Fulcrum sees improved Q3 for chemical makers
Fri Aug 12, 2005 07:55 PM ET
NEW YORK, Aug 12 (Reuters) - Fulcrum Global Partners LLC on Friday said strong prices and solid demand will help third-quarter chemical profits improve over a disappointing second-quarter.
"We expect that trends exiting 3Q will be an improvement over trends exiting 2Q," said Frank Mitsch, a chemical analyst with the independent securities firm in New York.
He noted the second quarter was mixed for chemicals, with 10 of his 12 selected companies showing earnings growth but only five exceeded his expectations. Surging energy prices and weaker Asian demand crimped the last quarter's results.
Chemical makers should post stronger third-quarter results in most businesses, except for seasonally slower farm chemicals and seeds, he said. He said producers continue to offset high raw material and energy costs with better pricing power, while the "supply/demand" balance remains tight.
"We believe that chemical companies should be able to expand margins as we march through 3Q, setting the stage for a solid 2006," he wrote in a note published Friday.
Prices for benchmark chemicals like ethylene -- a building block for plastics -- have been rising in the United States and Asia since reaching lows in mid-June, and Mitsch expects the market to see further strength with downstream inventories declining.
He also expects that producers will be successful in implementing price increases for polyethylene, a widely used plastic.
Mitsch said unplanned outages may further tighten supply and lend support to prices.
An explosion and fire at a Texas chemical plant Wednesday shut a major ethylene-making unit, which accounts for 2.5 percent of North American production capacity.
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