Third-quarter earnings for major chemical companies reflect a strong recovery that is beginning to pull the industry out of a deep recession.
Although some of the increases in earnings over the same quarter a year ago are spectacular, industry analysts cautioned that the basis for comparison was extremely low, and noted that, in some cases, nine-month earnings were still below the previous year's.
Dow Chemical Co. reported earnings of $100 million in the third quarter, up 140 percent over the same quarter a year ago. E. I. du Pont de Nemours & Co.'s earnings increased 60 percent from $195 million in the third quarter of 1982 to $312 million. Monsanto Co.'s earnings were up 62 percent. Celanese Corp. turned an $18 million loss into $33 million in earnings. American Cyanamid Co. posted an increase in earnings of 52 percent; Rohm & Haas Co., an 87 percent gain; and Union Carbide Corp., a 14 percent improvement.
"They're a lot better off than they were a year ago," said Garo Armen, an analyst for E. F. Hutton Group Inc. "Basically, the earnings of the industry are quite healthy.
"When the stock market rally started and at the beginning of the recovery, a lot of investors wrote off the chemical industry as a basic industry, a matured industry," Armen said. "I think the industry has proven them wrong."
According to many analysts, several factors have aided the recovery, including the industry's shift away from bulk, commodity chemicals into more specialized products with higher margins. In addition, the industry has trimmed excess capacity.
"It's lean and mean," according to Armen.
Prices are going up a little, although not as rapidly as some of the chemical manufacturers would like, said George Krug of Dean Witter. "By the end of 1984 and the begining of 1985, they should be back," he said. "By late 1984, operating rates should be back up to about 80 percent, and they should be able to control prices a little better," he said.
Much of the recovery has been in cyclical businesses, and much of it has been in fibers and plastics. "It's due to the basics coming back, and that is tied in with the general economic recovery in housing and autos," said Teri LeBeau, financial relations manager for Dow.
"Those two industries are both good indicators and they are where a lot of our business is," she said.
Some areas still are lagging. Krug noted that markets for fertilizer are just beginning to turn up, and Armen said that ethylene-based products still face problems created by excess capacity.
"I'm not saying we're all the way there yet, but, whereas many companies were losing a fortune, in fibers and plastics they're at least at the break-even point," said Krug.