12 July 2012 12:04 [Source: ICIS news]
LONDON (ICIS)--The recovery most European chemical firms had anticipated for the second half of 2012 could be a “distant dream”, following a weaker-than-expected second quarter, global bank HSBC said on Thursday.
In a report on the European chemicals industry, HSBC forecasts the European chemical sector as a whole will report flat year-on-year earnings before interest, tax, depreciation and amortisation (EBITDA) in 2012.
“With Q2 2012 expected to be weaker than Q1 2012, the recovery most companies had anticipated for H2 2012 could be a distant dream. Consensus estimates are unchanged over the last three months so the risk of further downgrades is high,” HSBC said.
Chemical prices had recovered at the beginning of 2012 on the back of a jump in the oil price and the restocking of inventories following a depletion towards the end of 2011, resulting in the first quarter being ahead of expectations, despite volumes and operating profit being down year on year, HSBC said.
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However, HSBC said the sector is now down by some 10% from its year-to-date highs. “This is for a reason: prices are in freefall due to the self-reinforcing combination of falling oil prices and lacklustre demand,” it said.
"Given the pro-cyclical nature of inventory changes, the chemical industry has moved into destocking mode again. This means that the second quarter will be weaker than the first, at least in the upstream end of the sector, defying the usual seasonality,” the bank added.
HSBC said that according to most indicators, volumes and pricing in the chemical industry for the second quarter will be down, both month on month and year on year, with margins likely to follow the same trend. However, the weak euro is likely to offer some relief to the euro-denominated majority of companies in the sector, it added.
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