Air Liquide earnings, sales beat estimates, flags energy-transition opportunities

MOSCOW (MRC) -- Air Liquide has reported an 8.6% rise year on year (YOY) in net profit to EUR2.435 billion (USD2.95 billion) for full-year 2020, on sales down 6.5% to EUR20.48 billion, beating analysts’ consensus estimate and the company's own most recent guidance provided in October 2020, said Chemweek.

Net earnings per share are EUR5.16, in line with the increase in net profit. The company’s sales in the fourth quarter declined 5.1% YOY to EUR5.23 billion but beat the consensus estimate of EUR5.18 billion as compiled by Vara Research on behalf of Air Liquide, and returned to growth sequentially over the third quarter’s sales of EUR4.98 billion. Air Liquide does not provide fourth-quarter net profit figures.

Revenue from the gas and services segment, representing approximately 96% of Air Liquide’s group sales, fell 5.8% in the quarter compared with the prior-year period to EUR4.96 billion, in line with consensus, but was up from EUR4.78 billion in the third quarter. Industrial merchant revenue fell 9.1% YOY to EUR2.23 billion, large industries sales declined slightly to EUR1.33 billion, healthcare sales fell 6.1% to EUR899 million, and electronics sales were almost flat at EUR497 million.

Air Liquide’s performance in 2020 was “outstanding in this environment,” according to chairman and CEO Benoit Potier. “Sales resilience, significant margin improvement, net profit growth, and investment decisions continued at a very high level,” he says. Sales were “back to growth in the fourth quarter” with gas and services revenue holding up well throughout the year, he says. “Geographically, the situation was extremely varied, with Europe faring well, driven by demand in healthcare, and a solid performance from the developing economies, particularly China, and Eastern European and Latin American countries,” Potier notes.

Investment decisions in 2020 totaled EUR3.2 billion, which is indicative of future growth, according to Potier. “In an environment marked by global recovery plans and commitment to energy transition, the group still has numerous investment opportunities, of which 44% are projects related to the fight against climate change, including the development of hydrogen energy,” he says. The company’s 12-month portfolio of investment opportunities stood at EUR3.1 billion at the end of December, with several new entries during the fourth quarter, he adds. Large industries projects for chemical customers represent the highest share of Air Liquide’s investment backlog, according to the company.

The investment opportunity type “has changed significantly,” most notably with low-carbon hydrogen production projects through electrolysis, as well as the capture and storage of carbon dioxide in the large industries segment, Air Liquide says. These energy-transition projects “may be subject to accessing subsidies,” it says. “Europe, where the majority of energy-transition projects are based, has therefore become the leading region in the portfolio, and has reached a record level with close to 40% of opportunities,” it says.

Given limited local lockdowns in the first half of 2021 and assuming a recovery in the second half of the year, Air Liquide is “confident in its ability to further increase its operating margin and to deliver recurring net-profit growth,” Potier says.

Gas and services sales in the Americas totaled €7.80 billion in 2020, down 3.7%, but with North American sales starting to improve sequentially in the third quarter, it says. Sales were “up markedly” in Latin America, driven mainly by a large industries start-up in Argentina and strong demand for medical oxygen. The industrial merchant segment saw a strong sequential recovery over the second half of 2020, it says. Healthcare posted annual sales growth of 7.7% and electronics recorded growth of 5.2%.

Sales in Europe rose 1.3% in 2020 to €6.83 billion, with industrial activities starting to recover from the beginning of May, and “markedly accelerated its recovery” during the second half of the year, according to the company. Large industries sales slipped 1.0% but saw good sequential growth from the third quarter, with chemicals and steel volumes improving toward the end of the year, “driven notably” by recovery in Germany’s automotive sector, Air Liquide says. The industrial merchant sector recovered in the second half of 2020 but saw full-year sales decline 5.6%. Healthcare activities posted sales growth of 9.7%.

Revenue in APAC was stable at €4.47 billion, with all industrial activities posting growth in the fourth quarter. China, with sales growth of 3.4%, “brought a strong contribution thanks to a quick recovery across all activities,” says Air Liquide. The recovery was slower in the rest of the region, it says. Sales in the Middle East and Africa declined 2.6% in 2020 to EUR564 million.

The additional contribution to sales from unit start-ups and ramp-ups totaled EUR191 million in 2020, with the contribution to 2021 sales from start-ups and ramp-ups expected to be about EUR250 million, the company says. A total of 16 units currently being acquired from Sasol in South Africa should bring an additional contribution of about EUR100 million in 2021, with sales expected to exceed EUR400 million/year once they are fully integrated, Air Liquide says.

As MRC wrote earlier, in September 2020, Air Liquide finalised an agreement with Sasol to acquire the biggest oxygen production site in the world with a plan to reduce its carbon dioxide (CO2) emissions by 30%. After the announcement on July 29, the international major industry gas company has now entered into a business purchase agreement with Sasol to acquire the oxygen production site in Secunda, South Africa.

We remind that Sasol's world-scale US ethane cracker with the capacity of 1.5 mln tonnes per year reached beneficial operation on 27 August 2019. Sasol's new cracker, the heart of LCCP, is the third and most significant of the seven LCCP facilities that came online and will provide feedstock to the company's six new derivative units at Sasol's Lake Charles multi-asset site.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020).
MRC

MOSCOW (MRC) -- Negotiations over prices of European polyvinyl chloride (PVC) for February shipments to the CIS countries began last week. Traditionally for the past several months, European producers announced another increase in export PVC prices - by EUR60/tonne and higher - due to higher feedstocks prices, according to ICIS-MRC Price report.

The February contract price of ethylene was agreed up by EUR70/tonne from the previous month, which theoretically allows to talk about an increase of EUR3,5/tonne in the net cost of PVC production. But on the back of on-going force majeure shutdowns at several plants, European producers announced an increase of EUR60-100t/tonne in export prices for the CIS countries in February.

Demand for PVC from consumers from the CIS markets has remained weak so far because of seasonal factors, but demand for resin still increased from January. Moreover, manufacturers from the CIS countries have a shortage of resin with K=70, which local converters were trying to compensate for with purchases in Europe.

Overall, deals for February shipments of suspension polyvinyl chloride (SPVC) to the CIS markets were negotiated in the range of EUR985-1 025/tonne FCA, whereas the previous month's deals were discussed in the range of EUR875-965/tonne FCA.
MRC

1. Venezuela oil exports sink to 1940 level

MOSCOW (MRC) -- Pressured by strict U.S. sanctions, Venezuela's oil exports plunged by 376,500 barrels per day (bpd) in 2020, according to Refinitiv Eikon data and internal documents from state-run PDVSA, financially squeezing President Nicolas Maduro, said Hydrocarbonprocessing. The administration of U.S. President Donald Trump also put curbs on PDVSA's main trading partners, the owners of tankers still transporting Venezuelan oil and on fuel supply to the gasoline-thirsty nation. The punishment, aimed to oust Maduro after his 2018 re-election was called a sham by most Western nations, has led PDVSA to pursue new customers, rely on mostly unknown intermediaries to resell its oil and deepen ties with Iran, another country under U.S. sanctions.


MRC

MOSCOW (MRC) -- Crude oil futures were rangebound in mid-morning trade in Asia Feb. 10 as improving fundamentals for crude oil were weighed against concerns of an overheated market, reported S&P Global.

At 10:34 am Singapore time (0234 GMT), the ICE Brent April contract was up 1 cent/b (0.02%) from the Feb. 9 settle at USD61.10/b, while the March NYMEX light sweet crude contract was down 7 cents/b (0.12%) at USD58.29/b.

Crude oil prices continued to receive support from strengthening current and future demand as the coronavirus pandemic receded amid vaccine rollouts, with hopes of a swift economic recovery boosted by an impending US stimulus package, analysts said.

"COVID infection numbers continue to fall, raising hope that fuel consumption will improve," ANZ analysts said in a Feb. 10 note, adding that demand recovery was already visible with Chinese fuel sales in significant growth mode and Indian demand returning to pre-pandemic levels as car usage increases.

Furthermore, the American Petroleum Institute's weekly inventory report released late Feb. 9 estimated US crude inventories fell by 3.5 million barrels in the week ended Feb. 5, above the 2.7 million-barrel decline estimated by analysts surveyed by S&P Global Platts, and at a level analysts considered bullish for the market.

The market will look to the US Energy Information Administration's weekly inventory report due later Feb. 10 for further clarity on price direction.

"The reported draw estimate from API was a surprise, and if EIA reports a similar figure later today, it may provide some support to the market," Warren Patterson, head of commodities strategy at ING, told S&P Global Platts Feb. 10.

On the supply side, the OPEC+ alliance's commitment to production quotas and Saudi Arabia's additional 1 million b/d supply curb that kicked in Feb. 1 continue to contribute to a tightening market.

However, concerns that the crude market may have overestimated the improving fundamentals persist, with some analysts perceiving oil to be in overbought territory.

The EIA's short term energy outlook released late Feb. 9 cast a shadow of doubt over the pace of demand recovery, with the expectation of a rise in global consumption of petroleum and liquid fuels by 5.4 million b/d in 2021 revised down 0.2 million b/d from the previous month's forecast.

"The EIA's short-term energy outlook showed the persistent levels of COVID uncertainty continue to weigh on the demand outlook for the rest of the year," said Edward Moya, senior market analyst at OANDA.

Concerns about how long the supply tightness would last were also weighing on optimistic sentiment.

The current strength in oil prices may incentivize OPEC+ to increase production at the March 4 meeting, easing some of the supply tightness in the market, said Stephen Innes, chief global strategist at Axi, in a Feb. 10 note.

Patterson echoed similar sentiment, saying: "The rally (in oil) is running out of steam and further upside is limited as current prices will induce producers in North America to increase drilling activity."

As MRC informed previously, oil producers face an unprecedented challenge to balance supply and demand as factors including the pace and response to COVID-19 vaccines cloud the outlook, according to an official with International Energy Agency's (IEA) statement.

We remind that the COVID-19 outbreak has led to an unprecedented decline in demand affecting all sections of the Russian economy, which has impacted the demand for petrochemicals in the short-term. However, the pandemic triggered an increase in the demand for polymers in food packaging, and cleaning and hygiene products, according to GlobalData, a leading data and analytics company. With Russian petrochemical companies having the advantage of access to low-cost feedstock, and proximity to demand-rich Asian (primarily China) and European markets for the supply of petrochemical products, these companies appear to be well-positioned to derive full benefits from an improving market environment and global economy post-COVID-19, says GlobalData.

We also remind that in December 2020, Sibur, Gazprom Neft, and Uzbekneftegaz agreed to cooperate on potential investments in Uzbekistan including a major expansion of Uzbekneftegaz’s existing Shurtan Gas Chemical Complex (SGCC) and the proposed construction of a new gas chemicals facility. The signed cooperation agreement for the projects includes “the creation of a gas chemical complex using methanol-to-olefins (MTO) technology, and the expansion of the production capacity of the Shurtan Gas Chemical Complex”.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020).
MRC

MOSCOW (MRC) -- DuPont confirmed plans to update reporting segments following the 1 February divestiture of its nutrition and bioscience business to IFF, according to Chemweek.

The company will report in three segments starting with its first-quarter 2021 earnings report. The segments are electronics and industrial (2020 sales of USD4.7 billion, which will include industrial solutions interconnect solutions; and semiconductor technologies business); mobility and materials (2020 sales of USD4 billion, including advanced solutions, engineering polymers, and performance resins); and water and protection (2020 sales of USD5 billion, which will include safety solutions; shelter solutions; and water solutions.

DuPont will shift its Kalrez perfluoroelastomer, Vespel polyimide parts and shapes, Molykote, and healthcare silicones from the former transportation and industrial segment to electronics and industrial.

The company said that its Tedlar films, microcircuit materials and the DuPont Teijin Films joint venture, previously non-core businesses designated for sale, would become part of the mobility and materials segment. DuPont executive chair and CEO Edward Breen said on the company’s 9 February earnings call that a sale of the businesses in the current market would not generate sufficient shareholder return. The shift winds down DuPont's non-core segment. DuPont has divested nine businesses designated non-core since June 2019 with cash proceeds for more than USD2.2 billion.

Breen also indicated that DuPont would pursue targeted M&A in 2021 with as much as USD2.5 billion allocated for acquisitions.

As MRC wrote previously, in January, 2021, Chilean oil refiner ENAP Refinerias S.A. selected BELCO scrubbing technology, licensed by DuPont Clean Technologies (DuPont), to improve emissions control from its 31,449 BPSD fluid catalytic cracking (FCC) unit at the Aconcagua refinery.

We remind that DuPont is investing USD400 million in the production capacity of Tyvek nonwoven fabric made from high density polyethylene (HDPE) at its site in Luxembourg. A new building and a third work line at the production site will be constructed. The launch of new facilities is scheduled for 2021.

According to MRC's ScanPlast report, November estimated HDPE consumption in Russia rose to 125,950 tonnes from 58,330 tonnes a month earlier. ZapSibNeftekhim reduced its export polyethylene (PE) sales. Overall HDPE shipments to the Russian market totalled 1,096,510 tonnes in the first eleven months of 2020, up by 5% year on year. Production and exports grew significantly, whereas imports fell by 31%.

The DuPont Corporation, founded in the USA in 1802, operates in more than 70 countries. The company produces specialty chemicals, offers goods and services for agriculture, food production, electronics, communications, security and protection, construction, transport and light industry. In Russia, DuPont has 100% control over the DuPont Khimprom plant since 2005, and in 2006 established a joint venture between DuPont - Russian Paints and Russian Paints.
MRC