FFO to
adjusted debt of about 20% in 2007, far better than in 2006, helped by favorable EBITDA
generation.
Solvay S.A. (A/Stable/A-1) Belgio
Solvay reported good 2007 results across its various businesses. In the pharmaceutical
segment, TriCor sales continued to perform well, and it remains Solvay's No. 1 drug. The
€300 million savings target (on fixed costs by the end of 2010 compared with end-2005) is
well on track. The other segments, plastics and chemicals, also enjoyed good profits, owin
to efficiency and markets that enabled the pass-through of raw-material and energy prices
Solvay continued to achieve cash flow metrics and leverage in line with the rating, with FFO
to adjusted debt of between 40% and 45% expected for the current rating. We continue to
expect Solvay to maintain its conservative financial policy and to post good EBITDA and
FOCF generation.
Syngenta AG (A/Stable/A-1)
Syngenta posted an exceptionally strong first quarter in 2008, with sales up 20% at constan
exchange rates (CER). Substantial volume growth was supplemented by a 3% increase in
pricing. In 2007, Syngenta's sales increased by 11% and EBITDA by 19%. Profitability has
improved and free cash flow generation reached $920 million. Crop protection is still the
main impetus of profit growth, but the company expects the Seeds business to become more
important in the future. Credit protection ratios remain strong for the rating, despite an
active policy to return excess cash to shareholders: it returned about $1 billion in 2007 and
is likely to return the same amount in 2008. We expect credit protection ratios to decline
from the currently strong levels, with FFO to debt of 75% and debt to EBITDA at 1x, due to
focus on growth and shareholder returns.
Yara International ASA (BBB/Stable/A-2)
Yara posted stronger-than-expected results in the first quarter of 2008, with revenues of
Norwegian krone (NOK) 20.7 billion. As in 2007, it benefited from favorable fundamentals in
the agrochemical sector, which resulted in strong demand and high prices for fertilizers and
considerable ability to pass on higher raw-material costs to customers. This had a very
positive effect on the Yara's credit protection metrics, with FFO to debt on a rolling 12-
months' basis exceeding 45%. However, the constraining factor on the rating currently
remains the company's aggressive growth strategy.
NB: il report riportato a seguire è dell'aprile 2008
Industry Credit Outlook
Deteriorating macro-economic conditions in Europe's chemical industry ahead of the expected downturn in the
petrochemical sector in 2009 will reduce profits and cash flows of many of our rated companies over the coming quarters.
Nevertheless, most of them are well equipped for the obstacles ahead after several strong years for the chemical industry,
as indicated by the stable outlooks on about 80% of them. The six issuers in the 'B' rating category will be vulnerable,
however, because their balance sheets do not allow for a prolonged downturn, significant earnings deterioration, or
refinancing needs.
Some sectors of the chemical industry are less sensitive than others to general economic growth and supply-and-demand
balances. We expect agrochemical companies and industrial gas producers to continue their strong performance, while petrochemical producers will be most exposed to slowing economic growth, high raw-material costs, and a substantial addition of supply coming on stream from 2009.
To weather these difficulties, companies will need to strengthen their existing competitive advantages in technology or service so as to continue to differentiate products and absorb or pass through raw-material cost inflation. We also expect companies to adopt more conservative financial policies, moving away from the aggressive debt financing of 2006-2007, in preparation for the downcycle.
Geographic diversity will also help issuers to withstand a potential downturn. The U.S. accounted for only about 21% of
world chemical sales in 2006, while Europe and Asia remained the most important markets, accounting for 34% and 33% of
sales, respectively, according to Cefic, the European chemicals industry council. What's more, growth was strongest in Asia
and Eastern Europe.
While Standard Poor's Ratings Services expects most companies will still report strong results for the first quarter of 2008,
earnings are expected to weaken in the course of the year, reflecting weaker economic growth, high raw-material costs, and
unfavorable currency movements.
Weakening economic growth will put pressure on volumes sold
The downturn in the U.S. economy and weaker growth prospects for Europe will threaten capacity utilization, especially for
petrochemical producers and specialty chemical producers in the coming quarters, and therefore their profitability.
Performance in this industry is closely linked to economic growth and industrial production. That is why strong economic
conditions in recent years have increased operating rates across the industry, supporting the pass-through of higher energy
costs to customers. Consequently, a downturn will dampen prospects.
We expect softer demand to impinge on volumes in the coming quarters. Although they should have held up fairly well in
the first quarter of 2008, they are likely to weaken in the course of the year. In the last economic downturn in 2001, our
rated issuers faced about four quarters of weak volumes.
Strong euro will hit 2008 earnings
The significantly appreciating euro against the dollar will reduce earnings generated in the U.S. and increase competition
risk for some specialty chemical firms in Europe. On the positive side, companies can source cheaper raw materials because
they are largely dollar denominated. This is why profit declines so far have been moderate, despite the euro's significant
appreciation. All in all, though, we expect currency effects to have negatively influenced sales growth for most European
chemical producers in first quarter of 2008 for the seventh consecutive quarter (see chart 2).
Chart 2
New capacities and softer demand will weaken pricing power
In contrast to the past years, we expect the industry's pricing power to weaken as a result of softening demand and further
supply addition. Pricing power is closely linked to the supply-and-demand pattern of products. Therefore, we only expect
agrochemical companies to continue to enjoy strong pricing power in 2008 because their supply-demand balance remains
tight.
Rising energy prices could also become a more pressing issue for base and specialty-chemical producers, particularly in the
context of a slowing U.S. economy and the gradual weakening of the supply-and-demand balance for petrochemicals in the
coming years. Tougher economic conditions are likely to erode demand growth, and the large-scale capacity additions from
lower-cost regions will make it increasingly difficult for companies to cope with raw-material spikes.
Chart 3
Petrochemicals and plastics: New capacities and high input prices dim prospects for the coming
quarters
After several years of substantially strong performance in the petrochemical cycle, cracker margins did not manage to
recover in the fourth quarter of 2007 (see chart 4). Only polyolefin margins have held up. Our cracker margin indicator
shows a significant deterioration in the ethylene margins of Europe-based petrochemical producers in the last quarter of
2007, continuing into 2008. We expect the second quarter of 2008 to remain poor for ethylene, while propylene margins will
remain similar to those of the first quarter. However, naphtha prices look set continue rising, mainly because they are
closely linked to the development in oil prices. This will put further pressure on cracker margins in Europe in the second
quarter.
European petrochemical producers have benefited somewhat from an appreciating euro over recent quarters, while margins
of liquid crackers in the U.S. have suffered from the weak dollar.
Given the relatively weak start for petrochemical producers in 2008 and the new capacities on the horizon, we expect
petrochemical and plastic producers' full-year 2008 profits to be clearly below those of 2007. The length and magnitude of
the downturn in the cycle will depend greatly on how well economic growth holds up over the next few years. A meaningful
weakening of overall global economic activity for a prolonged period would most likely lead to a significant weakening of
cash flows for highly indebted petrochemical producers, such as LyondellBasell Industries AF S.C.A. (B+/Negative/--) and
Ineos Group Holdings PLC (B+/Stable/--). This would put pressure on their credit profiles. We recently revised the outlook
on LyondellBasell to negative, reflecting the risk of credit deterioration.
The Middle Eastern and Russian producers are currently benefiting from high oil prices because their feedstock costs are
fixed to low gas prices in their regions. Therefore, the cost curve in petrochemicals is becoming even steeper, with Middle
Eastern producers at the low end and European producers having the highest production costs. Saudi Basic Industries
Corp.'s (SABIC; A+/Stable/A-1) strong first-quarter 2008 results underpin this.
Chart4
High raw-material costs challenge specialty chemicals' business model
We expect European specialty-chemical producers to suffer from raw-material cost inflation in 2008. They are also more
sensitive than other sectors of the chemical industry to the depreciation of the dollar because they export a significant
proportion of products to dollar-denominated countries. However, innovation, internal cost restructuring programs, and a
likely easing of petrochemical prices in 2009 should help the majority of our rated specialty chemical producers cope with
these challenges and maintain their current credit quality.
Companies best positioned to ride out these difficult industry conditions are Sika AG (A-/Stable/A-2), Rhodia S.A.
(BB/Stable/B), and Royal DSM N.V. (A-/Stable/A-2). We consider these companies to be well positioned within their
markets, and to have a cushion in their credit quality to allow for some unforeseen events. We expect them to continue to
show solid performance in 2008 and to benefit from strong global economic activity in past years.
Others, meanwhile, are struggling with significant competition and are not able to pass on the higher raw-material costs to
customers. The credit quality of Ciba Specialty Chemicals Holding Inc. (BBB/Negative/A-3) and Clariant AG (BBB-/Stable/A-
3) has deteriorated over the past few years, largely because of their unsuccessful acquisitions and high levels of competition
in their business segments. We recently lowered the rating on Clariant by one notch and revised the outlook on Ciba to
negative from stable on concerns that the softening economic environment could hinder the operating improvements they
need to maintain their credit profiles.
Agrochemical producers on a strong upward trend
The agrochemical industry is enjoying a renaissance. Demand is exceeding production for key crops in global markets and
the price of wheat has more than doubled over the past 12 months. This puts farmers under extreme pressure to optimize
their yield and encourage the use of fertilizers and crop protection products. Our rated agrochemical companies are
benefiting from this situation and experiencing a significant increase in fertilizer prices and crop protection products.
Consequently, Syngenta AG (A/Stable/A-1), Qatar Fertiliser Co. (S.A.Q.; A+/Stable/--), Yara International ASA
(BBB/Stable/A-2), and EuroChem Mineral and Chemical Co. OJSC (BB-/Stable/--) all posted strong operating results and increased margins for 2007. Syngenta also reported a 20% organic sales growth in the first quarter of 2008.
Urea prices peaked recently, partly because of rising gas costs, which companies can pass on to customers (see chart 5).
The increase in urea prices was possible in spite of rising imports from China. After the Chinese government recently
increased the tax on fertilizers to 100%-135%, imports from China to Europe are expected to be reduced significantly,
further tightening the supply-and-demand balance within Europe on nitrogen fertilizers.
Chart 5
Industrial gases are a safe haven in turbulent times
We consider industrial gas producers well prepared to weather the current uncertainties over global demand, rising energy
and feedstock costs, and the likely weakening of the petrochemical cycle. Industrial gas producers generally benefit from
business models that allow them to pass through higher energy costs to customers either by contracts or their exceptionally
strong market dominance. They also serve a large variety of end-markets and have a high exposure to less economically
sensitive sectors, such as health care and energy. We recently raised our ratings on Linde AG (BBB+/Stable/A-2), following
its exceptionally strong debt reduction and more conservative financial policy.
In the past, the main threats to industrial gas companies' credit quality have been increased M&A activity and shareholder
friendliness. Although we believe mergers will continue play a major role, we think companies will concentrate on smaller
deals in the coming years. This will be encouraged by good organic growth opportunities in the industry. We expect
companies to retain conservative financial policies overall, supported by their long-term contracts with large high-rated
multinationals. Nevertheless, we consider it likely that both Linde and L'Air Liquide S.A. (A/Stable/A-1) will invest
significantly over the next few years, so that credit metrics show no substantial improvements from current levels.
Outlook stable on most companies
We currently rate 28 chemical producers in Europe, the Middle East, and Russia. We expect 80% of our rated chemical
producers to maintain their credit profiles over the coming year and we have assigned a stable outlook to those issuers. The
outlook on four companies is currently negative: LyondellBasell, Ciba, Lucite International Group Holdings Ltd.
The outlook on Sabic Innovative Plastics B.V. (BB/Positive/--) is positive because of a likely change in its financing
structure.
Since our last report card was published on Dec. 12, 2007, we have withdrawn the rating on Solutia Europe S.A./N.V. at the
company's request, after its debt was refinanced as part of parent company Solutia Inc.'s emergence from Chapter 11
bankruptcy.
So far in 2008, we have raised the ratings on Linde and Rhodia while we lowered those on Clariant. We expect downgrades
to outweigh upgrades in the coming quarters.
Chart6
Chart7
Issuer Review
Table 1
Company/Corporate credit rating*/Comments
L'Air Liquide S.A. (A/Stable/A-1) Francia
Air Liquide posted strong results for 2007, with sales increasing by 7.8% and EBITDA by
6.2%. In the first quarter of 2008, sales continued to develop strongly. This was aided by
good hydrogen demand and increased sales in the health care and electronics sectors. We
expect cash flow generation to remain strong in 2008, but FOCF generation will be modest in
the coming years due to the company's large capital expenditure plans, acquisitions, and
shareholder-friendly policy. We expect credit protection ratios to improve slightly from the
current levels, mainly stemming from improved cash flow generation.
Akzo Nobel N.V. (A-/Stable/A-2) Olanda
At year-end 2007, on a pro forma basis the combined Akzo/ICI entity had revenues of €14.4
billion, reflecting a 2% increase, with the majority of growth coming from the emerging
markets. In the North American markets, however, ICI's decorative segment was negatively
affected by the slowdown in the U.S. economy and was down by 6%. The pro-forma results
are slightly below our expectations, with pro-forma FFO to debt of about 30%. The ratings
could be negatively affected should the company's top-line revenues soften, resulting in a
deterioration in FFO and credit protection ratios. The company needs to achieve FFO to debt
of about 35%-40% through the cycle.
BASF SE (AA-/Stable/A-1+) Germania
BASF reported a strong first-quarter 2008, with sales increasing by 9% and EBITDA by
10.5% compared with first-quarter 2007. Profits were up in oil and gas, agriculture, and
plastics, while profits in chemicals were lower, reflecting lower cracker margins. Credit
protection ratios were strong, with funds from operations (FFO) to debt at about 60% at
Dec. 31, 2007, and debt to EBITDA about 1.2x. We expect credit protection ratios to stabiliz
in 2008 due to good operational performance, despite the company's shareholder-friendly
policy.
Carmeuse Holding S.A. (BB+/Negative/--) Belgio
The main news is the completion of the Oglebay Norton Co. acquisition in mid-February,
following the approval of the U.S. antitrust authorities. While this debt-financed growth has
depressed key credit metrics, we expect Carmeuse to improve its financials by year-end,
with notably asset disposals and the refinancing of the bridge loan. Operational performanc
should continue to be satisfactory in the first half of the year, with an EBITDA margin above 20%.
Ciba Specialty Chemicals Holding Inc. Svizzera
Acquisita e pienamente incorporata da BASF nel settembre 2008
Clariant AG (BBB-/Stable/A-3) Svizzera
We lowered the rating on Clariant, reflecting its weak underlying profitability and subpar
cash flow coverage. We expect the company to generate only moderate free operating cas
flow over the next two years. Clariant was only partly able to benefit from the strong
economic environment in recent years, with volumes supporting revenue growth. Despite
increasing its capacity utilization, the company did not cope with the effects of higher raw-
material costs and intense competition. Its profitability continued to decline across all
product segments and ranked among those at the low end of Standard & Poor's rated
chemical companies in 2007. We expect weaker economic growth and still-volatile and risin
raw-material costs to make it difficult for Clariant to restore its profitability in 2008. FFO to
debt is about 30% and is expected to remain about that level in the coming years.
Cognis GmbH (B/Stable/--) Germania
Cognis managed in 2007 to largely offset the higher raw-material cost prices, and its profit
margin only declined marginally to 10.2% from 10.8% on an unadjusted basis. The adjusted
EBITDA margin was reported unchanged at about 11.7%. Organic sales growth remained
strong, especially in fourth-quarter 2007, at 8.7%. Cognis is preparing to sell Pulcra
chemicals, which, together with Oleochemicals, shows the weakest profitability. Credit
protection ratios remain weak, with debt to EBITDA of about 8.1x and FFO to debt of about
5% for the 12 months ended Dec. 31, 2007. We expect a modest improvement of the
currently weak credit protection ratios in the coming quarters.
Dynea International Oy (B+/Stable/--)
We expect Dynea to post 2007 results in line with the rating, with an FFO to adjusted debt
well above 15%, and an EBITDA margin in the region of 8%-10%. The company continues to
have material leeway for debt-financed acquisitions or other cash-intensive measures.
EuroChem Mineral and Chemical Co. OJSC (BB-/Stable/--) Russia
The group should have posted a very good EBITDA margin in 2007, continuing the good
trend of the first nine months, when the margin surpassed 30%. This reflected very good
selling prices, robust demand for fertilizers, and still cheap variable costs (notably Russian
gas). As a result, cash flow metrics for 2007 should be comfortable for the rating and
accommodate the group's material capex plans for the next few years.
Evonik Degussa GmbH (BB/Stable/B) Germania
The difficult environment on financial markets does not support Evonik's plan for an IPO in
2008. However, a minority sale to an investor remains on the agenda. The uncertainty about
the future strategy of Evonik and of Evonik Degussa will therefore remain longer than
previously expected. While Evonik Degussa is likely to report clearly improved leverage
ratios in 2007 over 2006, the overall leverage remains aggressive in our view and
uncertainty about future business and financial strategy are also weighing on the assessment
of the company's current credit quality.
Ineos Group Holdings PLC (B+/Stable/--) UK
Di Ineos non imetto il commento di S&P perchè troppo superato (se ne parlerà + avanti).
Linde AG (BBB+/Stable/A-2) Germania
We raised the rating on Linde following the strong operating performance and conservative
dividend policy in 2007, which allowed it to reduce financial debt faster than we previously
expected. Linde exceeded its original debt-reduction target by more than €800 million in
2007. It also reduced its pension deficit by about €600 million by making extra contributions
and thanks to the strong performance of pension assets. Linde's cash flow protection ratios
already reached levels adequate for the 'BBB+' rating in 2007, with FFO to debt of 27.5%
and debt to EBITDA of 2.8x. We expect the company to use its operating cash flow over the
coming years to support its growth aspirations in industrial gases by making capital
expenditures to sales of about 13% per year. We therefore expect cash flow protection ratios
to stabilize.
LyondellBasell Industries AF S.C.A. (B+/Negative/--) <-----CH11!!
We revised the outlook to negative due to increased risks that LyondellBasell faces in 2008. Poi evoluto in CH11.
LANXESS AG (BBB/Stable/A-2)
LANXESS further improved its profitability in 2007, thanks to its initiated restructuring
measures, portfolio management activity, solid organic growth, and high capacity utilization
for key products. The EBITDA margin reached 10.9% in 2007 and a further improvement is
expected in 2008 due to the divestment of Lustran Polymers. LANXESS is not expected to be
significantly affected by the petrochemical downturn in 2009, as supply and demand for its
product portfolio seems not to be affected. However, we expect cash flow protection ratios to
weaken from currently strong levels in the coming years because the company is committed
to external and internal growth. The recent acquisition of Petroflex is an example of this.
Rhodia S.A. (BB/Stable/B) France
The main news is the one-notch upgrade to 'BB' because we expect Rhodia, after the
improved operational and financial results in 2007, will continue to improve its financials in
2008 and 2009, with an FFO to adjusted debt at about 20% and positive FOCF. This reflects
the continuing good polyamide cycles, and the material carbon credit cash proceeds. For the
first quarter of 2008, we expect EBITDA to be affected by raw-material and energy prices,
but thereafter we believe Rhodia will be able to progressively pass on an important part of
these costs.
Royal DSM (A-/Stable/A-2) Olanda
DSM displayed overall good operating results in 2007 and in the first quarter of 2008, while
the group's cash flow generation and key credit metrics remained strong and well above the
levels required for the current rating. This continues to give to the group material room for
potential acquisitions, higher shareholder distributions, restructuring expenses, and growth
and efficiency capital expenditure. Operating business performance is expected to have
remained broadly favorable for the first quarter of 2008. We continue to expect DSM to
achieve average FFO to debt of about 45% over the cycle to maintain its current rating.
Saudi Basic Industries Corp. (A+/Stable/A-1)
SABIC continues to post record results because it benefits from low gas prices, which are k
input costs for the production of its petrochemicals. This will further improve its
competitiveness against naphtha crackers in Europe in 2008. SABIC's decision to reduce it
dividend payout in 2008, despite increased cash flows, is evidence of its conservative
financing. Credit protection ratios declined, but remained strong, with FFO to debt of about
100% and debt to EBITDA of 1x. We expect a further weakening of the credit protection
ratios following a significant investment phase in 2008. However, coverage is likely to rem
comfortable for the ratings. SABIC's investment plans are on track and we expect the
company to increase capacity significantly in the second half of 2008 through the start-up
several plants.
Sika AG (A-/Stable/A-2)
Sika continued to perform well in 2007, with revenues of Swiss franc (CHF) 4.57 billion. Th
bulk of the growth was organic. Sika posted strong growth in most of its markets, with the
exception of North America, which only grew by 7% because the industry division in that
market was negatively affected by the automotive segment's performance, a condition tha
persisted in the first quarter of 2008. Sika was able to successfully pass on rising raw-
material costs and effect operating efficiencies, which resulted in an increase in EBITDA
margins to 14%, from 13.1%. This translated into strong cash flow generation and improv
credit protection ratios. FFO to fully adjusted net debt at year-end was a robust 62.8%. In
the first quarter of 2008, Sika's results were negatively affected by curency effects and
weather conditions in Europe. Nonetheless, the company achieved underlying organic grow
of 7.5% on revenues of CHF1,018 million. Sika's new facility in Switzerland recently opene
and will focus on research and development.
SPCM S.A. (BB-/Stable/--)
SNF (100% owned by SPCM) posted overall fair third-quarter operating results, reflecting
high raw-material and energy prices. The margin was down materially year on year, despit
higher sales, mirroring the acrylonitrile sales to Dupont, the margin of which is much
smaller, and that the Oman construction contract is chiefly in a start-up phase. Cash levels
and availability under the committed revolver line remained appropriate for the rating and
for the company's activities, at €77 million at the end of September. We expect FFO to
adjusted debt of about 20% in 2007, far better than in 2006, helped by favorable EBITDA
generation.
Solvay S.A. (A/Stable/A-1) Belgio
Solvay reported good 2007 results across its various businesses. In the pharmaceutical
segment, TriCor sales continued to perform well, and it remains Solvay's No. 1 drug. The
€300 million savings target (on fixed costs by the end of 2010 compared with end-2005) is
well on track. The other segments, plastics and chemicals, also enjoyed good profits, owin
to efficiency and markets that enabled the pass-through of raw-material and energy prices
Solvay continued to achieve cash flow metrics and leverage in line with the rating, with FFO
to adjusted debt of between 40% and 45% expected for the current rating. We continue to
expect Solvay to maintain its conservative financial policy and to post good EBITDA and
FOCF generation.
Syngenta AG (A/Stable/A-1)
Syngenta posted an exceptionally strong first quarter in 2008, with sales up 20% at constan
exchange rates (CER). Substantial volume growth was supplemented by a 3% increase in
pricing. In 2007, Syngenta's sales increased by 11% and EBITDA by 19%. Profitability has
improved and free cash flow generation reached $920 million. Crop protection is still the
main impetus of profit growth, but the company expects the Seeds business to become more
important in the future. Credit protection ratios remain strong for the rating, despite an
active policy to return excess cash to shareholders: it returned about $1 billion in 2007 and
is likely to return the same amount in 2008. We expect credit protection ratios to decline
from the currently strong levels, with FFO to debt of 75% and debt to EBITDA at 1x, due to
focus on growth and shareholder returns.
Yara International ASA (BBB/Stable/A-2)
Yara posted stronger-than-expected results in the first quarter of 2008, with revenues of
Norwegian krone (NOK) 20.7 billion. As in 2007, it benefited from favorable fundamentals in
the agrochemical sector, which resulted in strong demand and high prices for fertilizers and
considerable ability to pass on higher raw-material costs to customers. This had a very
positive effect on the Yara's credit protection metrics, with FFO to debt on a rolling 12-
months' basis exceeding 45%. However, the constraining factor on the rating currently
remains the company's aggressive growth strategy.
Ultima modifica di un moderatore:
D il sorrisino precede il commento di PaoloGorgo), for which Access 
la chimica è tutta abbastanza ciclica (salvo un paio di sottocomparti), nel senso che soffre non poco in periodi di recessione.
