US chem analysts eye Asia cautiously

19 January 1998 21:06  [Source: ICIS news]

HOUSTON (CNI)--Financial analysts haven't yet begun wholesale downgrading of annual earnings estimates for the chemical industry in the wake of Asia's continuing crisis despite some reports to the contrary, CNI learnt Monday.

"But the next couple of weeks will be critical for the outlook," said Chuck Hill, director of research at First Call of Boston, a firm that regularly compiles consensus projections by groups of analysts who follow a variety of industries.

And Peter Young, of New York's Young & Associates, emphasised in an interview with CNI that the Asian situation is too complex for generalisations and contrasts dramatically with the impact from Mexico's crisis of a couple years ago.

Young told CNI: "It really depends on the exposure and the countries involved. It's a case-by-case situation and you can't generalise. I wish there was a simple answer."

Analysts and US companies are watching several developments in Asia with increased interest, according to Young and Hill, who calls Asia the top factor influencing the US market this year so far.

Hill said that the analysts in his consensus surveys appear more concerned right now with monitoring reports of fourth quarter and annual results from 1997 before tackling much detailed revision of their estimates for 1998 and beyond. And First Call's consensus estimates for 1998 at several key chemical companies reflect almost no change in those projections between December and mid-January.

Commodity chemical producers should report meagre earnings increases of 1% this year while speciality chemical companies may see profits jump 11% in 1998, Hill told CNI.

"The general pattern by analysts has been to cut expectations for fourth quarter of 1997 a little but to leave 1998 alone. But I think we will see some signs of it coming down. That's why the next few weeks are critical," said Hill.

Meanwhile, Young emphasised that several different dynamics are hard at work complicating the situation in Asia. For starters, he said, companies depending on Asia for revenues face declining demand.

In addition, companies competing with Asian producers for US sales face significant challenges from Asia's lower costs of production.

"Another problem is recognition of the possibility that some countries will try to export themselves out of the crisis, further lowering costs just to generate a cash flow," Young told CNI.

Neither Young nor Hill could predict if US companies should consider Asia a long term challenge. Companies with exposure in a country like China with a strong financial outlook will react differently from those with exposures in Indonesia where financial problems appear more fundamental, said Young.

By: Gary Taylor
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