Wednesday, May 2, 2007

Some Forward-looking Statements

By ROB WESTERVELT (Editor, Chemical Week)
Chemical makers delivered first-quarter earnings that were in line with expectations, with a few exceptions, as robust growth in Asia and Europe offset U.S. housing and automotive weakness
(p. 7). Results strengthened, however, as the first quarter progressed and executives presented upbeat outlooks in discussions with investors.
“We continue to expect global GDP growth to be healthy in 2007, above 3%, but with North America slower this year than last year, principally the consequence of weakness in residential construction and the auto industry, and some weakening consumer spending,” Dow Chemical executive v.p. and CFO Geoffery E. Merszei said last week. “Europe should be strong, particularly in the emerging countries of Eastern Europe. Japan should continue to see steady growth, and growth in China is expected to once again be very strong,” Merszei says. Supply/demand balances should remain healthy, notably in the ethylene chain, although capacity start-ups in chlor-alkali will begin to impact those margins later in the year, Dow says. “Strong demand and good pricing momentum have continued through April, reinforcing our view that 2007 will be another solid year for the company,” Merszei adds.
DuPont said last week it was expecting “modest volume gains as growth outside the U.S. and strong agricultural seed markets outweigh lower demand from the U.S. housing and automotive markets.” Overall, energy and raw material costs in 2007 will continue to be about equal to 2006, it adds.
It appears that ethylene/polyethylene profitability turned the corner in March prompting bullish outlooks from petrochemical makers. “Fundamentals for ethylene and propylene oxide are as strong as they have been over the past couple of years, particularly for ethylene,” Lyondell president and CEO Dan Smith said last week. Weak first-quarter petchem margins resulted from a transition between falling fourth-quarter 2006 prices and the price recovery now under way. “Margins seemed destined to continue to be volatile, but in a good zone,” Smith says.
Inventory build-ups at the end of the fourth quarter hurt early 2007 results, but volumes and margins rebounded late in the quarter, says Nova Chemical president and CEO Jeff Lipton. “March was spectacular compared to January and February. We had a March that would be equivalent to the kind of numbers that we saw in the strong months last summer. Very strong Ebitda generation, and very strong sales.”
Overall trends are still strong despite U.S. weakness, an indication that, in this case at least, future industry results should not differ materially from what is forecast.

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