Global Chemical Industry Market Prospects

Richard Young, president of New York-based investment bank Young & Partners, recently said that after experiencing the downturn in the second half of 2011, the chemical market showed signs of improvement in early 2012. However, since the volatility of the high-yield bond market may persist and market conditions are not optimistic, initial public offerings (IPOs) will remain challenging and uncertain.

Last year, the profitability and cash flow of the chemical industry performed generally well. In the first half of 2011, apart from the IPO market, the chemical industry stock market and the debt equity market have shown a good momentum of development. However, in early August of last year, with the economic and financial turmoil, the stock prices and debt conditions in the chemical industry fell across the board. Since then, the chemical industry's debt ** began to slow down significantly.

With the escalating European debt crisis and the rating of the US debt repayment ability being reduced, the western economic growth has slowed down. The stock market is constantly fluctuating and valuations have also dropped significantly. This is particularly true for the chemical industry: In 2011, the total volume of non-bank bonds issued in the world fell by nearly half, with a total of US$13.9 billion (10.3 billion euros), compared with US$26.7 billion issued in 2010. Among them, total investment-grade debt was only 10.8 billion U.S. dollars, showing a modest downward trend; the issuance of high-yield bonds had only 3 billion U.S. dollars in 2011, and the year-on-year issue of 14.1 billion U.S. dollars in 2010, and the overall situation was still declining. Although there was some recovery in the first half of last year, the issuance of high-yield bonds was basically stagnant in the second half of the year.

Although the demand for investors in the chemical industry continues to be strong, the issuance of debt capital is decreasing. According to Peter Young, the reason is that the high-yield market lacks trust** and cash flow, which increases investor risk and the issuer of debt capital invests cautiously. At the same time, debt ** is mainly driven by the needs of the issuer, rather than driven by the demand of investors. This has also been the reason for the recent low debt financing. This phenomenon is particularly evident in Europe.

Due to the relatively low valuation of chemical companies and the limited equity financing needs of chemical companies, global chemical stock issuance has been very modest. In 2011, the circulation of chemical industry stocks was US$11.6 billion. However, this was mainly due to the sale of US shares of American Fertilizers company, Megan, by Cargill, a U.S. agricultural conglomerate, and other shareholders.

In 2011, chemical fertilizer company CVR Partners (CVR Partners), Rentech Nitrogen Partners and Sinochem Holding China Limited Sanjia Chemical Co., Ltd. completed the IPOs. In particular, Peter Yang pointed out that the three companies have identified two specific directions - Fertilizer market and emerging markets. Recently, a small chemical company in the United States has also successfully listed on the market based on its unique and unique advantages in the silicon field. This shows that some private chemical companies have begun to pay close attention to whether the market's doors are open to small chemical companies in specialized fields.

After the middle of last year, due to economic instability, the development of basic industries (including chemical industries) suffered huge losses. In Europe and China, this negative influence caused by economic uncertainties will still exist for some time. Many chemical companies have submitted IPOs for registration in order to sell equity or use as negotiating mergers and acquisitions, but the almost stagnant IPOs market makes it difficult to implement these plans.

According to Peter Young, although some ** market conditions have improved and some chemical companies with lower degree of specialization are listed, whether this will continue will depend on the development prospects of the global economy. Apart from the fertilizer market and emerging markets, if the overall situation of the stock market and the chemical market are taken into consideration, the issuance of chemical stocks will continue to be moderate.