European Chemical Industry Reunites Energy
For major European chemical companies, the first quarter of this year's sales and profit reports showed some negative signs. But on the whole, it also shows that the industry is effectively preventing the economic downturn.
If the first quarter's operating results seem to indicate that the European chemical industry is about to fall, then as of the end of the second quarter, the dangerous situation has begun to calm down.
In the first half of the inflection point
As a competitor of the European Chemicals Corporation, the overall performance of the US chemical industry in the second quarter of this year was rated as good (although the leading company, Dow Chemical Company, is obviously the exception). Now that the European Chemicals Company is also following its American competitors, its business situation is improving. According to Jürgen Hambrecht, chairman of BASF, the demand for his company's products is still quite strong in the second half of the year. In the past summer, sales have always been relatively calm, but this year's situation does not seem to be so prominent.
In addition, the European chemicals company seems to have found a way to success in passing the high cost of raw materials to customers and improving profitability. This success was perfectly explained in the first half of this year. Among the 13 chemical companies that have announced their mid-term operating results, 9 companies have improved their profit margins compared to the first half of 2007.
Each company has its own way
Thierry LeHénaff, chief executive of Arkema in France, said that the strong growth of the company's profits shows that a series of transformation measures implemented within the group companies in the past three years have achieved results. Indeed, in the European chemicals companies that have announced their mid-term operating results, the French company's net profit growth rate topped the list. Although the business environment facing the company is “more challenging†as LeHénaff put it, its profit margin has still increased substantially.
The currency exchange rate continues to affect the entire European chemicals industry. In the second quarter, the chemicals industry still felt the impact of the strong euro on the weaker US dollar (although by the end of June, the US dollar exchange rate had rebounded). Solvay Company attributed the decline in its first-half sales revenue to the effect of currency exchange rates. The Belgian company stated that, in general, the market’s demand for its main products remains good, but the unfavorable exchange rate factor still constrains its sales level.
Similarly, the operating report of the German company Merck said that in the first half of this year, the company's sales revenue increased by 13%, but due to the negative impact of the currency exchange rate, the growth rate decreased by 5.8 percentage points. Merck increased its operating profit margin by reducing general administrative expenses, making its net profit in the first half of this year increased by nearly 16% year-on-year.
Compared with the same period of last year, Clariant's sales revenue dropped in the second quarter of this year. However, the Swiss chemical company ultimately ensured the growth of profits. Jan Secher, CEO of the company, said that despite the increasing operating pressure, the company still achieved a good operating performance in the first half of this year. “By increasing product prices, we effectively offset the unprecedented increase in raw material costs by 11%, and Improved our operating margins,†said Jan Secher.
There are still difficulties in the second half
Looking forward to the second half of this year, almost all European companies are expected to have difficulty maintaining the growth of the company's operating performance. As Jan Secher said: “We expect the business environment to be even more difficult. The sign is that raw material prices will continue. Rising, weaker micro environment, and foreign exchange rates will continue to have adverse effects.
Moreover, even more unfavorable for the downstream market, chemical companies are still saying they want to increase the price of their products. When Arkema's LeHénaff talks about ways that may apply to European chemicals companies to avoid risks, what chemicals companies should do is to focus on important issues. Arkema must increase its Product prices, at the same time, continue to implement innovative self-help actions.