01 November 2013 13:33 [Source: ICIS news]
LONDON (ICIS)--Chemicals producer LANXESS is one of the few major European companies most vulnerable to either slowing growth or rapid currency devaluation in emerging markets, new research from Fitch Ratings said on Friday.
“A downturn in the synthetic rubber market has pushed up leverage at LANXESS, and there is little visibility as to when demand and prices might recover in the Asian tyre sector,” Fitch said in an assessment of prospects for the Germany-based producer, a specialist in rubber and plastics.
In a special report entitled 'EMEA [Europe, Middle East and Africa] Winners and Losers from the Emerging Market Growth Dip', Fitch said EMEA corporates with significant exposure to emerging markets need to adapt to a “new normal”, particularly slowing growth.
However, adapting would mean making changes “of an evolutionary rather than a revolutionary nature”, the report added.
Most large European chemical producers have pursued large expansion programmes in emerging economies over the past three years, with publicly stated growth targets in these regions given for 2015, Fitch noted.
In 2013, however, cash flow generation and financial metrics across the European chemical sector have been adversely affected by higher energy costs and lower demand than projected in their core European markets and in their identified growth markets, the report said.
“Although most companies have rebased their overall 2015 growth targets at lower levels, the emerging market investment drive remains generally intact and remains a priority given its potential transformational effect after 2015,” it added.
“Rather than scaling down their emerging market capital expenditure plans, producers such as LANXESS are adjusting capacity ramp-ups to reflect the lower emerging market demand and initiating new restructuring programmes in Europe,” the report said.
In Asia, LANXESS' synthetic rubber business faced the problem that the tyre market offers little transparency on inventories, Fitch also noted.
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