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Slowdown affects profits of chemical majors

The second quarter results of chemical majors, like Sabic, Reliance, Dow Chemical, Ineos and BASF, reveal lower profits due to slower demand, higher raw material costs and reduced output.

German chemical company BASF’s net profits went down 15.5% from Q2 of 2011 to reach US$1.49 billion in Q2 2012, against the back of an increase in sales of 6%. The firm says its customers “are continuing to act cautiously and are reducing their inventories, also in expectation of falling prices due to declining raw material costs.” The biggest disappointment was in China, where the “growth engine has started to stall leading to a decrease in sales in local-currency terms in Asia in the second quarter, as they also did in the first quarter of 2012.” BASF does not expect an upturn in demand in the second half of 2012 compared with the first six months of the year. “Pressure on margins will continue, although it may be somewhat lessened due to slightly lower raw material costs,” says the firm.

Saudi Arabia’s Sabic reported a 35% year-on-year reduction in its second quarter profit, with a net profit of US$1.4 billion in Q2, due to lower production rates and prices for its end products.

Similarly, India’s Reliance reported that its net profit dropped 21% year-on-year to reach US$809 million in the April-June period, which is the first quarter in Reliance’s fiscal year. This is the third consecutive quarter in which Reliance has posted a decline in its net profit.

US-based Dow Chemical says its weaker than expected earnings in Q2 are expected to remain in place for the rest of the year. Its net income fell from US$1.07 billion in Q2 2011 to US$734 million over the same period of 2012. Dow also reported that it operated its facilities at an average of 78% in the second quarter and that its end product prices were down by an average of around 5%.

UK’s Ineos reported a 46% year-on-year drop in its earnings before interest, taxes, depreciation and amortisation (EBITDA) to US$371 million in the second quarter. Ineos’ olefins and polymers section for Europe saw its EBITDA fall while its business in the US reported a relatively smaller decline.