US chems earnings at a low in June - Deutsche
15 July 2008 10:41 [Source: ICIS news]
LONDON (ICIS news)--US chemicals earnings are expected to have hit a low in the June quarter due to margin squeezes, but fears of slowing overseas growth will continue to pressure valuations near-term, Deutsche Bank said on Tuesday.
The bank’s analysts said in a note to clients that sharply higher oil and natural gas prices had driven substantially higher raw material costs across the chemicals space.
“With these price hikes outpacing pricing recovery at all levels in the value chain, and with US chemicals demand headwinds ongoing (especially in autos, housing) we expect margins compressed sharply across US chemicals in the June (Q2 for most) quarter,” they said.
They added that although price increases would help recover lost margin going forward, global growth would continue to put pressure on chemicals companies.
“Volumes are coming under pressure, as relentless increases in raw materials force US chemicals producers to aggressively raise prices, while demand slumps amidst sluggish aggregate US growth,” the analysts said.
Downstream demand has also been impacted indirectly by the credit crunch in the financial sector, as contracting lines of credit have made it difficult for plastics processors to raise funds for resin purchases, Deutsche said.
“With higher petrochemical prices and producers increasingly reluctant to extend credit to financially stretched converters, inventory levels have dropped to 2008 lows,” it added.
Since mid-2006, resilient overseas growth has helped US chemicals producers to offset slowing domestic demand.
However, Deutsche Bank analysts said they had reduced 2009 eurozone GDP growth forecast to 0.8% from 1.6% on the back of weak private consumption, construction slowing and a strong euro pressuring exports.
The bank’s Asia economics team expected growth to slow by 1.5%-2.0% over the next four quarters, as leading indicators pointed downward.
“With concerns over global growth growing, while the US outlook remains dim…we expect post earnings conference calls will highlight growing concerns over slowing global growth,” the analysts said.
To discuss issues facing the chemical industry go to ICIS connect
ICIS Copyright © Reed Business Information 2009
Author: Hilde Ovrebekk+44 20 8652 3214
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial
to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free
trial to ICIS Chemical Business.