FocusEurope's chems stocks still on the up

08 April 2008 13:12  [Source: ICIS news]

By Lucy Craymer

 

LONDON (ICIS news)--European chemical stocks are likely to fare better than those in other industries during the rest of 2008, especially companies with interests in the agricultural, industrial gas and energy sector, a Citigroup analyst said.

 

But markets were likely to get "stickier before they get better over the next year or two", Citigroup analyst Andrew Bensen told ICIS news.

 

While the Dow Jones’ ChemStoxx index was up about 2% year on year at the end of the first quarter, the Dow Jones index was down about 1%, the DAX dropped over 5% and the FTSE took nearly a 10% hit.

 

Citigroup said, on average, chemical stocks had fallen by 14% since the beginning of the year - 160 basis points better than the general market.

 

Bensen said the chemical sector was doing better because it was not impacted by the subprime mortgage crisis the way banks had been and also because chemical company outlooks for the rest of the year were positive.

 

The agricultural, industrial and energy sectors all looked strong, he added.

 

ING analyst Paul Satchell agree the chemical sector was more optimistic than others, adding much of the fall in chemical stocks was a reflection of the drop in general markets.

 

And Citigroup is forecasting a significant slowdown in Europe in the rest of 2008 and 2009.

 

The bank has revised down its forecast for 2008 global gross domestic product (GDP) from 3.2% to 2.7% and predicted it would be at 2.6% in 2009.

 

This along with energy costs and the weakened US dollar would impact company performance, Bensen said.

 

Citigroup has downgraded many of the industrial specialty stocks as it factored in the negative effects, which impacted particularly Yule Catto, Ciba and Rhodia, who have had their earnings per share (EPS) estimates dramatically revised downward for the coming year.

 

“Arkema, Symrise, Wacker Chemie and Clariant also saw downgrades,” it said.

 

However, Bensen said with food stocks at their lowest sinc World War Two and a growing global population to feed, chemical companies in the agricultural sector were set to benefit.

 

“Lots of mouths need feeding,” he said.

 

Although the bank has only given European agricultural players Yara and Syngenta "hold" ratings their EPS estimates have been revised upwards.

 

“In terms of our major estimates, we continue to see upgrades for potash producers Israel Chemical and Uralkali on the back of strong agricultural markets and soaring potash prices,” the Citigroup said.

 

Asia continued to play an important role in the outlook for European chemical companies. Citigroup said Wacker Chemie and BASF were the best placed of Europe's chemical players to capitalise on growth in the region.

 

“Note that although Ciba and Clariant have a higher proportion of sales in Asia than in the US, they are unlikely to benefit to the same extent given a large proportion of these are exports from their European production sites and hence the profitability of sales will be hampered by logistics and negative currency movements,” Citigroup added.

By: Lucy Craymer
+44 20 8652 3214

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