Outlook turns ugly for Europe chem makers - bank

15 October 2008 12:25  [Source: ICIS news]

LONDON (ICIS news)--Citigroup has downgraded price targets for most of its Europe chemicals portfolio by 6-60%  and has predicted things will turn "ugly" as producers are expected to lose pricing power amid a widespread economic slowdown, the bank said on Wednesday.

 

The bank cut its share target prices on leading regional chemicals producers by more than 20% including BASF, LANXESS, Akzo Nobel, Arkema and Solvay, while downgrading its recommendation on Clariant shares to "sell" from "hold".

 

Indicators pointing to slower growth and lower crude prices had caused buying activity to stall in anticipation of lower chemical prices, the bank said in a note to investors.

 

Citigroup said Europe would be disproportionately impacted by the downturn starting in the fourth quarter, due to the relatively high price of crude oil and the high value of the euro.

 

“Companies will likely focus aggressively on cash, leading to wholesale de-stocking in fourth quarter 2008… it should be ugly,” said the bank.

 

“This may mean some demand improvement in 2008 but weaker industrial activity should take its toll,” it added.

 

Restructuring costs were expected to rise sharply in 2009 as part of an effort to maintain competitiveness, mitigating cash generation, while commodity chemicals players were expected to face intense pressure on operating margins, Citigroup said.

 

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By: Mark Watts
+44 20 8652 3214

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