Commodity chemicals face elevated risks in 2011 – US analyst

15 December 2010 21:36  [Source: ICIS news]

NEW YORK (ICIS)--Commodity chemical companies face elevated risks in 2011 after strong performances in 2010, a Wall Street analyst said on Wednesday.

“The macro environment is unusually uncertain with commodity price and foreign exchange volatility. Margins are unusually high this soon after the recession. It feels like a bubble,” said John Roberts, analyst at Buckingham Research, at a meeting of the Societe de Chimie Industrielle in New York.

High oil prices could hit economic growth, while natural gas in the US may not stay cheap forever, he noted.

“At some point, high oil prices will cause overall demand to decline. Plus, with natural gas prices this low, someone could take advantage and cause gas demand and prices to go up,” said Roberts.

This could include a company building a gas-to-diesel facility in the US, the analyst noted.

“There is a lot of risk in the basic chemical sector. Oil prices are back to their second-highest level in history and the consumer world is not in that much better shape than during the recession,” said Roberts.

“If industrial production growth slows, there could be trouble,” he added.

Roberts said the best time to buy cyclical commodity chemical stocks is when things are falling apart.

“Buy when there’s trouble. Right now, everything is looking pretty good,” he said.

The analyst said he prefers more specialised plays. His top picks include US-based glass materials company Corning, US seed and agricultural chemicals firm Monsanto and US-based industrial materials producer 3M.

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By: Joseph Chang
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