Moody’s changes to negative the outlook on EMEA and North American chemicals industry
http://www.chemicalsinfomart.com/mo...n-emea-and-north-american-chemicals-industry/
Moody’s Investors Service has today changed to negative its outlook on the Europe, Middle East & Africa (EMEA) and North American-
chemicals industry, as explained in an Industry Outlook report published today. The outlook change reflects Moody’s expectation that profitability in the industry will decline in the next 12-18 months because of deteriorating economic conditions in Europe, combined with slowing growth in developing countries and relatively weak US growth.
The new report, entitled “Slowing Global Growth Turns Outlook Negative For EMEA, North America Chemicals Industry”, is now available on
Moody's - credit ratings, research, tools and analysis for the global capital markets. Moody’s subscribers can access this report via the link provided at the end of this press release.
“The decision to change the outlook was based on our revised 2012-14 GDP growth forecasts,” says Elena Nadtotchi, Moody’s VicePresident – Senior Credit Officer and co-author of the report. “As a result, we forecast weaker domestic demand, particularly in Europe, and that slowing exports will exert pressure on the earnings of the region’s chemicals companies.”
Moody’s would consider changing the outlook to stable if G-20 GDP growth rises back towards 2.5% and European GDP stops declining. A stable outlook would also imply that EBITDA growth for the industry would likely be flat to modestly positive (less than 5%).
Weak demand and lower utilisation rates may undermine the industry’s strong pricing discipline, which has supported margins in 2012. Chemicals companies may find it increasingly hard to raise prices without their volumes being adversely affected, as a result of which they will be more sensitive to oil price volatility in 2013. Growth will continue in some segments, including agricultural, nutritional and medical applications. This will support the performance of selected specialty producers and balance the results of diversified companies. Also, despite the weaker economic environment, Moody’s considers it likely that US petrochemicals producers’ margins will improve, reflecting its expectation of lower feedstock prices in 2013. However, Moody’s expects slower growth in some sectors where demand remains weak, including styrene and butyl rubbers. Companies with stronger balance sheets will probably turn to M&A in 2013 to compensate for a lack of organic growth while the cost of capital remains relatively low, and there will likely be some market consolidation. Disposals and restructurings to optimise portfolios are also likely.
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