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The European chemical sector to face tough H1

January 12/2012

(ICIS) -- The European chemical sector is expected to experience a challenging start to the year, with a fall in chemical prices, destocking, and the possibility of a recession in 2012 pointing to a discouraging short-term outlook, analysts at global bank HSBC said on Wednesday. However, HSBC said that the chances of a turnaround in the industrys prospects in the second half of the year could improve, as low stock levels in several end-markets might lead to some restocking once economic uncertainty clears, particularly in Europe. Our near-term outlook for the European chemicals sector remains cautious, but it looks like 2012 might turn into a year of two halves, the analysts said.

The sharp drop in chemical prices and lead indicators across the world, as well as our economists view that Europe will be in a recession in 2012, do not bode well for the sectors prospects for the next couple of months. On top of that, the sector is up against tough comparables, as the first half of 2011 was one of the best periods the sector has ever experienced, they added.

However, reduced inventories as well as an improvement in cyclical leading indicators - PMIs [purchasing manager indices] and chemical prices might have bottomed out - fuel hopes for restocking and for that matter a more encouraging second half of the year, the analysts said.

HSBC's analysts said that global PMI in December (PMI being an indicator of the economic health of the manufacturing sector, based on new orders, inventory levels, production, supplier deliveries and the employment environment) had stabilised, and it therefore looks like November might have been the bottom of the trade cycle. This stabilisation in the PMI points to expectations of restocking, particularly in the second half of 2012.

This seems to hold true for numerous upstream chemicals, as several petrochemicals producers stated during the Gulf petrochemical forum in mid-December, but also for some end-markets such as electronics/semiconductors. Furthermore, the recent recovery in soft commodity prices should go some way to restore the confidence of farmers, and therefore demand for fertilizers, the analysts said.

Author:Marina Ivanova
Category:General News
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