Commentary: Not time to be a chemical contrarian yet

03 January 2011 00:00  [Source: ICB]

Contrarian minds might think it's time to sell the chemical group when the term "supercycle" enters the investment lexicon. But dare I say it? This time, it's different!

Robust petrochemical and polymer margins and talk of a "stronger-for-longer" upcycle are typically late-cycle phenomena. Such forecasts came out in full force in early 2005, about two years of recovery off the bottom of 2002-2003.

Of course, that upcycle never came. In terms of stock prices, early 2005 marked the peak for many commodity chemical companies. US-based Dow Chemical closed at over $55 (€42) per share and US chemical major Huntsman went public and hit a high of $28.50 per share. Both have not seen those levels since, although Huntsman came close after a planned buyout by US private equity firm Apollo Management in July 2007 that later went awry. As of late December 2010, Dow and Huntsman traded at under $35 and $16, respectively.

One Wall Street analyst noted that Netherlands-based chemical giant LyondellBasell Industries' investor day in New York drew over 200 attendees - the most to date for a chemical company. That gave him, as well as at least one buy-side analyst, pause - this could be a sign of a bubble. But this time, it is still early days.

Do you agree? Email Joseph Chang or go to the commentary blog

By: Joseph Chang
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