Confidence in chemicals undermined by bullish stock forecasts

25 November 2009 17:44  [Source: ICIS news]

AMSTERDAM (ICIS news)--Bullish stock forecasting for the chemical sector has undermined investor confidence in the industry, equities analyst Paul Satchell said on Wednesday.

It is usually a dangerous sign when analysts and investors are more bullish than the companies involved, he added.

The recovery in stock prices for the chemical sector has proved dramatic in 2009 but, Satchell said, thus far he has remained unconvinced.

When he first painted a gloomy portrait for chemical shares 12 months ago, many players in the industry were critical of what may have been a self-fulfilling prophecy, Satchell said at the 8th European Aromatics & Derivatives Conference in Amsterdam, the Netherlands. Satchell is a former managing director with ING Bank.

It was believed that perception might drive reality, he explained. But the reality proved to be worse than he expected.

According to Satchell, the demand slump in chemicals was driven by a perfect storm of factors such as economic uncertainty, frozen credit markets and collapsing hydrocarbon prices that combined to spur massive destocking towards the end of 2008.

Chemical companies were surprised by the downturn, Satchell said, noting that many were still bullish in October 2008 in spite of sector stocks falling in advance of this.

However, macro-investors and value players tended to move early, he added. They had an outlook that was based on more general factors as opposed to those that were purely focused on the chemical industry which perhaps could not see the wood for the trees.

Satchell highlighted order patterns as a key indicator of recovery, and felt that many players were still operating on a hand to mouth basis purchasing small volumes to meet immediate needs. Until normal buying patterns re-emerge, Satchell felt it was premature to adopt a bullish attitude regarding the sector.

According to Satchell, many analysts have maintained a spurious confidence in the chemical sector, something he feels is reinforced by compartmentalisation.

Analysts tend to focus on quoted or listed companies, he explained. Private companies are poorly understood. Credit analysts are also usually far less specialised.

Unsurprisingly, Satchell noted that the investment stance on chemical companies today is bullish, something he interprets as market observers hoping for the best rather than seeing through the trough.

The 8th European Aromatics & Derivatives Conference, jointly organised by ICIS and International e-Chem takes place from Wednesday 25 November to Thursday 26 November 2009.

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By: Truong Mellor
+44 208 652 3214

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