UpdateEurope chem stocks hit by falling markets

16 September 2008 18:40  [Source: ICIS news]

(Updates with latest share prices, index figures and adds detail)

By Nigel Davis and Hilde Ovrebekk

LONDON (ICIS news)--Shares in European oil and chemicals companies fell on Tuesday as indexes plunged amid worries about the credibility of the global banking system.

A big loser listed on the UK's FTSE 100 was Johnson Matthey, which saw its shares fall 8.37% to 1,324 pence.

Shares in BP were down 3.15 at 476.00 pence at the close, while Shell’s shares dropped in London by 4.5% to 1,605 pence.

The Dow Jones Eurostoxx 50 index fell 3.1% to 3,088.45 by the close, with BASF’s shares down 2.98% at €35.16, Air Liquide down 1.59% at €82.81 and energy major Total  up marginally at €43.00.

NYMEX light sweet crude futures fell by more than $5/bbl on Tuesday as oil market players focused on the latest developments in the banking industry, overlooking events such as a weak dollar and production disruptions, that normally would provide support.

By 14:20 GMT, October NYMEX crude had hit a low of $90.55/bbl, a loss of $5.16/bbl from the Monday close of $95.71/bbl, before recovering to around $92.90/bbl. 

In the UK, the FTSE 100 closed at 5,025.60 down 178.60, a fall of 3.43%. It had earlier dropped below 5,000 for the first time since June 2005.

Shares in HBOS, owners of the UK’s biggest mortgage lenders Halifax, had plunged 32.04% to 158 pence by 13:41 GMT on Tuesday over worries about its reliance on financing from the wholesale money markets.

The cost of borrowing on those markets has risen sharply as banks have become even more careful about lending following the collapse of Lehman Brothers. It recovered to close down 21.72% at 182.00 pence.

The world’s biggest insurance group American International Group (AIG), saw shares plummeting 70% to $1.31 as Wall Street opened for trading, after a plunge of more than 60% on Monday. The shares recovered by 12:58 local time to $2.96, down 37.71%.

AIG was given emergency access to $20bn (€14bn) of funds on Monday, with Goldman Sachs and JP Morgan trying to raise a $75bn financing package to support the insurer in coordination with the US Federal Reserve after three credit agencies slashed the company’s ratings.

The fall of US investment bank Lehman Brothers triggered fears of a lengthy downturn in the European chemicals sector with players seeing a possible weakening in demand and future cuts in capital expenditure.

Commenting on the UK market, equity analysts Credit Suisse said they did not believe the latest developments in the US were going to help the availability of credit.

“We continue to worry about asset prices, and in turn impairment risk and pro-cyclicality risk in the UK market,” the analysts said, adding that the main concern would be cost.

"Rising funding costs might also pare any asset driven margin improvements into next year."

London-based bank HSBC said earlier this month that Europe's largest economy Germany may be in a technical recession after data from the federal Economic Ministry showed the country's industrial production fell 1.8% in July.

Last week, the European Commission cut its growth forecasts for Europe for 2008, as it said the effects of the US-led downturn was hitting much harder than previously expected.

Chemical industry economists pointed to expected zero growth in the sector this year but shied away from forecast a steeper chemicals downturn.

($1 = €0.70)

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By: Nigel Davis
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