Slowdown hits chemical firms

City A.M. Reporter
EUROPEAN chemical groups warned of slowing demand from construction industry customers in both fast-growing Asia and moribund Europe, compounding problems with rising raw materials costs.

The chemical sector’s dependence on highly cyclical machinery makers, carmakers and builders makes it especially vulnerable to a downturn.

Germany’s Bayer flagged a slowdown in China’s robust construction sector, while global chemical industry leader BASF said its construction chemicals business was unable to fully pass on higher raw material prices to customers.

“We see a certain weakness in Asia, mainly in China where the construction business is declining,” Bayer chief executive Marijn Dekkers said, adding that this was weighing on demand for Bayer’s insulation foams chemicals.

Bayer posted better-than-expected third-quarter earnings of €1.81bn yesterday, up 8.5 per cent on a year ago thanks to cost cuts at its drugs unit and higher sales volumes of farming pesticides and confirmed its 2011 group outlook.

BASF, whose third-quarter earnings also beat forecasts, warned that growth was slowing as customers run down inventories.

“BASF’s customers planned more cautiously, reduced inventories, and partially delayed orders in expectation of possible falling prices,” it said.

Belgium’s Solvay said a slowdown in demand for PVC, used in construction “should be emphasised”, adding the impact was stronger in Europe.

“Europe looks to be the worst of all. We have been fairly downbeat on growth prospects, if we can even talk about growth at all,” said ING analyst Jan Hein de Vroe.