Nov 26 (The following statement was released by the rating agency)
Fitch Ratings expects EMEA chemical companies in 2014 to see fragile demand recovery, leaving certain issuers exposed to downward rating pressure.
In a new report published today, Fitch says it expects the chemical sector to see a small pick-up in demand in Europe and stronger recovery in the US partly offset by generally flat volumes in emerging markets where inventory shifts will cloud the outlook.
While the sector outlook is improving slightly, the Rating Outlook is Negative. This reflects Fitch's view that the protracted slump in demand has reduced the headroom under some issuers' credit metrics and that a stalling of the fragile recovery in 2014 could result in downward pressure on the ratings.
Issuers are generally entering 2014 with debt metrics at the high-end of their rating ranges, and Fitch does not foresee any material sector upswing in the new year. Market conditions have remained challenging in 2013 with weak demand in Europe, a slowdown in high-growth markets and high volatility in raw materials and selling prices.
Companies will remain differentiated by their exposure to high-growth markets and defensive consumer chemicals subsectors such as nutrition, personal care or agrochemicals. However, these characteristics are not expected to translate into marked swings in top line numbers year-on-year, as volumes and prices are likely to remain little changed from 2013 levels.
Fitch's base rating case generally assumes a slight erosion in margins, as higher capacity utilisation rates and restructuring gains only partly offset increasing production costs, and raw material price volatility.
European chemical issuers face additional competitive pressure in both domestic and export markets as their cost bases become comparatively higher than those of their shale gas-rich US peers. Restructuring, cost-saving measures and consolidation will continue to feature in 2014.
EMEA chemical companies' liquidity is sound and their refinancing needs are manageable.
For more information on Fitch's expectations for the sector in the coming year, see "Outlook 2014: EMEA Chemicals" on www.fitchratings.com or by clicking the link above.
Link to Fitch Ratings' Report: 2014 Outlook: EMEA Chemicals