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Fitch: Solid Profitability, Some Consolidation Ahead for Global Chemical Industry in 2008
Thursday December 13, 9:52 am ET

NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects that full-year profitability for most petrochemicals producers will be healthy and near a mid-cycle level over the coming year.

During the first half of 2008, chemical producers are likely to be focused on increasing average selling prices for most products that are currently under severe cost pressure from escalating crude oil and products derived thereof. Most producers will attempt to restore profitability or regain loss/profit margin as quickly as possible, if not by the end of first quarter 2008 (Q1 2008).

Fitch expects that exports are likely to keep pace with 2007 levels as the weaker U.S. dollar and ethylene economics based on ethane provide for greater opportunities in light of higher crude oil prices. Furthermore, U.S. producers should continue to benefit at least temporarily from the favorable export position, as more operational issues at new facilities and additional plant start-ups are delayed overseas.

The global chemical industry continues to face several operating and macroeconomic challenges, including volatile and escalating commodity costs. The weakened U.S. dollar has squeezed the profitability of North American companies worse than their European counterparts, although a weaker dollar has also benefited North American producers as higher exports have helped maintain operating rates and kept inventories lean. The effect of higher crude oil prices will be seen in Q4 earnings results, and oil price volatility will remain a major challenge as 2008 begins.

Issuer credit ratings will remain appropriate for their respective ratings category despite some industry-wide credit deterioration in 2008. Further consolidation is also expected as companies seek additional diversification or become dominate in a particular chemical product segment. This consolidation could come in the form of alliances and partnerships as opposed to M&A activity.

On a longer-term basis, Fitch expects that 2009 could be a pivotal year as oversupply issues resulting from new capacity additions could cause producers to loose some of their pricing power.

Source: Fitch Ratings

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