05 February 2010 16:44 [Source: ICIS news]
By Nigel Davis
Down in the market, not a great deal is stirring. If buyers' talk is anything to go by, customer industries are not yet providing sufficient market pull to draw business out of the depths. Some players suggest that demand currently in Europe is "built on a house of cards".
Confidence in EU chemicals has risen above the long-term average for the first time in 18 months, the European Chemical Industry Council (Cefic) said earlier this week. The chart illustrates the swing in sentiment through the downturn.
Confidence in EU chemicals continued to improve in January 2010, Cefic said, referring to data compiled by the European Commission, "rising significantly by 5.1 points compared to December 2009".
That must be good news, of a sort. EU chemicals executives are expecting output to increase. Confidence increased sharply in the
A key point was that order books showed some improvement in January but were still low compared with the long-term average.
Dow Chemical CEO Andrew Liveris this week also put the outlook into perspective when he said he expected a “lazy V-shaped” economic recovery. Financial analysts took that to mean steady but slow global progress.
Dow and most other chemical companies are seeking to benefit from stronger business in Asia but are hidebound by a lagging recovery in Europe and
And consider some of the following quotes made this week from buyers in downstream markets in
Downstream demand for polycarbonate has suffered following the withdrawal of government incentives that had buoyed automobile demand. Cold weather also has had a negative impact on sales into the construction sector.
“There is low demand and oversupply,” said one distributor. “The oversupply will continue for the next six months. There will be no problems with availability.” Producers were countering that they needed to lift prices because of the pressure on margins from rising upstream bisphenol A (BPA) costs. BPA had risen on the back of higher priced benzene.
The battle to cover costs is getting tougher as increases in feedstock costss put pressure on many chemical chains. Demand from
Confidence in the sector from without is also thin. Financial analysts still prefer defensive stocks: those where margins and demand have, historically, been more robust. That, for the most part, means the more highly focused specialties, life science-oriented and agrochemicals makers. The option to take a punt on leading edge commodities is simply not there, given the projected supply overhang from the Middle East and the new capacities due on stream in Asia.
There is some life in the mergers and acquisitins (M&A) market, and noteworthy in late January and early February has been the activity of non-European and non-US players in the market. Agreed deals have involved companies from
The fragility of the perception of chemicals on the financial markets, and of the markets themselves, however, is exemplified by the withdrawal on 3 February of the Taminco IPO (initial public offering). The investor in the amines producer, CVC Capital partners, had been hoping to cash out of the business to the tune of €250m ($342m).
Confidence is a state reached though a complex mix of perception and reality. In chemicals, we perceive the upturn this February, but are far from certain as to its reality.
($1 = €0.73)
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