Global chemical companies brace for continued weakness in 2024: Fitch Ratings

New Delhi [India], December 19 (ANI): In a forecast that underscores challenges for the global chemical industry, Fitch Ratings predicts that weak demand and surplus supply will persist, keeping volumes and margins subdued for chemical producers in 2024.

While the overall market conditions reached the low point of the cycle in 2023, Fitch anticipates a minimal to no recovery in the coming year.

According to Fitch Ratings, with higher costs impacting regions like Europe and Latin America, producers in Asia, North America, and the Middle East, benefiting from lower production costs, are strategically targeting these markets for exports.

The availability of cheaper feedstock and energy or large-scale assets gives an advantage to these exporting regions, a trend expected to continue into 2024, resulting in performance disparities between regions.

Despite overall anticipation of soft demand in North America, Fitch emphasizes that issuers’ end-market exposures will play a pivotal role in influencing earnings.

Companies linked to commodities or non-residential construction may experience weak earnings, while those serving packaging, consumer non-discretionary, and healthcare end-markets are likely to display more earnings resilience in 2024.

European chemical producers face challenges due to higher regional energy costs, despite some moderation since 2022.

Producers in the Middle East and North Africa (MENA) with access to competitively priced natural gas are in a better position to weather the prolonged market downturn.

Fitch predicts that utilization rates will remain low in 2024, particularly impacting commodity producers.

The high operating leverage of commodity producers requires them to operate at rates of 85%-90% to generate profits, while speciality producers can remain profitable at lower rates.

The forecast also anticipates more asset-closure decisions, both temporary and permanent, in 2024, especially in Europe, as companies evaluate their industrial footprint.

Latin American companies, mostly operating in the second and third cost quartiles, have been significantly affected by China’s pursuit of self-sufficiency in chemicals.

Fitch-rated issuers in Latin America collectively lost approximately USD 8 billion in aggregate revenue, with expectations of a margin recovery starting only in the first half of 2025.

Fitch expects a mild recovery in China’s demand as destocking concludes, but the recovery is hampered by slowing economic growth.

Chinese chemical margins, however, show stability as selling prices seem to have bottomed out, and cost pressures are expected to ease.

Healthy GDP growth in India and Indonesia is anticipated to bolster domestic demand, but the slowing economic growth in many developed markets may exert pressure on international revenue for chemical companies.

Fitch also points to the possibility of a drier-than-usual summer in Australia potentially affecting demand for crop-protection products and fertilizers in 2024.

The winter crop harvest might remain unaffected due to the delayed onset of rainfall across eastern Australian cropping regions.

As chemical companies navigate these challenges, the industry faces a complex landscape with regional nuances and global economic dynamics influencing their trajectory in 2024. (ANI)

Leave a Comment