18 January 2013 15:46 [Source: ICB]
Wall Street analysts expect chemical companies to take a cautious tone to guidance for the first half of 2013 on upcoming fourth quarter earnings calls. And adding to the uncertainty is the upcoming battle on the US debt ceiling and spending sequester set to come to a head by the end of February.
A fiscal battle is brewing on Capitol Hill
Deutsche Bank analyst David Begleiter expects managements to be cautious in their 2013 guidance on lack of demand visibility - at least until after the Chinese New Year - as well as macro headwinds. "That said, we do expect chemical companies to express optimism around an improving US housing market and the long-term outlook for US ethylene margins," said Begleiter.
The US government gridlock will continue to take a toll on global economic activity. The World Bank last week slashed its global GDP growth forecast for 2013 from 3.0%, to 2.4%, citing the uncertainty on US fiscal policy among the reasons for the cut.
The fight over raising the US debt ceiling and avoiding the automatic drastic spending cuts called the "sequester" will be "ugly," noted Cal Dooley, CEO of the American Chemistry Council (ACC) and former Congressman in a meeting of the Societe de Chimie Industrielle in New York last week.
"It is unfortunate that the deal on the fiscal cliff in January wasn't managed in a way that contributed to a political environment conducive for people to get together," he said.
"The parties could find a way to postpone some spending cuts and modestly increase revenues. They could also kick the can down the road again with short-term debt ceilings that are hit every two months," said Dooley. "However, any successful long-term deal will require entitlement reforms that have yet to be brought to the table."
The ACC head also noted that US chemical companies are expressing some concern about the situation. "Anything that raises fiscal uncertainty causes concern," said Dooley.
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