The Chemical World This Week
CHEMICAL EARNINGS FLAT IN SECOND QUARTER The U.S. basic chemical industry once again outperformed expectations in the second quarter of 1978. As in the first quarter, a number of unanticipated shots in the arm from markets and in-house efficiency efforts let the industry as a whole avoid the earnings drop widely forecast six months ago. These strengthening influences were enough to offset serious weaknesses from excess production capacity, a resulting cost-price squeeze, and certain crippled markets, especially basic organics and inorganics and fertilizer. Specifically, the first wave of earnings reports from nearly half the companies in C&EN's final quarterly earnings survey shows virtually no change in after-tax income for the basic chemical industry compared to second-quarter 1977. Sales rose 9%. This means that profitability fell again, to 6.3% on sales from 6.9% a year ago. Final results, which C&EN will report next month, will not differ much from these figures, since most of the largest companies already have reported. These comparisons for the second quarter look much like performance in the first quarter. Sales volume then rose at the same clip, 9%, from a year
Williams: costs rising too fast
before. First-quarter earnings rose slightly after removal of one-time factors. Taking these factors out of second-quarter earnings also may yield a slight gain, since several large companies suffered nonrecurring charges. Also as in the first quarter,
Earnings in second quarter vary considerably 2nd Qtr earnings a
2nd Qtr sales
% $ Millions
1978
1977
$211.6 $209.6 Akzona 813.2 785.5 Allied Chemical American Cyanamid 688.6 600.7 Celanese 665.0 607.0 Diamond Shamrock 423.0 381.7 1,747.6 1,558.6 Dow Chemical 2,731.2 2,471.2 Du Pont 334.7 Ethyl Corp. 364.0 57.4 59.0 First Mississippi 1,119.4 W. R. Grace 1,057.3 1,122.1 Monsanto 1,185.0 Olin 387.1 416.1 243.3 214.1 Pennwalt 706.0 PPG Industries 640.0 Stauffer 304.0 293.7 Chemical 119.6 146.7 Texasgulf 1,979.8 1,779.5 Union Carbide TOTAL $13,801.9 $12,621.4
change
C&EN July 24, 1978
1977
%
change
Profit margin 1977 1978
$4.8 35.9
0% 2.3% $4.8 62.5 --43 4.4
2.3% 8.0
15 10
39.6 23.0
39.3 23.0
11 12 11 9 -3 6 6 7 14 10
37.3 154.0 190.8 .21.3 3.8 51.5 76.1 26.0 13.8 50.3
1% 4
4 23 11 9%
a After-tax. b After-tax income as a percentage of sales.
6
1978
1 0
5.6 3.5
6.5 3.8
49.9 --25 0 154.5 18 161.4 21.8 - 2 7.8 --51 6 48.7 81.5 - 7 27.8 - 6 23 11.2 17 43.0
8.8 8.8 7.0 5.9 6.7 4.6 6.4 6.2 5.7 7.1
13.1 9.9 6.5 6.5 13.2 4.6 7.3 7.2 5.2 6.7
23.2 20.2 11.7 12.6 106.8 102.6 $869.9 $872.6
15 -7 4 0%
7.6 6.9 10.5 8.0 5.8 5.4 6.3% 6.9%
profitability fell about half a percentage point. Hence, the second quarter and first half of 1978 continue the erosion of the chemical industry's profit margins that began in the second half of 1976. Essentially, this is the price the industry is paying for overestimating market growth during its plantbuilding boom from 1973 through 1976. Right now, the results of this miscalculation hurt, in the form of a severe cost-price squeeze, especially in the more basic chemical products. That's the major observation on the second quarter from Dow Chemical, which has lost its profits leadership in the industry as a consequence. Dow financial vice president, G. J. Williams, says, "Chemical prices are not increasing at the same rate that our costs have been going up." Even so, Dow's second-quarter profits managed to come out about even with a year ago, in contrast to the company's 14% profits drop in the first quarter of 1978. Profits hegemony in the chemical industry has passed back to Du Pont for the third successive quarter. The company's $190.8 million net income for the second quarter was up 18% over a year ago and would have been up considerably more had not the company taken nonrecurring charges for product line elimination and a plant accident. Du Pont's secondquarter sales of $2.73 billion were also the high for the industry. Du Pont was one of the few chemical companies to raise its profit margin in the second quarter, to 7.0% on sales from 6.9% in second-quarter 1977. Only three other basic chemical companies matched Du Pont in lifting profitability this spring, by reports at press time. Pennwalt's profit margin went up to 5.7% from 5.2%, PPG Industries' to 7.1% from 6.7%, and Stauffer Chemical's to 7.6% from 6.9%. Chemical companies' secondquarter figures for earnings alone were much more balanced than the data on profitability. Of 17 companies reporting to date, seven had rising profits, seven had decreasing profits, and three had no change. The leaders in picking up profits were Pennwalt, up 23%; Du Pont, up 18%; PPG Industries, up 17%; and Stauffer
Chemical, up 15%. Smaller gains occurred for W. R. Grace, up 6%; Union Carbide, up 4% (regaining the plus column a quarter earlier than it indicated in recent forecasts); and American Cyanamid, up 1%. On the other side of the profits spectrum, some of the drops ran much deeper percentagewise than did the largest gains. Unfavorable earnings comparisons with second-quarter 1977, some influenced by one-time factors, are reported by Ethyl Corp., down 2%; Olin, down 6%; Monsanto and Texasgulf, down 7%; Diamond Shamrock, down 25%; Allied Chemical, down 43%; and fertilizer-plagued First Mississippi, down 51%. Chemical product lines showed the same wide variability in performance as did these profits figures in the second quarter. The most diversified chemical companies reflect this patchwork performance in their summaries. For example, Celanese president, John D. Macomber, points to improved performance in international fibers, U.S. cellulosic fibers, worldwide plastics, and worldwide polymer specialties. However, earnings slipped in U.S. polyester and nylon fibers and in worldwide chemicals. At Union Carbide, strong firsthalf 1978 sales gains came in specialty products, gases and related products, and batteries and home and automotive products. Metals and carbon sales went up at about the same 11% rate as did the company's overall sales. But chemicals and plastics sales just held even with first-half 1977. Industrywide, major product lines showing better earnings than a year ago in the second quarter were fibers, excepting textile types, many plastics, pesticides, and many specialty lines. The earnings results in large-volume basic chemicals were very mixed, with notable weak spots such as chlorine and caustic soda, an important group mentioned by several large producers. At the bottom was fertilizer, which disappointed all producers. After this generally improved but still hard-won profits standoff in the second quarter, chemical companies have no illusions about the rest of 1978. Executives are uniformly cautious. Observes Monsanto chairman John W. Hanley, "In general, the operational results for the first six months of 1978 were acceptable. We anticipate that we may be operating in a somewhat more difficult economic environment over the balance of the year with uncertainties including unresolved matters of the federal government's approach to tax policy, inflation, and energy policy. Despite these factors, 1978 continues to shape up as another satisfactory year for Monsanto." D
Dow tests clear methylene chloride Methylene chloride is neither mutagenic nor a human carcinogen, according to analysis of a two-year animal study by Dow Chemical and a human occupational exposure study at Eastman Kodak. These findings could encourage continued growth in the use of methylene chloride in aerosol propellants, flexible urethane foam-blowing agents, paint strippers, metal cleaners, rapidly drying paints and adhesives, brush cleaners, and food and spice extractants. In the Dow study, nearly 2000 rats and hamsters were exposed to atmospheres containing 0, 500, 1500, and 3500 ppm methylene chloride, six hours per day, five days per week. At the end of six months, animal cell samples were analyzed for chromosomal damage. At the end of the animals' lives, bodies were autopsied and slides of tissues examined. No greater number of tumors was found in experimental than in control groups of hamsters. The rats, which have a tendency to develop spontaneous mammary tumors, were found to have an excess number of benign tumors in the experimental groups but not of malignant tumors. Company scientists ascribe the excess number of benign tumors to metabolic stress. Exposed rats suffered liver effects, but company spokespersons say that these were not severe enough to shorten animals' lives, and severity did not progress between the 18th and 24th months. No evidence of chromosomal aberrations was found in cell samples taken after six months.
Methylene chloride makes erratic recovery Millions of lb
650 f
!
400
3501
1969 70
71
72
73
74
75
76
Sources: U.S. International Trade Commission, C&EN estimates
77 78
A study of a large number of male employees exposed to up to 135 ppm methylene chloride for up to 30 years at Eastman Kodak in Rochester, N.Y., shows lower mortality rate among exposed persons than for the population of the state. Death rate from cancer and heart disease among these persons also was lower than that of the state population. Kodak is reluctant to discuss details of the study, pending publication in a peer-reviewed journal. A similar study of employees exposed to methylene chloride at Celanese Fibers Co.'s Rock Hill, S.C., plant is still in progress. Dow industrial hygienists who are assisting Celanese in carrying out the study say that preliminary results show no adverse health effects. These encouraging findings to date may help methylene chloride to recover ground lost in 1977. Industry sources attribute a 12% drop in production from 1976 levels to increased solvent reclamation efforts by users, a tripling of imports, and a falloff in exports. Strong growth of the U.S. economy may produce an increase of 17% to 553 million lb for 1978. D
Chemical carcinogens list released by OSHA As promised several weeks ago, the Occupational Safety & Health Administration has released a preliminary list of chemicals classified according to the system the agency proposed last year for regulating cancer-causing substances in the workplace. Lengthy public hearings on the proposal are now being conducted and it was at these hearings that the existence of the OSHA list first surfaced (C&EN, May 22, page 18). In a sense there are no suprises on the list because it is based on substances listed in the 1976 edition of the National Institute for Occupational Safety & Health's inventory of suspected carcinogens. The list was prepared for OSHA by Clement Associates, a Washington, D.C., consulting firm hired to conduct a preliminary review and categorization of substances in the NIOSH inventory that are found in U.S. work places. The Clement list places 269 chemicals in OSHA's Category I, which is comprised of substances that are confirmed carcinogens based on human data or on tests in two mammalian species or on one species if those results have been replicated. Listed in Category I are chemicals such as acetamide, benzene, carbon tetrachloride, chloroform, tannic acid, July 24, 1978 C&EN
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