US analyst lowers chem-industry outlook to neutral

21 May 2012 22:24  [Source: ICIS news]

HOUSTON (ICIS)--A US-based analyst lowered on Monday its near-term outlook for the chemical industry to neutral from favourable because of the weakening global economy.

In addition, customers may begin to destock, and prices for natural-gas liquids (NGLs) could rise, according to a research note by Charles Neivert, a managing director at US-based Dahlman Rose.

"We believe that most chemical shares will be under pressure over the next few months as prices adjust downward and margins compress," Neivert said.

In particular, Neivert noted the problems in the European economy and slowing growth in China. Plus, many of the benefits that the chemical industry enjoyed at the start of the year are beginning to reverse.

These include lower costs for NGLs; higher prices and margins as demand recovered from the fourth quarter; low natural gas prices; rising volumes; and high operating rates, he said. Also, a heavy turnaround season limited supplies.

As these benefits fade away, buyers will hesitate to buy material, Neivert said. Instead, they will try to destock.

Any destocking cycle should be brief, and the challenges to the industry should end in a few months, he said.

By: Al Greenwood
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