Chemicals Industry Inventory Levels Remain Steady Despite European Economic Stress: a Wall Street Transcript Interview with Jeremy Redenius of Sanford C. Bernstein & Company

Wall Street Transcript

67 WALL STREET, New York - October 17, 2012 - The Wall Street Transcript has just published its Farming Equipment, Chemicals and Products Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: High Crop Prices - Emerging Market Farm Mechanization - Crop Yield Management - U.S. Corn Crop

Companies include: Syngenta AG (SYT) and many others.

In the following excerpt from the Farming Equipment, Chemicals and Products Report, an expert analyst from Sanford C. Bernstein and ex-McKinsey consultant discusses the outlook for the sector for investors:

TWST: What is your coverage in the chemical sector?

Dr. Redenius: I cover several of the largest European chemicals companies by market capitalization. These include two German diversified chemicals companies - BASF (BAS.DE) and Bayer (BAYN.DE). In agrochemicals, I cover Syngenta (SYT), K+S (SDF.DE) and Yara (YARO.ST). I also follow two industrial gas companies, Air Liquide (AI.PA) and Linde (LIN.DE), and then lastly, Akzo Nobel (AKZA.AS), which is a paint and coatings company.

TWST: Earlier this year, there was a drop in European chemical prices. Why did that happen, and has it recovered?

Dr. Redenius: Chemical prices have mostly followed oil price this year. Prices increased at the very beginning of the year with oil, and then fell when oil declined. Surprisingly, the European chemicals industry as a whole has kept gross margins pretty constant this year despite the weak volume growth.

However, more recently we have seen some divergence in trends across the chemicals space. Specialty chemical companies, generally those with pricing power, have been able to maintain elevated prices and margins, while more basic chemicals like petrochemicals have declined with oil.

TWST: How are inventories currently, and are we seeing any changes looking ahead or problems with inventory levels?

Dr. Redenius: Inventories are slightly elevated in Europe. The German IFO survey shows chemicals inventories are on the high side, but not alarmingly high. Similarly in the U.S., you can see from the U.S. Census Bureau, chemicals inventories are somewhat high, but only at the wholesale level and not nearly as high, for example, as they were during the crisis. At this point, it appears the risk of a major year-end destocking is limited.

TWST: Are energy costs and raw material costs a concern in the sector right now?


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