Europe chemicals to see double-digit EPS growth in 2014: HSBC

22 January 2014 00:00 Source:ICIS News

LONDON (ICIS)--Investment bank HSBC on Wednesday said it expects the European chemical sector to deliver double-digit growth in earnings per share (EPS) in 2014 due to the economic recovery observed in China, Europe and the US, although it warned of risks arising from currency exchanges.

HSBC Global Research said 2014 will be the first year since 2011 in which all major regions will contribute to growth, with the global purchasing managers index (PMI) surpassing the historical average of 52 and industrial production reaching its highest level since the third quarter of 2011.  

In particular, the bank highlighted how the chemical-intensive auto sector in Europe is growing again, which brought the European chemical confidence indicator back to positive territory in October 2013 - while Germany’s indicator did so in September.

On the back of that recovery, HSBC predicted volumes growth in 2014 in line with global GDP growth at 2.6% in 2014 and 2.8% in 2015 according to its own estimates, slightly lower than those of the International Monetary Fund.

“Several investors we met recently are concerned that the sector might not be able to perform given the positive correlation between the [chemical] sector and oil in the past,” said the bank.

“[However], in an environment where demand for chemical is strong and markets are tight while a positive supply shock results in a fall in the oil price, the sector should benefit,” it added.

The bank expected the price of most chemicals to increase in 2014, with the price of acrylic acid increasing 16% year on year, polybutadiene rubber up 7%, butadiene rising 6.3%, and the price of propylene 1.9% higher.

HSBC forecast the largest price falls to occur in ethylene (-3.4%), benzene (-2.3%) and caprolactam (-1.9%).

The bank also reviewed its analysis of chemical companies, reiterating its ‘overweight’ recommendation for France’s Arkema (while lowering its annual share price target from €98 to €95), Germany’s BASF (which annual share price target was revised up from €90 to €92) and Linde, which share price target was revised from €167 to €170.

By Jonathan Lopez