Threats to chemical industry stability

Moody’s Investors Service has forecast a stable outlook for the global chemical industry. According to them, the major risk to this forecast come from emerging markets.

The effects of Ukraine crisis and Russia’s annexation of Crimea in early 2014 have remained mostly within these two countries, however there are continued risks for chemical companies with operations in these countries, including BASF, Syngenta, Akzo Nobel and Solvay. Western sanctions will drag on Russia’s economy, which already slowed in the first quarter. Western Europe faces some risk as it depends on Russia for a significant portion of its natural gas supply from a pipeline that crosses Ukraine.

Middle East unrest remains a risk, but has not affected Moody’s outlook on global economic health or the chemical industry. Oil prices suggest that risks will stay manageable and supply disruptions will not meaningfully tighten the market. Commodity inflation will remain benign amid moderate demand growth.

In China, signs of weakening growth have led to a fiscal stimulus package, but even with such policies, growth may still fall short of projections or become more volatile. According to Moody’s, a slowdown in China would present a meaningful risk to their forecast for the industry as they are the world’s second largest economy and a large consumer of chemicals.

In 2013 – 14, the chemical producers’ business in China has not reflected the strong growth rates reported for the country’s macroeconomic growth statistics. Even so, chemical producers to show improvement in 2014 from 2013 levels.

Adapted from a report by Emma McAleavey.

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