European Chemical Sector Surges on Price Hikes and Positive Outlook
European chemical stocks experienced a robust week of gains, with several companies like Lanxess and BASF announcing significant price increases (up to 50%) due to rising energy and raw material costs. While current trading sees some profit-taking, analysts offer mixed but largely optimistic forecasts. UBS anticipates short-term benefits from higher prices, while Goldman Sachs expects a more favorable Q2/Q3, foreseeing rising prices and volumes for European players due to Middle East supply constraints, leading to target price upgrades for Arkema, Air Liquide, and Evonik.
The European chemical sector has demonstrated significant positive movement this week, with several major companies recording substantial stock gains despite Friday's profit-taking. Over the preceding four sessions, firms such as Lanxess surged by over 46%, Azelis by 18.43%, Wacker Chemie by 16.51%, and BASF by 10.30%. French companies Arkema and Air Liquide also posted gains of 10.30% and 2.44% respectively.These gains are largely attributed to strategic price hikes announced by key players like Lanxess, BASF, and Wacker Chemie. Lanxess, for instance, revealed increases up to 35% for polymer additives, 50% for plasticizers, 30% for microbial control products, and 20% for inorganic pigments. Companies justify these adjustments by citing continuous and cumulative cost escalations in energy, critical raw materials, and logistics, exacerbated by persistent geopolitical tensions.Analyst perspectives provide a nuanced outlook. UBS suggests that an initial rise in chemical prices will likely offset increased energy and raw material costs, benefiting European cyclical companies in the short term, though anticipating potential volume pressure in the second half of the year due to high prices and economic slowdowns. Conversely, Goldman Sachs projects a more favorable Q2 and Q3 for the chemical sector, expecting both prices and volumes to rise. This is driven by raw material supply constraints in the Middle East, which are predicted to disproportionately impact Asian capacity and allow European players to regain lost market volumes. In light of this, Goldman Sachs raised target prices for Arkema (€78 to €83) and Air Liquide (underweight to neutral, €154 to €168), and upgraded Evonik from neutral to overweight (€14.70 to €18).
