Sliding euro could put US chems on roller coaster ride

03 May 2010 17:00  [Source: ICIS news]

HOUSTON (ICIS news)--The volatility in the value of the euro could lead to bigger gain and heavier pain for US chemical suppliers, depending on which side of the Atlantic their sales are on, sources said on Monday.

The euro has lost about 13% of its value against the dollar since December 2009, reaching about $1.33 on 2 May after hitting a one-year low of about $1.31 on 28 April. Debt issues in Portugal, Spain and Greece, the last of which required a €110bn ($147bn) bailout from eurozone countries and the International Monetary Fund (IMF), have eroded investor confidence in the euro as a whole.  

US ratings agency Moody’s Investor Services said on 29 April that it is researching whether to downgrade its ratings on Greek sovereign debt after it cut its debt ratings on covered bonds issued by Greek banks. Standard & Poor’s cut its rating on Greece’s debt to junk status on 25 April.

US specialty chemical maker Lubrizol said it is forecasting the euro at $1.35 for 2010 in its earnings assumptions, down 10 cents from the year before.

Lubrizol, which derives much of its sales from Europe, calculated that every percentage point that the dollar gains against the euro subtracts 3 cents/share in their earnings.

“The weaker the euro, the more currency headwinds we will likely see,” said Charlie Cooley, chief financial officer at Lubrizol. “The sovereign debt issues that we are watching right now clearly are going to raise questions about the broader European economy.”

At the same time, US chemical brokers were busy reckoning how to navigate what looked to be turbulent currency flows.

For US styrene and polyethylene terephthalate (PET) distributors, moving material out of the oversupplied east coast region could become more difficult as the weakening European currency may quash EU buyers’ interest, sources said.

In the paraffin wax market, the euro’s decline would benefit North American buyers scouring for material overseas after production declines in the US and Canada, a trader said.

"With the US economy picking up and Europe lagging, particularly in construction, the euros get a better return in the US," the paraffin wax trader said.

The same held true in the glycerine market, where the US, a net importer, is seeing demand grow in the polyols and personal care market, a chemical broker said.

“The lower euro could result in more bulk imports coming to the east coast,” one chemical broker said. “That would be in weeks to come.”

Still, some analysts are not convinced that currency moves will play that much of a part in the international chemical market.

Roger Shamel, president of Consulting Resources Corporation in Virginia, said the euro would play only a secondary role when it comes to improving demand in chemical markets.

“It isn’t as important as the general economic condition, which is improving,” Shamel said. “Economies worldwide are bouncing off the bottom.”

($1 = €0.75)

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By: Ben Lefebvre
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