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Sector Risk Insights
Economic Research
Paris
21 March 2018
MEET THE SECTORIANS
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INTRODUCTION 1500-1505 CET
SECTOR RISK INSIGHTS
1505-1610
What You Need to Know in 2018
- Catharina 1505-1525
Metals, Energy, Machinery
- Marc 1525-1545
Pharmaceuticals, Chemicals, Transportation
- Sergey 1545-1605
Retail, Construction, Textile
- Maxime 1605-1610
Automotive
GOT QUESTIONS? Q&A SESSION 1610 - 1630
Ask Us Anything
AGENDA
22-Mar-18
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2
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• What You Need to Know in 2018
• Key Takeaways from the latest reports
• Ask us anything via Skype messenger – answers at the end of this session
• For more info: www.eulerhermes.com/economic-research/sector-risks/Pages/default.aspx#globalsectorreports
SECTOR RISK INSIGHTS
22-Mar-18 3
Sector Risk Webinar | Economic Research
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THE TEAM
CATHARINA
HILLENBRAND-
SAPONAR
22-Mar-18 4
Senior Sector Advisor for Thematic Research and Top Client Liaison Catharina joined Euler Hermes in September 2017. During 20 years in senior positions with a number of global investment banks such as Cazenove and Nomura, she advised on multi-billion M&A transactions and privatisations. Catharina continued her career as an official with the British government where she advised Ministers and Downing Street with leadership on a number of high profile national policies mainly focused on industry, finance
and energy but also on Brexit.
Focus areas: Energy, Metals, Machinery and equipment
Did you know that…? Catharina jogs during lunch breaks
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• US tariffs – direct impact and mind the multiplier • Commodities recovery – base metals and mining sectors back to growth • Steel overcapacity - credibility of management • For more info and analysis visit the webpage
22-Mar-18 5
METALS
SECTOR RISK INSIGHTS
Sources: Bloomberg, DOE, 19/01/2018
Catharina Hillenbrand-Saponar
CYCLICAL MOMENTUM VS STRUCTURAL CHALLENGES
Benchmark steel prices
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Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
US
D/t
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• Oil: Demand is strong (global economic strength) but so is production (US vs OPEC) - the devil is in the detail • Power/gas/renewables: The great recovery; decarbonisation; disruption • Return to – disciplined - growth • For more info and analysis visit the webpage
For more info and analysis visit the webpage
6
ENERGY
SECTOR RISK INSIGHTS
Sources Bloomberg, DOE, 19/01/2018
Catharina Hillenbrand-Saponar
GROWTH: NOW IN YOUR ENERGY SECTOR
US crude oil inventories and oil production forecast
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US inventories (mbbl, lhs)
DOE crude oil production forecast (mbpd, rhs)
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• Positive cyclical exposure to synchronised economic growth • Sustained growth in all end markets • Secular megatrend of robotics/AI • Beware of risk from US metals import tariffs • For more info and analysis visit the webpage
22-Mar-18 7
MACHINERY
SECTOR RISK INSIGHTS
Sources: Bloomberg, DOE, 19/01/2018
Catharina Hillenbrand-Saponar
MOTOR THE ECONOMY
Key demand indicators: Industrial production and business expectations
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-60
-40
-20
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China industrial output
IFO Eurozone business climate expectations
US industrial production
Sector Risk Webinar | Economic Research
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THE TEAM
MARC
LIVINEC
22-Mar-18 8
Sector Advisor for industrial-oriented sectors Marc started working for the French subsidiary of Euler Hermes as a financial analyst until 2010. He then moved to the Economic Research Department where he has been developing in-house knowledge of several industrial (upstream) sectors.
Focus areas: Pharmaceuticals, Chemicals, Paper, Transportation
Did you know that…? Marc likes practising mountain hikes in summer or wintertime
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• Global drug sales to reach near USD850bn (+5%) in
2018 in spite of a lack of growth in Over The Counter segment (OTC medicines that do not require any physician’s order)
• Future growth of drug sales fuelled by the doubling number (25 57) of New Molecular Entities (NMEs) registered by the US Food and Drug Administration (FDA) last year
• To watch: US drug price gouging might cause a public backlash and hamper drug makers’ pricing power in the biggest world outlet
• For more info and analysis visit the webpage
22-Mar-18 9
PHARMACEUTICALS
SECTOR RISK INSIGHTS
Sources: Evaluate Pharma, Euler Hermes
Marc Livinec
FINE SALES PERFORMANCE; PRESCRIPTION MEDICINES ON A STRONG UPTREND AGAIN IN 2018
Global sales (in USD bn) by type of drug
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• Chemical output expected on a rise by 2.5% in EU (28)
and by 1.1% in the US at end June 2018 on a yearly average
• EU chemicals benefiting from high demand thanks to its long-time focus on specialties enjoying strong market position
• Low-cost competition from US (and Asia’s) chemicals stemming from a cheap cost of ethylene
• To watch: (i) Volatility of fossil fuel prices impacting feedstock costs; (ii) Farming revenues still too low to make agrochemicals outlook brighter in the middle run
• For more info and analysis visit the webpage
22-Mar-18 10
CHEMICALS
SECTOR RISK INSIGHTS
Sources: Global Insight, Euler Hermes
Marc Livinec
THE SURGE IN CHEMICAL OUTPUT THAT TOOK PLACE IN H2 2017 IS EXPECTED TO CONTINUE IN H1 2018
Evolution of the volume index of chemical output (yearly average)
(f)
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• World trade growth (+3.9% expected in 2018) to be
considered as the main growth driver for freight transport, especially for road and sea transportation
• Except for rail transport which usually requires electricity, very high dependency of all means of transportation on (rising) fuel prices
• Air transport enjoying a strong expansion in international passenger traffic (demand up +7.6% over 2017 vs. 2016)
• To watch: Low-cost airlines’ competition spreading out over long-haul routes
• For more info and analysis visit the webpage
22-Mar-18 11
TRANSPORTATION
SECTOR RISK INSIGHTS
Sources: Oxford Economics, Euler Hermes
Marc Livinec
FUEL PRICE VOLATILITY AS A KEY COST DETERMINANT
Breakdown (in value) of means of transport worldwide
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THE TEAM
SERGEY
ZUEV
22-Mar-18 12
Sector Advisor for consumer-oriented sectors Before joining the Economic Research Department in September 2017, Sergey worked for several years for the French subsidiary of Euler Hermes as a credit analyst. His responsibilities within the team evolve around analysing latest developments in the consumer-oriented sectors such as retail, household equipment, agrifood and software services.
Focus areas: Retail, IT, Construction, Textile
Did you know that…? It’s still a secret
Sector Risk Webinar | Economic Research
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RETAIL
WHAT’S UP WITH THE RETAIL APOCALYPSE?
SECTOR RISK INSIGHTS
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• Big-ticket bankruptcies and unprecedented number of store closures
• There is no underlying demand problem
• What is driving the increase in the sector risk? (+61% in Medium risk over 3 years)
• For more info and analysis visit the webpage
Top-10 bankruptcies (by company revenue) in the retail sector worldwide
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CONSTRUCTION
POSITIVE DEMAND PICTURE VS STRUCTURAL CHALLENGES
SECTOR RISK INSIGHTS
Sector Risk Webinar | Economic Research
• Rise of infrastructure investment in Europe, US, China and India and Trump’s 1,5 trillion USD infrastructure plan advancement through congress
• Wage pressures coming from skilled labor shortage
• For more info and analysis visit the webpage
The infrastructure backlog until 2030
Segment Number of
Projects
Sum of Planned
Financing (USD bn)
Railway Transport 43 462
Roads and Bridges 77 275
Power and Utilities 148 175
Maritime Transport 14 31
Air Transport 34 22
Inland Water
Transport 9 5
Total 325 970
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TEXTILE
NO GOOD NEWS FOR DEVELOPED MARKETS
SECTOR RISK INSIGHTS
Sector Risk Webinar | Economic Research
• Entrance of new players (Amazon’s Prime Wardrobe, new direct-to-consumer brands)
• Rising investment costs required to mitigate sustainability impact of the fast-fashion business
• For more info and analysis visit the webpage
India
China
USA
UK Germany
France
Russia Japan Italy Brazil
-15%
-10%
-5%
0%
5%
10%
15%
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600
5-year sales CAGR
Textile spending per capita Medium risk Sensitive risk High risk Low risk
Sources: Oxford Economics, Euler Hermes proprietary database
Top 10 textile markets (size of the bubble = textile sales)
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THE TEAM
MAXIME
LEMERLE Head of Sector and Insolvency Research Maxime joined Euler Hermes in 1993 as a credit analyst for Euler Hermes France, specializing on the food and retail sectors. He then moved to the Research team in 1999, first working on sectors, then on macroeconomic analyses, before becoming the team leader for global forecasts. Maxime now leads cross-cutting sector and insolvency research and is in charge of sector risk ratings.
Focus areas: Automotive, Insolvencies
Did you know that…? You’re looking at a ski champion - and the inventor of the Euler Hermes Global Insolvency Index
22-Mar-18
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• Global market to exceed 98 millions units in
2018 (+2.5%), despite easing Asian and European demand and ongoing US and UK weakness
• Challenge#1: the accelerating transition to electric vehicles (EV)
• Challenge#2: the innovation in E-mobility, from autonomous driving to new services
• To watch: Key markets (China and US), changes in subsidies, trade negotiation and Tariffs
• For more info and analysis visit the webpage
22-Mar-18 17
AUTOMOTIVE
SECTOR RISK INSIGHTS
Sources: OICA,EIA, Euler Hermes
Maxime Lemerle
SOLID SALES PERSPECTIVES; FASTER AND MORE CHALLENGING MARKET TRANSITION
EV Vehicle New Registrations (in thousand)
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Ask Us Anything (we don’t mind at all)
GOT QUESTIONS?
22-Mar-18
File name | department | author
18
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Sector Risk
Economic Research
Paris
21 March 2018
THANK YOU
