Lower April chem costs expected to benefit European firms – analyst

18 May 2012 12:31  [Source: ICIS news]

LONDON (ICIS)--The fall in the price of crude oil is expected to lower chemical costs in Europe in April and expand company margins, global analyst Bernstein Research said on Friday.

Bernstein said that the European chemicals industry was able to offset cost inflation through price increases in March, adding that the drop in the price of crude oil should lower costs in Europe in April, improving growth in the industry.

Bernstein said price increases will strongly improve earnings for European chemical companies.

“We believe pricing is one of the most powerful ways for chemicals companies to drive earnings growth. However, prices for much of the chemicals industry are relatively opaque, with the exception of some of the large commodity products such as petrochemicals and fertilizers,” Bernstein said.

The analyst said it favours companies that are in segments that can hold prices in the deflationary cost environment or that have “defensive characteristics”.

“Fitting these descriptions are the following: paints and coatings and chlor-alkali, such as AkzoNobel and Sherwin-Williams PPG; and industrial gases, such as Air Liquide, Linde, and Praxair and Air Products,” it said.

“For Yara, our thesis rests largely on our belief that pessimism on urea pricing is unwarranted since the ammonia supply-demand balance is tight,” added Bernstein.

However, the analyst said when cost inflation resumes, petrochemicals producers such as GermanyBASF would become “preferred”.

By: Leigh Stringer
+44 208 652 3214

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