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Chem Data Rises as Mergers Grow

Industrial production in the United States should continue to experience healthy growth at least until the end of the year, according to a leading economic indicator.

The Chemical Activity Barometer, created by the American Chemistry Council, marked the second quarter by posting a robust 5.6% year-over-year gain, suggesting that the nation’s economic growth cycle will continue through the end of 2017 and perhaps beyond.

The barometer posted a 0.4% gain in April, following three successive months of upward revisions to the monthly data. All data is measured on a three-month moving average (3MMA). On an unadjusted basis the CAB climbed 0.2% in April.

Factors the council looks at in assembling the CAB include indicators relating to the production of chlorine and other alkalies, pigments, plastic resins and other selected basic industrial chemicals.

Also figured into the CAB are chemical company stock data; number of hours worked in chemicals; publicly sourced, chemical price information; end-use (or customer) industry sales-to-inventories; and other leading economic measures, including building permits and new orders.

In April, production-related indicators were positive, with U.S. exports and housing permits showing improvement as well, the council notes.

“Equity prices retreated as uncertainty over tax reform and other public policy issues gained footing” ACC reports. “Inventory and product prices all remained positive.”

Merger Mania Takes Hold

Record-high merger activity is set to transform the chemical industry this year, A.T. Kearney predicts. More than $300 billion of chemical industry merger and acquisition deals are in the pipeline. Of these, four pending mega deals represent 75% of the total.

Each of these large deals (Dow-Dupont, Bayer-Monsanto, ChemChina-Syngenta, Praxair-Linde) is valued between $40-70 billion, two to three times larger than any single deal seen in the past 10 years.

The planned mega deals highlight a broader trend of diversified chemicals companies shifting their portfolios toward more pure play models, Kearney says.

It observes that the shift is driven by the higher multiples that investors award to these types of chemical companies, and a quest to reap the benefits of increased market reach, capabilities and efficiency.

“In value chain after value chain, chemicals companies have focused their portfolios, challenging the traditional chemicals conglomerate model, as seen with Dow and DuPont’s merger and split into three focused entities,” points out Kearney partner and report co-author Dr. Joachim von Hoyningen-Huene.

“PPG’s proposed combination with AkzoNobel is another powerful example of how leading companies are leveraging mergers and acquisitions to change the dynamics of their value chains and accelerate the trend toward pure play models.”

More than 80% of chemical executives surveyed identify access to advanced technologies or application know-how as the main drivers for continued strong international M&A. In contrast, 37% say economic volatility is the largest potential impediment to future M&A growth.

“With new levels of uncertainty brought on by political upsets such as Brexit and the US election, chemical companies are facing difficult questions about what their business environment will look like in the next 12 to 24 months,” says Guttorm Aase, principal at A.T. Kearney.

“Despite these uncertainties, fundamentals support continued strong chemicals M&A activity in the year ahead with further consolidation of more chemicals value chains,” he says.

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