Europe chems stocks rise on lockdown easings despite uphill struggle ahead

LONDON (ICIS)–European chemicals stocks and bourses rose healthily on Thursday on the back of hopes the lockdown easings will revive economic activity and liquidity provided by central banks will soften the recession blow.

However, crude oil futures for delivery in July, which surpassed the $36/bbl mark earlier in the week, traded by Thursday afternoon closer to the $34/bbl mark.

As such, values for crude-linked petrochemicals like naphtha or styrene have also fallen slightly from prices earlier in the week.

Russia, key ally of the OPEC cartel, is showing signs of a faltering commitment to the output cut agreement with Saudi Arabia, which has put pressure on prices.

Another risk factors increasing is the US-China relationship, which is also showing growing tensions on the back of China’s security law on Hong Kong passed on Thursday.

EUROPE BUYING
Investors in Europe went into a buying spree on Thursday as they preferred to focus on the positives, however.

The European Stoxx 600 index, with 30 large listed chemicals firms, was up more than 2% nearing the close, with big names like AkzoNobel (up 3.16%), Solvay (2.30%) or BASF (1.59%) all posting healthy gains.

The main European bourses were up between 1% and 2%.

The European Commission – the EU’s executive arm – presented this week a €750bn investment plan which would add to the European Recovery Fund’s more than €1.0tr to help those countries most affected by the pandemic, namely Italy and Spain.

However, debate among EU countries on how to tackle the pandemic’s aftermath persist, making a common front more difficult.

The European Central Bank (ECB), the central bank for the 19-country eurozone, said it expects the currency union’s GDP to fall between 8% and 12% this year, one of the worst forecasts yet by an official body.

On Thursday, the Commission published its sentiment index for May showing a minor improvement, up 2.6 points to 67.5 points, still far below February’s 103.4 points.

“Even if very moderate, the rise confirms what other surveys already suggested: the lifting of lockdowns across Europe is leading to recovery in both business and consumer confidence after they reached multi-years low in April,” said analysts at Oxford Economics.

“But the very modest increase also raises fears that the economic recovery might be milder than expected.”

The analysts expanded on how the mid-term prospects by respondents to the survey showed a worrying trend among consumers – increasing worries about unemployment and higher savings rates.

Those two elements do not bode well for most end markets which the petrochemicals industry serves.

“Private consumption will likely take longer to recover fully. We think private consumption will not return to pre-crisis levels before mid-2021 at least,” said Oxford Economics.