There has been a slew of profit warnings from global chemical companies where they talk about weak demand environment, inventory de-stocking by customers and falling prices as well. One of the chemical major has gone on to call the current demand environment Lehman like.

Share Market Live

NSE

The most recent profit warning came from FMC, a global leader in agricultural sciences. The company slashed its revenue guidance for the second quarter and full-year 2023, driven by substantially lower-than-expected volumes due to an abrupt and significant reduction in inventory by channel partners in North America, Latin America and EMEA. The company now projects revenues for the second quarter to be between $1.00 billion and $1.03 billion and for the full-year 2023 to be between $5.20 billion to $5.40 billion.

The company’s CEO said, “Towards the end of May, we experienced unforeseen and unprecedented volume declines in three out of our four operating regions, as our channel partners rapidly reduced inventory levels. Even as we manage through this market contraction and significant inventory reduction by our channel partners, on-the-ground consumption of our products remains strong and at similar levels to last year”.

Specialty chemicals company Evonik also issued a profit warning, citing a recovery slower than expected and persistently weak demand. The company stated that the recovery in May and June turned out to be much weaker than anticipated. This downturn in demand has consequences for Evonik's financial performance, urging caution in the months ahead.

Swiss specialty chemicals company Clariant warned of an approximate 17 percent year-on-year and 10 percent quarter-on-quarter decline in revenues. The company attributes this decline to the ongoing impact of reduced demand in key end markets, particularly in the Care Chemicals and Additives businesses. They spoke about weak demand from China and inventory de-stocking.

Lanxess AG, a leading German specialty chemicals company, issued a profit warning citing weak demand and destocking across nearly all industry markets. The company expressed concern over the current state of neighboring industries and the chemical industry, drawing parallels to the financial crisis of 2008 and remarking that the situation feels like "Lehman 2."

They warned that recent decline in sales volumes were more severe than during the 2008/2009 recession Olin's Challenging Demand Environment: Olin Corporation, a major producer of chemicals and ammunition, also faces a challenging demand environment. The company highlighted difficult market conditions for both vinyl chloride monomer (VCM) and epoxy, which have resulted in a downward revision of its financial outlook.

BASF reported weak Q2CY23 numbers led by lower prices and volumes, negative currency impact. For the year, the company expects weaker sales and earnings development than previously forecasted. The sales guidnace for 2023 has been revised to EUR73-76bn versus EUR84-87bn earlier. EBIT as well is forecasted at EUR4.0-4.4bn versus EUR4.8-5.4bn earlier. The reasons cited for these are that the growth in global industrial production continued to be slow in first half of CY2023. BASF is assuming just a tentative recovery because global demand for consumer goods will be lower. Hence, the margins are also expected to remain under pressure.

Centrum broking’s Rohit Nagraj highlighted challenges for chemical companies in India, projecting an export challenge for the entire fiscal year 2024. This anticipated hurdle is expected to have a significant impact on earnings for Indian chemical companies, signaling a tough road ahead.

The industry has been facing challenges with China reopening and dumping their products in global markets at lower prices. Despite China re-opening, there is not enough demand in their own country leading to exports at cheaper prices.

Commodity chemical companies have also been facing a decline in prices as demand is lower from Latin America, Europe and US. Export numbers for Indian companies have seen some pressure in the month of April and May and this is expected to continue in June as well, we are awaiting the official data.

This indicated that FY24 could be weaker both for the chemicals industry as a whole, be it agro-chemicals, specialty chemicals or commodity chemicals.

First Published:Jul 11, 2023 11:15 AM IST