Moody's cuts chemical industry outlook to negative

Source: China National Chemical News September 23, 2019

A few days ago, Moody’s Investor Services downgraded the outlook of the chemical industry from \"stable\" to \"negative\", which means that they believe that the operating conditions and credit quality of the chemical industry will continue to deteriorate.

The agency pointed out that the weak manufacturing industry, the huge risks of the European economic recession and cyclical weakness are the root causes of the negative outlook of the chemical industry. The output and popularity of manufacturing products in the United States, Europe and China have continued to decline. The Sino-US trade conflict plays a key role in the difficult manufacturing environment. \"Tariffs are still the center of global manufacturing pressure and macro uncertainty,\" Moody’s said.

According to the report, the profit before interest, tax, depreciation and amortization of chemical companies is expected to fall by 5% to 9% this year, which will be roughly the same in 2020. Moody’s senior vice president Joseph Princita said that the negative outlook reflects the weak global manufacturing industry, the continued decline in European chemical production, and the downside risks brought about by the Sino-US trade dispute.

Economic conditions have led to a decline in demand, and the ethylene market is entering a cyclical trough. Moody's expects that with the launch of new capacity in the US Gulf of Mexico, the prosperity of the ethylene-polyethylene industry chain will continue to weaken in the second half of 2020.

Joseph Princita believes: \"The increasing demand for ethane in the cracking of raw materials in the Gulf of Mexico and the tightening of the market will further increase the profit pressure. This pressure will be put into operation before the new ethane fractionation and transportation capacity is put into operation in the first half of 2020 It is unlikely to weaken.\"As a result, the US ethylene operating rate is expected to drop to around 85%, while it has remained at around 90% in the past few years.

Moody's said that due to the slowdown in global economic growth, the prospects for specialty chemicals will remain tepid and mixed. Paint production is also expected to be tepid, and lower raw material costs may support the increase in profit margins. Other industries such as personal care, water treatment, flavors and fragrances will grow moderately.