US chemical stocks may already be signaling recession – analyst

NEW YORK (ICIS)–Plunging US chemical stock prices may already be signaling a recession by year-end 2025, one Wall Street analyst said.

“Chemical equities have been a good lead indicator for recessionary periods. History shows us that chemical equities start discounting a recession four to six quarters before it happens, suggesting that this time around, almost on cue, the sector was pointing to a recession by year-end 2025,” said Hassan Ahmed, analyst at Alembic Global Advisors, in a research note.

US chemical equities started to decline in earnest in mid-2024 with the selling picking up steam in October 2024 and most recently in April 2025.

“Analyzing 60 years’ worth of historical data, what’s different this time around is that the average western chemical equity has dropped 22% year-to-date and is down 54% from its 2022 highs, far exceeding the average 31% decline, peak-to-trough, across all US recessionary periods going back to the 1960s,” he added.

This would also suggest the decline is overdone, he noted.

Being a leading indicator, chemical equities will fall sharply ahead of a recession, outperform the market during the recession in anticipation of an upturn, and rally strongly – 83% on average – coming out of a recession, the analyst pointed out.

In his former role as chief economist of the American Chemistry Council (ACC), ICIS senior economist for Global Chemicals, Kevin Swift, analyzed the US chemical industry as a leading indicator for the US business cycle.

Swift allocated around a 10% weighting to US chemical stock performance in the ACC Chemical Activity Barometer (CAB).

The economist puts the probability of a US recession in the next 12 months at 34%.

BETTER BALANCE SHEETS
“Though some investors fear the emergence of another 2008/2009-type recession, we highlight that today’s western chemical sector is in a far better place, on both a balance sheet and cash flow basis, than during the global financial crisis,” said Ahmed.

At the end of 2024, the sector had lower net debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) and higher free cash flow, interest coverage ratios, and cash flow coverage ratios of total debt, relative to the end of 2008 when the Global Financial Crisis began, he noted.

“Additionally, the sector’s debt maturity profile today is far more spread out than in 2008, with very little debt coming due over the next two years,” said Ahmed.

Chemical companies with the best risk/return profile include Celanese, Huntsman, Methanex, Tronox and Westlake, according to the analyst.

Chemical stocks down by more than 50% from their 2022 highs to 14 April include Trinseo (-95%), Braskem (-85%), Tronox (-79%), Celanese (-78%), Chemours (-74%), Olin (-69%), Huntsman (-67%), Dow (-59%), Methanex (-52%) and LyondellBasell (-51%).

Source: CNBC

QUESTIONS ON DIVIDENDS
The selling has accelerated in April amid US tariff announcements. The equity declines have been so pronounced that dividend yields are now around 10.0% for Dow, 9.6% for LyondellBasell and 7.8% for Huntsman.

In upcoming Q1 earnings calls, company managements will no doubt field questions about the safety of their dividends, as well as tariff impact.

The Alembic Global Advisors analyst does not view dividend safety as a concern, as even in a draconian situation where EBITDA drops to 2020 COVID-19 levels, all companies under coverage with the exception of Dow, Huntsman and LyondellBasell and the industrial gas companies would be able to cover their dividends with cash flow.

“We would also highlight that Dow has over $3 billion in cash coming in 2025 from various deals struck and settlements reached so can easily cover their dividend. The remaining five companies could easily tap into the debt markets to raise funds to cover their dividends if the need were to arise,” said Ahmed.

(Thumbnail shows stock listings. Image by Shutterstock.)