Worse Year In A Generation-75 Top Us Chemical Producers

Q: I am posting this for the "what me worry" crowd of conservatives on this news group. I periodically review the Chemical industry but have never posted on this here. My weekly professional magazine, Chemical and Engineering News, published by the American Chemical Society covers this kind of thing plus items of scientific news. This week`s copy arrived, a huge Black Cover with the title Top 75 US Chemical Producers: Manufacturers hit by worst year in a generation. In my review of the "401K Hoax" I mentioned that that book went over the "old economy", 80% of the total economy and the "new economy" , 20% which has so mesmerized people that they did not know the bad things happening in the economy with respect to the 80%. The bad things have been going on in the 1990s, while others have had their heads in the sands of hi-tech. Well the bad news that occurs in the steel industry is not limited to that industry; Page 22-23 of the May 13th issue of the C&E News gives the financial details on the 75 Chemical companies. For the year 2001. Some companies do less badly that the others. At the top of the list Dow Chemical showed a remarkable 20% increase in sales. But they showed a 45% drop in profits! The general news is that most companies have had sale declines, 10% appears about average. Profits generally shrank more than 10%, seeing a 40% decline was not excaptional. Another sign of weakness if the % of profit in the sales figure, the operating profit margin. The "operating" profit for Dow was about 4.5%, which in the chemical industry is a low figure (it would be a great figure for a supermarket, however). 10-15% are not exceptional. The chemical industry is capital intensive. Anybody who drives by a petrochemical complex is impressed by the fact that more than just brain power sitting behind a computer programming new software is involved. A measure of this is the operating return on invested capital. Since one can loan money out and get 5-6%, why tolerate receiving 3-4% on capital invested in capital equipment. The smart capitalist does not invest his money in this fashion, neither to chemical executives. They can`t borrow money and make money on the borrowed money unless the return is greater than the interest they pay. Even Jeff and JC will understand that. I think. Anyway, last year Dow made 3.5% on its invested plant capital! Sick sick sick. A lot of companies show a figure between 5-10% and over 10% is better news. As a comparison, the pharmaceutical industry does a lot better, profit margins approch 20%, return on equity run in the same range. it is a healthy industry except they have a tiger by the tail. If they have a dry run on new drugs coming out, they too will sink into the mud that most American industry finds itself in. The good news is, of course, that things will get better. They can`t get worse and stay in business. I will report back in 12 months. Oh, yes, I decide years ago that Chemical industrial stocks are not good investments. Guess why?

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