07 September 2009 16:54 [Source: ICIS news]
LONDON (ICIS news)--Chemical companies are unlikely to begin restocking as raw material prices remain volatile, there is oversupply in the market and firms are staying away from credit, according to a Deutsche Bank analyst.
“Most [companies and consultants surveyed] appear confident that the bulk of de-stocking is now complete, [but] we see very little evidence (or confidence) that restocking will return in the coming quarters,” analyst Tim Jones said in a press note.
He added that re-stocking often started a couple of quarters after destocking ends, which would see it beginning in the fourth quarter. However, there were three barriers to this.
“Companies are still in cash mode and while the credit market may have eased, corporate attitudes are still very conservative,” he said.
“Raw material prices remain volatile and with management acutely aware of the massive write downs in the second half of 2008 they are unlikely to want to run the risk of history repeating itself (if oil declines again).
“With material oversupply in most parts of the industry, chemical buyers have little fear that products could run into short supply (and prices) spike, which is mitigating the need for a working capital buffer,” he added.
Jones said that when restocking did occur it could benefit share prices by 30% to 40% as historically periods of strong restocking delivered peak margins.
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