The supportive operating environment the French chemicals and petrochemicals industries witnessed in the first few months of 2011 is likely to be wiped away, as the eurozone crisis grips the country, according to BMI’s latest France Petrochemicals Report.
Following steady growth in Q111, the chemical industry reported a slight decline in Q211. Q111 growth of 7.7% declined to -0.3% q-o-q, according to the Union des Industries Chimiques (UIC, Chemical Industries Union). On the upside, growth was 8.1% y-o-y in Q211, indicating that the decline was not a reversal of the industry’s strong recovery. However, organic and inorganic chemicals saw declines of 2.4% and 4.9% q-o-q in Q2, while y-o-y growth was 4.5% and 7.8% respectively. After a sustained development earlier in the year, specialty chemicals showed a moderation in activity with growth of 0.5% q-o-q, down from 4.7% in Q111.
Despite the relatively benign scenario in H111, BMI has revised down short-term expectations, in light of the effects of the eurozone crisis. We do not believe that the French government will have the capacity to maintain a stimulus, and the ability to defend domestic industrial capacity from closure will be limited. As a result, BMI believes that petrochemicals performance deteriorated in Q411. The trend is likely to be sustained throughout 2012, due to declining export performance and the partly-related fall in demand in domestic petrochemicals-consuming industries, such as construction and car making.
BMI forecasts a decline in industrial production growth, from an estimated 2.9% in 2011 to 1.7% in 2012, However, the petrochemicals sector is highly sensitive to the economic cycle, so the industry will be heavily affected by this anticipated downturn, and can be expected to lag the still-struggling wider economy. The construction industry continues to under-perform, affecting chloride and its derivatives, such as PVC. Moreover, the automotive sector (a major consumer of petrochemicals products) will remain in the doldrums, even if domestic demand recovers, as we expect firms to be looking to move production to low-cost bases outside their costly home markets. On the upside, inventory levels have been kept low and we do not anticipate the kind of shock experienced in Q408..
France scores 71.7 points in BMI’s petrochemicals ratings, unchanged since the previous quarter. However, an increase in the Netherlands’ score has led to France slipping from second to third place in our Western European Petrochemicals Ratings, 0.7 points behind the Netherlands and 0.7 points ahead of Belgium. France’s score has been undermined in recent months by poor long-term financial and external ratings, as well as the effects of strike action on the market risk environment. The petrochemicals sector needs to overcome deterioration in external competitiveness and stagnation in domestic demand, in order to hold on to the capacity it has and prevent closures. France’s score is in danger of being eroded by capacity shutdowns in coming years, although its situation is not unique in Western Europe.
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