Chemical companies around the world have issued profit warnings, citing a weak demand environment, customers destocking and falling prices. A chemistry major goes on to refer to the current demand environment as Lehman Brothers.
The latest profit warning comes from FMC, a global leader in agricultural sciences. The company slashed its revenue forecast for the second quarter and full-year 2023 due to a sudden and sharp inventory reduction by channel partners in North America, Latin America, and EMEA, which led to significantly lower-than-expected sales. The company now expects revenue in the range of $1 billion to $1.03 billion for the second quarter and between $5.2 billion and $5.4 billion for all of 2023.
“Through the end of May, three of our four operating regions experienced unexpected and unprecedented volume declines as our channel partners rapidly reduced inventory levels,” said the company’s CEO. “Even though we managed to weather the In a period of shrinking markets and significant inventory reductions by our channel partners, on-the-ground consumption of our products remains strong, similar to last year.”
Specialty chemicals company Evonik also issued a profit warning, citing a slower-than-expected recovery and continued weak demand. The recovery in May and June was much weaker than expected, the company said. The slump in demand weighed on Evonik’s financial performance, prompting the company to remain cautious in the coming months.
Swiss specialty chemicals company Clariant warned that its revenue was down about 17% year-on-year and about 10% quarter-on-quarter. The company attributed the decline to continued reductions in demand in key end markets, particularly in the Care Chemicals and Additives businesses. They talked about weak demand from China and inventory destocking.
Lanxess, Germany’s leading specialty chemicals company, issued a profit warning, citing weak demand and destocking in almost all industry markets. The company expressed concern about the state of adjacent industries and the chemical industry, comparing it to the 2008 financial crisis and saying the situation felt like “Lehman Brothers 2”.
They warned that the recent sales slump was worse than during the 2008/2009 recession. Tough demand environment facing Oilon: Oilon Corporation, a major chemical and ammunition producer, also faces a tough demand environment. The company highlighted tough market conditions for vinyl chloride monomer (VCM) and epoxy resins, which led to a downward revision to its financial outlook.
Rohit Nagraj of Centrum Brokers highlighted the challenges faced by Indian chemical companies, which are expected to face export challenges throughout FY2024. This anticipated hurdle is expected to have a major impact on the earnings of Indian chemical companies, pointing to a tough road ahead.
The industry has been facing challenges as China reopens and dumps products on global markets at lower prices. Despite the reopening of China, there is not enough demand in their own country, resulting in lower export prices.
Commodity chemical companies are also facing lower prices due to lower demand in Latin America, Europe and the United States. Export data by Indian companies saw some pressure in April and May and is expected to continue in June as well, we are awaiting the official data.
This suggests that performance across the chemical sector is likely to be weaker, whether in agrochemicals, specialty chemicals or commodity chemicals.