US chemical margins shrink in Q1 on higher costs - analysts

18 April 2011 22:44  [Source: ICIS news]

HOUSTON (ICIS)--US-based chemical producers will likely report smaller first-quarter margins during the upcoming earnings season because raw material costs outpaced sales prices, analysts said on Monday.

During the first quarter, oil prices rose by 10% from fourth-quarter 2010 levels, according to David Begleiter, an analyst with Deutsche Bank. Polymer-grade propylene (PGP) prices rose by 29%.

Although producers had announced price increases, it will still take them about one or two quarters to pass the cost increases through, Begleiter said. As a result, margins should recover in the second and third quarters of 2011.

"We expect a confident tone regarding margin recovery," Begleiter said.

Jefferies analyst Laurence Alexander said the main concerns among producers will be rising raw material costs and their potential to destroy demand in niche markets.

Looking forward, Begleiter said some producers will be cautious about the second quarter because they sell materials to the automobile industry.

The earthquake and tsunami in Japan had disrupted production of automobile parts, causing many auto manufacturers to delay, or even shut down, production.

Already, Deutsche Bank has lowered its second-quarter automobile production forecast by 10% in North America and by 9% in Europe because of shortages of components, Begleiter said

However, automobile production should pick up in the fourth quarter, allowing the year to more or less balance itself out, Begleiter added.

Overall, chemical companies will likely report strong first quarters because of higher sales, Begleiter said.

Alexander added that producers will be more cautious in the second quarter. For the full year, outlooks should remain about the same, he said.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy


By: Al Greenwood
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