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NEWS OF THE WEEK EUROPEAN INDUSTRY: Slower growth for chemical earnings For a while last month, it was feared that the West European chemical industry was headed for a "free- fair' after one of West Germany's three largest chemical companies, Hoechst A.G., disclosed relatively weak first-half earnings. The firm showed an increase of only 8.3%, to $1.09 billion, in pretax profits com- pared with 1988's first half. Analysts were expecting a 15 to 20% gain. What made matters seem worse was Hoechst's 2% drop in second- quarter earnings. "This is catastroph- ic," declared Hans Peter Wodniok, Frankfurt-based equities analyst at James Capel & Co. "We expected profit margins to come under pres- sure, but this is more than we expected." But by last week the worries had eased as the financial community finished digesting the positive per- formances of the other European chemical giants. BASF, for example, rang up first- half earnings of $1.12 billion, up 28% from first-half 1988. And last week, Bayer A.G. disclosed its first- half sales and earnings: Sales in- creased 12% to $11.6 billion, and earnings rose 18% to $1.13 billion. The results of these companies reinforce the first-half figures of British chemical giant ICI, which registered record earnings of $1.59 billion, up 18% on sales of $11.4 billion. All of this means that, al- though the dizzying rise in profit- ability over the past year and a half clearly is slowing, the industry is still in reasonably good shape. Ronaldo H. Schmitz, an execu- tive director of BASF, says he is searching for indications of a down- swing but hasn't found them yet. For the second half of the year, he says, "we expect a continuing growth," albeit at lower levels than during the first six months. "It would be surprising if we could maintain a 13% increase for the full year" over 1988—which would mean profits of about $2.16 billion, on sales of about $25.4 billion. According to Tony Cox, chemi- cals analyst with the London bro- kerage firm Kleinwort Benson, "I think the people who follow the chemical industry recognized that Hoechst had special circumstances. Hoechst's pharmaceuticals are un- der pressure from generics, and also from the [West] German govern- ment's new pricing system [which sets price ceilings on drugs]." "The other thing," he adds, "is their lack of integration in polyeth- ylene and polypropylene. They buy in their ethylene and propylene. Consequently they were caught in a price squeeze." Prices of plastics started to decline in February, inching down in the first quarter, accelerating into the second, and plunging from June onwards. At the same time, ethylene and pro- pylene prices were very high in the first quarter and most of the second. The Hoechst long-term strategy, Cox points out, is that it is cheaper to buy than to make. "They have better things to spend their money on than an ethylene cracker—it takes a lot of money to develop drugs, for example. And Hoechst is not an unsuccessful company—you can argue it their way. But in this quarter, the timing has moved sig- nificantly against them." Ironically, integration has most benefited BASF, which has been crit- icized by analysts in the past as hav- ing too much exposure to the com- modity end of the chemical busi- ness. However, as a fully integrated petrochemicals producer, BASF has been less sensitive to price move- ments, so its earnings have not suf- fered similarly. Cox contends that, particularly under current condi- tions, integration will be the key to profitability this year; nonintegrated companies will show disappointing results, he predicts. Bayer, another company integrat- ed back into feedstocks, also expects the year to turn out well. "In light of the consistently high level of in- coming orders, we expect good re- sults in the second half of 1989 as well," the company says. "Favor- able economic conditions have not changed significantly, therefore we are optimistic that we can surpass 1988's excellent result this year." In 1988, the company's pretax profits hit a record $2.15 billion on sales of $22.99 billion. Patricia Layman Private firm lofts satellite into orbit Last week a privately owned rocket launched a payload into orbit for the first time. A three-stage, 112-foot-long, solid- fueled Delta rocket built by McDon- nell Douglas Space Systems Co. lifted off from Cape Canaveral Air Force Station in Florida, carrying aloft a satellite, Marcopolo I, built by Hughes Aircraft for British Sat- ellite Broadcasting. After moving to a geosynchronous orbit, 22,300 miles above the equator, the satellite will beam television broadcasts directly to U.K. homes. "This orbital flight heralds the emergence of the U.S. commercial launch industry," says Department of Transportation Secretary Samuel K. Skinner. Previous orbital launches in the U.S. and abroad, U.S. offi- cials note, have been carried out by government agencies, such as the National Aeronautics & Space Ad- 4 September 4, 1989 C&EN

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Page 1: Private firm lofts satellite into orbit

NEWS OF THE WEEK

EUROPEAN INDUSTRY: Slower growth for chemical earnings

For a while last month, it was feared that the West European chemical industry was headed for a "free-fair' after one of West Germany's three largest chemical companies, Hoechst A.G., disclosed relatively weak first-half earnings. The firm showed an increase of only 8.3%, to $1.09 billion, in pretax profits com­pared with 1988's first half. Analysts were expecting a 15 to 20% gain.

What made matters seem worse was Hoechst's 2% drop in second-quarter earnings. "This is catastroph­ic," declared Hans Peter Wodniok, Frankfurt-based equities analyst at James Capel & Co. "We expected profit margins to come under pres­sure, but this is more than we expected."

But by last week the worries had eased as the financial community finished digesting the positive per­formances of the other European chemical giants.

BASF, for example, rang up first-half earnings of $1.12 billion, up 28% from first-half 1988. And last week, Bayer A.G. disclosed its first-half sales and earnings: Sales in­creased 12% to $11.6 billion, and earnings rose 18% to $1.13 billion.

The results of these companies reinforce the first-half figures of British chemical giant ICI, which registered record earnings of $1.59 billion, up 18% on sales of $11.4 billion. All of this means that, al­though the dizzying rise in profit­ability over the past year and a half clearly is slowing, the industry is still in reasonably good shape.

Ronaldo H. Schmitz, an execu­tive director of BASF, says he is searching for indications of a down­swing but hasn't found them yet. For the second half of the year, he says, "we expect a continuing growth," albeit at lower levels than during the first six months. "It

would be surprising if we could maintain a 13% increase for the full year" over 1988—which would mean profits of about $2.16 billion, on sales of about $25.4 billion.

According to Tony Cox, chemi­cals analyst with the London bro­kerage firm Kleinwort Benson, "I think the people who follow the chemical industry recognized that Hoechst had special circumstances. Hoechst's pharmaceuticals are un­der pressure from generics, and also from the [West] German govern­ment's new pricing system [which sets price ceilings on drugs]."

"The other thing," he adds, "is their lack of integration in polyeth­ylene and polypropylene. They buy in their ethylene and propylene. Consequently they were caught in a price squeeze." Prices of plastics started to decline in February, inching down in the first quarter, accelerating into the second, and plunging from June onwards. At the same time, ethylene and pro­pylene prices were very high in the first quarter and most of the second.

The Hoechst long-term strategy, Cox points out, is that it is cheaper to buy than to make. "They have better things to spend their money on than an ethylene cracker—it takes a lot of money to develop drugs, for example. And Hoechst is not an unsuccessful company—you can argue it their way. But in this quarter, the timing has moved sig­nificantly against them."

Ironically, integration has most benefited BASF, which has been crit­icized by analysts in the past as hav­ing too much exposure to the com­modity end of the chemical busi­ness. However, as a fully integrated petrochemicals producer, BASF has been less sensitive to price move­ments, so its earnings have not suf­fered similarly. Cox contends that,

particularly under current condi­tions, integration will be the key to profitability this year; nonintegrated companies will show disappointing results, he predicts.

Bayer, another company integrat­ed back into feedstocks, also expects the year to turn out well. "In light of the consistently high level of in­coming orders, we expect good re­sults in the second half of 1989 as well," the company says. "Favor­able economic conditions have not changed significantly, therefore we are optimistic that we can surpass 1988's excellent result this year." In 1988, the company's pretax profits hit a record $2.15 billion on sales of $22.99 billion.

Patricia Layman

Private firm lofts satellite into orbit Last week a privately owned rocket launched a payload into orbit for the first time.

A three-stage, 112-foot-long, solid-fueled Delta rocket built by McDon­nell Douglas Space Systems Co. lifted off from Cape Canaveral Air Force Station in Florida, carrying aloft a satellite, Marcopolo I, built by Hughes Aircraft for British Sat­ellite Broadcasting. After moving to a geosynchronous orbit, 22,300 miles above the equator, the satellite will beam television broadcasts directly to U.K. homes.

"This orbital flight heralds the emergence of the U.S. commercial launch industry," says Department of Transportation Secretary Samuel K. Skinner. Previous orbital launches in the U.S. and abroad, U.S. offi­cials note, have been carried out by government agencies, such as the National Aeronautics & Space Ad-

4 September 4, 1989 C&EN

Page 2: Private firm lofts satellite into orbit

Delta rocket lifts off, taking U.K. broadcasting satellite into orbit

ministration, or by government-owned or -subsidized companies, such as the European consortium whose Ariane rocket now dominates launching of commercial satellites.

"We're now aggressively entering the world competition to launch sat­ellites, " stresses Stephanie Lee-Miller, director of DOT's Office of Commercial Space Transportation (OCST), which regulates U.S. com­mercial launch activities. U.S. ef­forts to encourage commercial launch

services accelerated after the Chal­lenger disaster of January 1986 grounded the space shuttle for 32 months. The Reagan Administration ordered most commercial payloads off the shuttle, and in early 1988 issued a Presidential Directive pro­moting private sector investment in space. A further initiative in this area is expected from the Bush Ad­ministration this fall.

Last week's landmark flight is the second commercial launch licensed by OCST. The first was a suborbital launch in March of a two-stage rock­et built by Space Services Inc. of America (SSI), which carried a Con­sort 1 payload for the University of Alabama in Huntsville's Consorti­um for Materials Development in Space. This 15-minute flight pro­vided about seven minutes of weight­lessness for six experiments, includ­ing study of microgravity's effects on demixing of immiscible poly­mers, elastomer-modified epoxy res­ins, organic foam processing, pow­dered metal sintering and infiltra­tion, surface coatings and catalyst production by electrodeposition, and materials dispersion in a new device.

An OCST manifest issued in June lists five more commercial space launches licensed for 1989 and 27 through mid-1993. A new manifest later this month will add more flights. Seven U.S. firms, with a to­tal investment of more than $500 million, now sell launch services.

The manifest lists 21 orbital launches by three major firms: McDonnell Douglas (8), General Dynamics (8), and Martin Marietta (5). It also lists six suborbital flights for microgravity research by three smaller firms: SSI (2), Space Data Corp. (2), and Amer­ican Rocket Co. (2).

SSI, for example, will launch a Consort 2 payload this November with experiments for the Alabama consortium and three other NASA-supported centers. And Space Data will launch Joust 1 and 2 payloads in the summers of 1990 and 1991, p rov id ing 12 to 15 minutes of weightlessness.

Richard Seltzer

Benzene emissions ordered cut by 90% Last week, the Environmental Pro­tection Agency ordered a 90% re­duction of industrial benzene emis­sions over the next several years. The cost to industry in general is estimated at $1 billion, but is likely negligible for chemical producers.

The order represents the agen­cy's first attempt at regulating a tox­ic air pollutant under guidelines set by a federal district court in 1987 in a case involving vinyl chloride.

That ruling required EPA to use a two-step process in setting air stan­dards. First, EPA must determine a

Voyager 2 concludes encounter with Neptune, provides wealth of new data Voyager 2 last week completed what mission scientists are calling a nearly flawless encounter with the planet Neptune, shown here from a distance of about 12 million km. Voyager's 12 scientific instruments are providing planetary scientists with a wealth of new data on this previously mysterious planet and its moons and rings. Visible in this image is Neptune's "great dark spot" (left), an atmospheric feature very likely similar to Jupiter's great red spot. Cirruslike clouds of methane ice (white streaks) apparently form high in the atmosphere above the spot, but do not circulate around it, which has made it difficult for mission scientists to determine the direction and velocity of winds around the spot. Voyager scientists speculate that methane plays an important role in Nep­tune's predominantly hydrogen and helium atmosphere, forming clouds in the troposphere and being converted by sunlight in the stratosphere into a smog of ethane and acetylene ices.

September 4, 1989 C&EN 5