Chemical makers top forecast as agriculture shines
May 4, 2009
Booming demand for agriculture products helped chemical companies BASF and Dow Chemical Co record better than expected quarterly profits, reports Reuters. Those companies have been forced to cut costs as sales from their other chemicals businesses suffer because demand from the auto, electronics and home building sectors has slumped amid the worst economic downturn in decades. In announcing strong profits, Dow and BASF joined DuPont in beating Wall Street''s profit forecasts, helped by the strong agriculture markets. BASF, Dow and DuPont exposure to the hard-hit industries such as car companies or builders makes them particularly vulnerable to the downturn. This is exacerbated by the massive overhead costs typical for the chemical industry. BASF said first-quarter operating profit beat forecasts as the start to the growing season in Europe and the United States helped boost its pesticides business. Dow posted a surprise first-quarter profit of $24 million versus expectation of a loss and attributed it to cost cuts and the strength in the agricultural segment, which saw sales rise 10 percent from a year ago to a record $1.4 billion. But Dow, struggling under a heavy debt burden after completing its acquisition of specialty chemical maker Rohm and Haas, said it might move to capitalize on the agriculture business by divesting it. Most of DuPont first-quarter earnings came from its Agriculture unit. That was the only segment to post earnings growth out of the five major businesses of the company. BASF and DuPont''s overall outlook for the rest of 2009 remained weak given the poor economic forecasts. BASF said demand for chemical products has declined further since the beginning of the year. BASF said it will maintain strict cost and spending discipline and will continue to reduce current assets to counter this weakened. DuPont had also said it would cut more jobs as weak economic conditions continued to constrict demand. But Dow''s Chief Executive Andrew Liveris was more positive and said there are some signs the pace of global economic decline is moderating. But he cautioned the company was not counting on material improvements in economic conditions in the near term.