UpdateUS chem stocks mostly rise despite GM filing

01 June 2009 23:54  [Source: ICIS news]

(Recasts first paragraph for market reaction)

HOUSTON (ICIS news)--Shares of leading US chemical companies largely rose on Monday amid news that car giant General Motors (GM) filed for Chapter 11 bankruptcy protection.

The automotive sector is a crucial end market for many plastics and chemicals.

DuPont closed at $29.90/share, up 5%, as the overall Dow Jones Industrial Average surged 2.6% while gaining 221.11 points. HB Fuller jumped 11.9% to close at $19.04/share, while Eastman Chemical shares increased 4.3% to close at $43.24/share.

Dow Chemical was one of the only major companies to decline, falling 3.3% to close at $17.10/share.

GM's bankruptcy filing was part of a US government-led plan to restructure the 100 year-old auto maker and was the third largest bankruptcy in US history, following Lehman Brothers' collapse and the failure of telecoms group WorldCom.

“Today marks a defining moment in the history of GM,” company CEO Fritz Henderson said in a press conference.

None of the company’s operations in Europe, Latin America and the Asia-Pacific region were included in the bankruptcy filing.

The Obama administration said it would pump in another $30bn (€21bn) - on top of the previous $20bn - and take a 60% stake in the automaker to stop it from being broken up.

It was reported that the United Auto Workers (UAW) union would take 17.5% in shares and the governments of Canada and Ontario would lend $9.5bn and get a 12% stake and $1.7bn debt in return.

On Monday, President Obama emphasised the government’s continuing commitment to supporting the ailing domestic automotives sector.

He described the US as a “reluctant” owner of GM, and looked to quell talk that the government would have an overly active role in GM’s restructuring.

However, GM's Henderson warned that the government’s exit timeline would likely take years, not months, because of the substantial block of shares now owned by the US.

GM also announced numerous plant and dealership closures on Monday as part of its restructuring plan, which includes more than 20,000 job cuts by the end of 2010.

The company said it would close six manufacturing plants in 2009, seven more in 2010, and another in 2011. Also, three service and parts distributions centres will be closed at the end of 2009.

That would mean even less demand for the chemicals and derivatives that go into auto manufacturing, and could place fresh pressure on an already financially fragile parts supply chain.

Within chemicals, some plastics resins makers said on Monday that US automotive sales have been down so long that the bankruptcy would not change much.

“It’s already been baked into our plans,” one acrylonitrile-butadiene-styrene (ABS) supplier said. “Automotive in general has already been down, so everyone’s adjusted accordingly.”

Likewise, polyurethane (PU) foam producers said their market had already adjusted as well.

“It will probably be business as usual because the drop in demand has already occurred,” a PU producer said. “If you look back at automobile sales in the US, sales today are about 20% of sales in 2005.”

($1 = €0.71)

Additional reporting by Mark Watts, Ben Lefebvre and Leela Landress

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