Fertilizer demand recovery in full swing. Fertilizer sales at Agrium (AGU), Mosaic (MOS), CF Industries (CF), and Intrepid Potash (IPI) all increased year over year as demand continues to return to normal levels after dropping off a cliff in 2008-09. High crop prices, supply-chain restocking, and a need to replenish depleted fertilizer levels in soils all contributed to strong third-quarter growth. Distributors were finally able to find some confidence in potash pricing during the quarter and boosted inventories as a result. Intrepid believes potash pricing has bottomed and expects sequential price increases into 2011. A longer-than-usual fall application window and expected near-record planted corn acreage next spring should keep fertilizer demand high in the North American market. Further, we expect high crop prices to persist in the near term. While high crop prices are unqualified good news for fertilizer producers, elevated prices will pressure cash flows at Bunge (BG). In crop protection, price pressure caused by glyphosate oversupply continued to plague companies such as Syngenta (SYT). However, solid volume increases more than offset price declines for Syngenta in the third quarter.
Chemical companies deal with increasing raw-material costs. Many chemical companies, including Eastman Chemical (EMN), PPG Industries (PPG), Rockwood Holdings (ROC), Ashland (ASH), Akzo Nobel, Solvay, and Royal DSM, dealt with higher raw-material costs in the third quarter or expect them to affect future results. While some firms were able to pass on higher costs to customers, Ashland struggled in this area and margins shrank year over year. Akzo Nobel noted that EBITDA in its basic coating segment came under pressure as well. On the other hand, Eastman and PPG were able pass on higher costs more quickly. Further, Eastman, PPG, Solvay and Akzo Nobel continued to benefit from cost structure improvements enacted during the downturn, posting record quarterly profits.
Gradual recovery continues, with pace picking up for several chemical companies and certain end markets. The chemical company end markets continued their slow recovery as developed economies struggle to get back on track. However, several firms saw sizable volume gains on a year-over-year basis, including Akzo Nobel, Royal DSM, and Solvay. We think the volume increase reflects a more sustained global recovery beyond simple end market restocking. Sharp volume increases at these three European chemical companies largely offset mixed price movement. The automotive industry was a solid end market for several firms during the quarter, as Rockwood, PPG, and Solvay benefited from higher sales to the industry. Additionally, emerging markets provided a bump to chemical companies struggling with slow North American and European growth. Ecolab (ECL), Sigma-Aldrich (SIAL), Akzo Nobel, and Royal DSM mentioned Asia Pacific and Latin America as strong growth regions in the quarter. Finally, weakness in North American housing and construction markets continued, as highlighted by PPG's and Akzo Nobel's results.
From Morningstar.
