European specialty chemicals makers Clariant and Rhodia said demand was slowly improving, hinting at light at the end of the tunnel for the recession-hit industry. With products ending up in anything from creams and shampoos to tyres, dashboards and flat screens, the companies have been hit hard by the downturn in key markets like car and building sectors.
But there are bright spots as economies exit recession. "We believe that the economy will recover only slowly," Clariant chief financial officer Patrick Jany said. "We can see that demand has already bottomed out, but there is still no sign of a sustainable recovery."
Rhodia returned to profit after three quarters of losses, citing a significant recovery in demand driven by emerging markets and improved efficiency, and expected demand for the rest of the year to be similar. Chairman and chief executive Jean-Pierre Clamadieu was prudent for 2010, mainly because of an expected slow recovery in Europe and uncertainty over a car sector relying on government incentives, but was confident Rhodia could defend its margins.
Meanwhile, cost cuts helped Swiss Clariant, which is banking on improved efficiency and slashing jobs, to post a surprise net profit for the third quarter. Rhodia shares rose 9 percent by 0926 GMT and Clariant gained 2.5 percent, while the DJ Stoxx European chemicals sector was up 1.6 percent.
Other competitors have indicated things may be looking up. BASF, the world's largest chemicals maker, has confirmed it would likely cut its annual dividend for the first time in 16 years but also said it was climbing gradually out of the trough and recovery would be slow.
Rhodia has pinned its hopes on a further performance improvement on emerging markets in Latin America and Asia, which represent 45 percent of total sales. The French group trades at 19 times forecast 2010 earnings and Clariant at a multiple of nearly 15, both at a premium to competitors like BASF, Bayer and Akzo Nobel.
"But the earnings momentum driven by gradually recovering markets and operational improvements may be hampered by increasing pressure on the gross margin and potential set-backs in the economic recovery short term," Patrick Rafaisz, analyst at Swiss bank Vontobel, said of Clariant.