The chemical industry is the early stages of a particularly deep downturn that could last for a few years and U.S. exports of commodity chemicals will likely continue to fall as global demand weakens. Sales volumes are declining and profits are plummeting rather rapidly for most chemical manufacturers (worst for basic commodity chemistry sector). So, companies are trying to conserve cash such as Wacker, and Lanxess reduced dividends … more news .
Specialty chemical sector tends to be more resilient; however, the credit crunch has thumped the specialty chemical sector as well. The latest casualty is Chemtura Corporation that has filed for Chapter 11 last night, bankruptcy protection amid declines in orders and cash flow. .. more news (3/18). It would be interesting to see the Q1-’09 earnings for various players.
The picture may appear gloomy, but analysts and industry experts say that, aside from near-term pressures, the crisis may be creating unique opportunities for certain regional players such as producers in Gulf/MENA region. These regional governments are seeking to capitalize on their comparative advantage – abundant and cheap access to hydrocarbons, the building blocks for basic chemistry.
Another silver line is, Fed’s recent announcement that it will begin buying Treasury paper in the secondary market as well as scale up its purchases of Agencies; therefore, it’s expected US dollar to decline in value and a number of specialty chemical company may benefit from it (perhaps trade surplus for chemical sector?)
The situation doesn’t look great right now, but the future could be even brighter for good companies who can execute on their strategic intents. Industry experts believe that company should continue to adjust /re-align their portfolio businesses and retain key talents.
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