Specialty chem margins not so special - Citi

30 July 2008 16:49  [Source: ICIS news]

TORONTO (ICIS news)--The outlook for US specialty chemicals producers has worsened as a slow domestic economy and rising input commodity prices continue to squeeze margins, Citigroup said in analysis of recent second-quarter results on Wednesday.

 

“Specialty chemical margins are not so ‘special’,” the bank said.

 

Producers had seen a clear compression in specialty chemical margins over the last few quarters, a trend that continued in the 2008 second quarter, it said.

 

Several companies - including Eastman, DuPont, Dow Chemical, and Rohm and Haas - showed weakening trends, Citigroup said.

 

While chemical price increases were being aggressively pushed through, those actions were having only partial success, the bank said.

 

Also, costs were not only going up for raw materials, but also for electricity, transportation and ocean freight, it said, adding transportation and freight alone represented as much as 15% of costs for chemical companies.

 

While specialty results held up in Europe, mainly due to the weak dollar, there were clear warning signs about European economies, Citigroup said.

 

Asian economies may still be growing at a healthy clip, but even there recent export numbers from Hong Kong and Singapore were “pointing to worrisome trends", the bank said.

 

Citigroup also said it downgraded its ratings for the shares of Eastman and Lubrizol.

 

Citigroup reduced Eastman from “buy” to “hold” on high oil-based raw materials costs and expectations for further margin compression.

 

Lubrizol was cut from “hold” to “sell” as its lubricants business could suffer because of a slowdown in driving in the US and cutbacks by automakers on trucks and sports utility vehicles, the bank said.

 

“Going forward, we think lubricant demand may slow down as Americans drive less due to high gas prices,” Citigroup said.

 

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($1 = €0.64)

By: Stefan Baumgarten
+1 713 525 2653

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