European chemical companies are expected to continue to generate healthy cash flows in 2007, according to a Standard & Poor's report Wednesday.
"The generally good business conditions, with solid demand growth and high capacity utilization, are expected to continue throughout 2007," said S&P credit analyst Tobias Mock. "Although demand growth could soften somewhat compared with 2006, credit quality is expected to be supported by good operational performance."
According to the report’s findings, the 20 percent drop in oil this year has not yet filtered through the value chain. Petrochemical companies managed to keep the large part of this reduction in their own books in the third quarter of 2006, allowing them to post favorable results.
Specialty chemicals producers are expected to benefit soon as well, as the drop in oil prices already started to cascade down the value chain in the fourth quarter to several petrochemical products that are important raw materials for specialty chemical producers. If oil prices remains at current levels, their input costs are expected to decline further in 2007, while the margins of petrochemical producers will most likely weaken slightly, but stay strong.