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Lockdowns, uncertainty weigh on recovery, say chemical CEOs

June 23, 2020
Chemical Value Chain

Business conditions remain challenging for chemical producers, say the top executives at Huntsman and Celanese. Resurgent growth in China shows light at the end of the tunnel, but lockdowns and deep uncertainty continue to hinder recovery in the US and Europe.

“Demand probably has come back a bit slower than I had anticipated,” says Peter Huntsman, CEO of Huntsman. “Frankly, I’ve been rather disappointed with the prolonged nature of these lockdowns.”

Huntsman and Celanese CEO Lori Ryerkerk spoke during a 17 June webcast of IHS Markit’s Chemical Executive Conversations.

“When we look at the overall supply chain, and … the number of retail outlets that are still closed globally, I think that rather than a V- or a U-shaped recovery, we’re probably going to see a W-shaped recovery,” Huntsman says.

Demand has been fairly resilient in the DIY and home construction segments, but there has been very little improvement in aerospace and textiles, he says. “Areas that we thought wouldn’t have been that badly affected, like textiles and clothing and so forth, have been absolutely devastated,” Huntsman notes. “And the entire United States and Western European economy—for the first time in industrial history, in the month of March and going to April, for a prolonged period of time, the United States [and] Europe did not assemble a single car, did not build a single airplane.”

Celanese’s engineering materials segment saw volume decline 25–35% during the second quarter, says Ryerkerk. “In non-auto applications—which for us are electronics and electrical, consumer durable goods, that sort of thing—demand for the products has been relatively stable. The big impact has been in auto,” she says. “In the US, automakers are starting to run, but even there we’re seeing a slow start. I would say the start is even slower in Europe, where, although automakers are starting to come back, they are starting back at a very slow pace, and only on some very specific platforms.”

Production of electric vehicles is recovering somewhat more quickly than other segments, says Ryerkerk, particularly in Europe, where stimulus measures aimed at electric and low-carbon vehicles have been implemented. “So that’s certainly helping, but there’s a demand for electric vehicles, and even in the US … we [are starting] to see those platforms coming back more quickly.”

Export-oriented demand in China remains severely depressed. “If you’re doing business in China dependent on export, which is about 15–20% of our business in China, you’re going to see about a 60–70% drop in business,” says Huntsman. However, demand driven by China’s domestic market is snapping back. “We’re seeing that business tracking about 95 to 100, 101% of where it was a year ago,” Huntsman reports.

Business conditions have left many companies in a weakened financial state, but they have also limited opportunities for M&A. “The current environment for cash deals is poor,” says Ryerkerk. “Valuations are down and earnings are down. People who would be willing to sell, don’t want to sell at these kinds of multiples. I think for non-cash deals … there’s still room for some of those opportunities, but I think quite frankly, most companies are [focused on] working through the current difficulties and will continue to look more at M&A as we start to move into recovery.”

Huntsman agrees. “If there’s a distressed opportunity, I’d love to see it, but I’ve said to our shareholders that I think a dollar on your balance sheet today is probably worth two or three dollars just a few months ago and maybe a few dollars more a couple of months from now,” he says. Extreme uncertainty presents a high hurdle, he explains. “We’ve done some really severe economic damage to the macro global economy, and I’m not sure that we fully understand where we’re going to be in a couple of months…. If you’ve got a strong balance sheet—to risk that … and take on more debt or give up equity to do an acquisition, not a merger or something of that nature … I think it’s problematic and risky right now.”

By: Clay Boswell

Source: Chemical Week

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