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雷达卡
9 January 2009
Chemicals 2009 Outlook
2009 Looks Weak, but Early
Cycle Status Limits Downside
David Begleiter, CFA
Research Analyst
(1) 212 250 5473
david.begleiter@db.com
James Sheehan
Research Associate
(1) 212 250 6048
james.sheehan@db.com
Jason Miner, CFA
Research Associate
(1) 212 250 8619
jason.miner@db.com
Chemicals well positioned for recovery due to low inv., early cycle status
Substantial inventory destocking coupled with historically low valuations and its
status as an early cycle group have positioned the chemical sector to benefit from
a recovery in demand or a rally in equities. However with no signs of improvement
in key end markets (auto, housing) or geographies (China), consensus estimate still
too high and share prices up 10-30% off their late 2008 lows, we remain cautious
on US Chemicals. We still however continue to find opportunities in severely
discounted (Celanese, Rockwood) and defensive (Praxair, Air Products) names.
Deutsche Bank Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Results
Top picks
Celanese Corp (CE.N),USD11.47 Buy
Rockwood (ROC.N),USD8.39 Buy
Praxair (PX.N),USD66.41 Buy
Air Products & Chemicals (APD.N),USD59.32 Buy
Global Markets Research Company
While Q408 was likely the earnings trough, no visibility on ’09 improvement
Chemicals demand deteriorated sharply in Q408 as weakening end markets were
exacerbated by customer inventory de-stocking and falling input costs (which
caused buyers to delay purchases in anticipation of lower prices in the future). As
a result Q408 chemical volumes fell 20-40% in what will likely mark the earnings
trough for chemical producers. While we expect demand to improve in 1H09
versus the artificially low levels of Q408 (inventory de-stocking typically lasts 1-2
quarters), with no signs yet of a bottom in autos or housing and consumer
demand weak, we expect 1H09 volume comparisons to remain negative. With
Europe also in recession, continued reductions to Asia growth forecasts (while
expectations for China remain modest), and the US dollar reversing its recent
slide, we anticipate weaker export and FX tailwinds in ‘09.
Expect further cost cuts, capacity closures. Raw materials a modest tailwind
Across chemicals, we expect continued restructuring in ‘09 as producers try to
offset the impact of lower volumes. On the commodity side, with petrochemicals
having likely entered a 3-year cycle downturn, we expect declining profitability will
lead to further capacity shutdowns. Partially offsetting the headwinds from weaker
demand are lower energy and raw material costs. While chemical producers were
able to recapture a large portion of higher feedstock costs in ‘08, a key question
for ‘09 will be how “sticky” these selling prices are in the face of lower energy
prices. With weak demand undercutting support for higher prices, we expect the
large majority of these lower energy prices to be passed back to customers.
FX tailwinds will reverse in 2009
After substantial FX benefits in ‘07 and 1H08, FX tailwinds in the sector reversed
in Q408, with the dollar ($1.31/euro avg. in Q4) down 10%. With Deutsche Bank
forecasting the trade-weighted US dollar will rise 7% in ‘09 (after falling 4% in ‘08),
we expect FX will become a material headwind for companies with significant
overseas operations (Rockwood, DuPont, and Cabot). In addition, a stronger dollar
also negatively impacts US chemical exports, a key source of demand in ‘08.
Chemicals are trading at a discount vs. history. Downside likely limited
Due to recessions in the US/Europe, we see downside risks to estimates. With
the sector trading at historically low valuations (10.3x fwd P/E, near lows of Sept.
‘00/Nov. ‘91), we believe shares reflect the recession, thus limiting downside.
Key risks to our forecasts
Risks to our forecast include sharp rises in energy, raw materials, near-term
interest rates or sharp improvement in end-market demand (more on p. 32).
Table of Contents
Demand is weak ................................................................................ 6
Recessions in the US and Europe will pressure 2009 volumes (though not as badly as Q408
implies).....................................................................................................................................6
Export demand, which slowed in 2H08, is likely to remain weak in 2009 ................................8
Restructuring and capacity rationalization on the rise ................ 15
Expect continued focus on restructuring/cost cutting in 2009................................................15
Ethylene overcapacity prompts further rationalization in 2009................................................16
Energy and raw material pressures easing ................................... 18
FX translation tailwinds reversing ................................................. 20
Currency tailwind reverse as dollar strengthens .....................................................................20
Valuations at trough levels............................................................. 21
Absolute P/E multiples at historic lows, though less undervalued on a relative basis ............21
Historically high free cash flow yields limit downside to shares.............................................22
Top picks: Celanese, Rockwood, Praxair and Air Products ......... 24
EPS forecasts ................................................................................... 28
December quarter estimates ..................................................................................................29
Appendix A: US chemicals sales by region ................................... 32
Appendix B: Comparison Tables, Valuations & Risks .................. 33
Sector valuation & risks...........................................................................................................37
Top picks: valuations & risks ...................................................................................................37
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