Investors seek resilient chem firms in uncertain economy – analysts

15 September 2011 11:24  [Source: ICIS news]

LONDON (ICIS)--Analysts at US-based Bernstein Research said in a report on Thursday that investors are looking for segments in the chemicals industry that are relatively resilient in case the uncertain economic environment deteriorates further.

“The segments that were ‘strong during deflation’ or ‘defensive’ are typically characterised by good market structure and include, for example, paints & coatings, adhesives, and industrial gases,” Bernstein said.

The analysts added that when considering pricing power and volume resilience, it found that margins for commodity chemicals such as petrochemicals and fertilizers fared the worst during input cost deflation and volume declines.

Bernstein said that specialty chemicals and oligopoly controlled chemicals held up best, with the ability to hold pricing being more important than retaining volume.

“Companies that we currently favour are in segments that can hold prices in the deflationary cost environment or have more defensive characteristics,” Bernstein said.

It added that companies fitting this description included Dutch coatings firm AkzoNobel and US-based chemicals, coatings and glass firm PPG, as well as industrial gases manufacturers such as France-based Air Liquide, Germany-based Linde, and US-based Praxair and Air Products.

Germany-based synthetic rubber producer LANXESS and Swiss-based crop protection business Syngenta also fitted the analysts' description, it said.

“The lack of pricing power in Syngenta's crop protection business is offset by the resilience of the volumes as long as crop prices remain high,” Bernstein said.

“When cost inflation resumes, petrochemicals producers such as BASF, Dow and LyondellBasell would become preferred,” it added.

For more on these companies visit ICIS company intelligence

By: Franco Capaldo
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