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VOLUME XXI

September 14, 2023

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Everchem’s exclusive Closers Only Club is reserved for only the highest caliber brass-baller salesmen in the chemical industry. Watch the hype video and be introduced to the top of the league: — read more

June 11, 2020

Rock Bottom

Europe PU feedstocks prices hit new lows as demand pickup lags

Author: Fergus Jensen

LONDON (ICIS)–Incremental improvements in demand for polyurethane (PU) products have slowed downward pressure on the Europe isocyanates and polyols markets where supply is abundant, and producers are now hoping for a reversal in the coming months.

– June isocyanates contracts at lowest levels on record

– June polyols contracts at lowest levels since 2009

– Summer holiday demand weakness anticipated

June contracts for polyols, toluene diisocyanate (TDI), and crude and pure methylene diphenyl diisocyanate (MDI) were all settled below May contract levels, and in some cases at hit new record lows.

The industry is largely focused on lockdowns being lifted and what impact economic difficulties resulting from the coronavirus will have on consumer spending.

POLYOLS
Polyols contracts for June were assessed this week down €40/tonne at the lower end and down €50/tonne at the upper end of the range to €1,360-1,500/tonne on a free delivered (FD) basis in northwest Europe (NWE).

Sources quoted deals as low as €1,100/tonne FD NWE, however the bulk of feedback pointed to price reductions in mid-double-digit territory.

ICIS Editorial Chart goes here–
“All the producers cut prices with the hope of making business,” one Europe-based polyols buyer said.

“But at the moment, we cannot increase our volume.”

There was a broad range of feedback this month, depending on grade and application, with prices quoted as high as €1,500/tonne FD NWE in some cases.

The range is now at its lowest levels since September 2009.

“It’s disastrous, to be honest,” one Europe-based polyols producer said, referring to the increase in competition and in the base polyols market and recent low price levels.

Polyols producers are competing for market share in Europe, where demand has only marginally improved from May levels and remains significantly below levels seen in 2019.

“They don’t want to lose out,” a second Europe-based polyols buyer said, referring to producers.

“Maybe it’s not about losing out now but when volumes come back.”

The flexible foam market has seen some gains in demand as a result of coronavirus lockdowns being lifted.

However, some players said demand could weaken again as the summer holiday period normally prompts lower activity.

FOAMS PROPS UP TDI
Demand for TDI used in flexible foam is improving, and some producers estimate June orders to be up to 20% below normal.

One Europe-based TDI producer said June orders were now at normal levels after a flurry of activity in the past week.

“They said they had to buy more because their stocks were already low in March and had to order more,” he said, referring to the recent increase in business.

Others were less optimistic about demand though.

“People are not going to shops. There’s no real enthusiasm in the market,” a Europe-based TDI buyer said.

Despite gains in demand, June TDI contracts were assessed this week dropping €50/tonne at the lower end and €70/tonne at the upper end of the range to €1,400-1,450/tonne FD W (west) Europe – the lowest level ICIS has on record.

ICIS Editorial Chart goes here–
Some June deals were transacted for as little as €1,300/tonne FD W Europe, said sources, although most deals have been at higher levels.

Similarly, prices as high as €1,600/tonne FD W Europe were also quoted but did not represent the wider market.

TDI players are eyeing demand for consumer goods, bedding and furniture, which has increased in May and June although it is still well below levels in 2019.

Further weakness is also expected over the summer holiday period, although there are some expectations that delayed purchasing that would have taken place from March to May could now take place.

CRUDE MDI: MOST SECTORS IMPROVE
The crude MDI June contract was assessed this week dropping €20/tonne at the lower end and €30/tonne at the upper end of the range to €1,130-1,260/tonne FD W Europe, the lowest level ICIS has on record.

ICIS Editorial Chart goes here–
Demand for crude or polymeric MDI (PMDI) has been stabilising as demand for rigid insulation foams has been improving; some prices rolled over, sources said.

According to one Europe-based reseller, the construction market in NWE was now at 90% of activity, compared with this time in 2019.

Demand for adhesives and wood binding has also improved, as well as that for insulation panels and spray foam, among others.

In other cases, however, demand weakened, according to some players.

“Industrial adhesives have reduced volumes more than construction,” a Europe-based PMDI buyer said.

Absolute prices as low as €1,100/tonne FD W Europe were heard, but the bulk of feedback pointed to deals transacted above this level.

Reduced operating rates and an ongoing outage at the 200,000 tonne/year Covestro, Brunsbuettel plant have had no impact on availability, which remains abundant.

The MDI market is broadly exposed to the automotive sector, where demand has been hammered by the coronavirus pandemic and other factors.

“Automotive is still very quiet,” a second Europe-based PMDI buyer said.

Technical applications for PMDI have also seen more recent declines in demand.

PURE MDI: SLOW TO PICK UP
Pure or monomeric MDI (MMDI) contracts for June were assessed this week dropping €50/tonne at the upper and lower ends of the range to €1,550-1,800/tonne FD W Europe, the lowest level ICIS has on record.

ICIS Editorial Chart goes here
–
Deals transacted as low as €1,400/tonne FD W Europe were quoted but not believed to reflect the bulk of business.

The market had little activity this week; demand for MMDI for use in the automotive sector in Europe has declined significantly in recent months, while technical polyurethane applications that use MMDI have seen demand deteriorate more recently.

“You can’t get rid of pure MDI,” a Europe-based MMDI reseller said, referring to declines in demand in thermoplastic polyurethane (TPU), footwear and synthetic leather applications.

“The situation will probably only really improve after the summer holiday.”

Demand from the footwear sector has improved in some areas but remains fragile.

“It’s still a bit challenging because of the shoe sole industry. Demand is a little bit low,” one Europe-based MMDI producer said.

MMDI premiums over polymeric MDI (PMDI) have been squeezed in recent months, reducing producer margins and prompting output curbs.

https://www.icis.com/explore/resources/news/2020/06/11/10518229/europe-pu-feedstocks-prices-hit-new-lows-as-demand-pickup-lags

June 11, 2020

Rock Bottom

Europe PU feedstocks prices hit new lows as demand pickup lags

Author: Fergus Jensen

LONDON (ICIS)–Incremental improvements in demand for polyurethane (PU) products have slowed downward pressure on the Europe isocyanates and polyols markets where supply is abundant, and producers are now hoping for a reversal in the coming months.

– June isocyanates contracts at lowest levels on record

– June polyols contracts at lowest levels since 2009

– Summer holiday demand weakness anticipated

June contracts for polyols, toluene diisocyanate (TDI), and crude and pure methylene diphenyl diisocyanate (MDI) were all settled below May contract levels, and in some cases at hit new record lows.

The industry is largely focused on lockdowns being lifted and what impact economic difficulties resulting from the coronavirus will have on consumer spending.

POLYOLS
Polyols contracts for June were assessed this week down €40/tonne at the lower end and down €50/tonne at the upper end of the range to €1,360-1,500/tonne on a free delivered (FD) basis in northwest Europe (NWE).

Sources quoted deals as low as €1,100/tonne FD NWE, however the bulk of feedback pointed to price reductions in mid-double-digit territory.

ICIS Editorial Chart goes here–
“All the producers cut prices with the hope of making business,” one Europe-based polyols buyer said.

“But at the moment, we cannot increase our volume.”

There was a broad range of feedback this month, depending on grade and application, with prices quoted as high as €1,500/tonne FD NWE in some cases.

The range is now at its lowest levels since September 2009.

“It’s disastrous, to be honest,” one Europe-based polyols producer said, referring to the increase in competition and in the base polyols market and recent low price levels.

Polyols producers are competing for market share in Europe, where demand has only marginally improved from May levels and remains significantly below levels seen in 2019.

“They don’t want to lose out,” a second Europe-based polyols buyer said, referring to producers.

“Maybe it’s not about losing out now but when volumes come back.”

The flexible foam market has seen some gains in demand as a result of coronavirus lockdowns being lifted.

However, some players said demand could weaken again as the summer holiday period normally prompts lower activity.

FOAMS PROPS UP TDI
Demand for TDI used in flexible foam is improving, and some producers estimate June orders to be up to 20% below normal.

One Europe-based TDI producer said June orders were now at normal levels after a flurry of activity in the past week.

“They said they had to buy more because their stocks were already low in March and had to order more,” he said, referring to the recent increase in business.

Others were less optimistic about demand though.

“People are not going to shops. There’s no real enthusiasm in the market,” a Europe-based TDI buyer said.

Despite gains in demand, June TDI contracts were assessed this week dropping €50/tonne at the lower end and €70/tonne at the upper end of the range to €1,400-1,450/tonne FD W (west) Europe – the lowest level ICIS has on record.

ICIS Editorial Chart goes here–
Some June deals were transacted for as little as €1,300/tonne FD W Europe, said sources, although most deals have been at higher levels.

Similarly, prices as high as €1,600/tonne FD W Europe were also quoted but did not represent the wider market.

TDI players are eyeing demand for consumer goods, bedding and furniture, which has increased in May and June although it is still well below levels in 2019.

Further weakness is also expected over the summer holiday period, although there are some expectations that delayed purchasing that would have taken place from March to May could now take place.

CRUDE MDI: MOST SECTORS IMPROVE
The crude MDI June contract was assessed this week dropping €20/tonne at the lower end and €30/tonne at the upper end of the range to €1,130-1,260/tonne FD W Europe, the lowest level ICIS has on record.

ICIS Editorial Chart goes here–
Demand for crude or polymeric MDI (PMDI) has been stabilising as demand for rigid insulation foams has been improving; some prices rolled over, sources said.

According to one Europe-based reseller, the construction market in NWE was now at 90% of activity, compared with this time in 2019.

Demand for adhesives and wood binding has also improved, as well as that for insulation panels and spray foam, among others.

In other cases, however, demand weakened, according to some players.

“Industrial adhesives have reduced volumes more than construction,” a Europe-based PMDI buyer said.

Absolute prices as low as €1,100/tonne FD W Europe were heard, but the bulk of feedback pointed to deals transacted above this level.

Reduced operating rates and an ongoing outage at the 200,000 tonne/year Covestro, Brunsbuettel plant have had no impact on availability, which remains abundant.

The MDI market is broadly exposed to the automotive sector, where demand has been hammered by the coronavirus pandemic and other factors.

“Automotive is still very quiet,” a second Europe-based PMDI buyer said.

Technical applications for PMDI have also seen more recent declines in demand.

PURE MDI: SLOW TO PICK UP
Pure or monomeric MDI (MMDI) contracts for June were assessed this week dropping €50/tonne at the upper and lower ends of the range to €1,550-1,800/tonne FD W Europe, the lowest level ICIS has on record.

ICIS Editorial Chart goes here
–
Deals transacted as low as €1,400/tonne FD W Europe were quoted but not believed to reflect the bulk of business.

The market had little activity this week; demand for MMDI for use in the automotive sector in Europe has declined significantly in recent months, while technical polyurethane applications that use MMDI have seen demand deteriorate more recently.

“You can’t get rid of pure MDI,” a Europe-based MMDI reseller said, referring to declines in demand in thermoplastic polyurethane (TPU), footwear and synthetic leather applications.

“The situation will probably only really improve after the summer holiday.”

Demand from the footwear sector has improved in some areas but remains fragile.

“It’s still a bit challenging because of the shoe sole industry. Demand is a little bit low,” one Europe-based MMDI producer said.

MMDI premiums over polymeric MDI (PMDI) have been squeezed in recent months, reducing producer margins and prompting output curbs.

https://www.icis.com/explore/resources/news/2020/06/11/10518229/europe-pu-feedstocks-prices-hit-new-lows-as-demand-pickup-lags

June 10, 2020

Economic Overview

US, Canada; Spectacular Rebounds

Dan North | June 5, 2020

It’s hot

Recently here in Baltimore, the temperature is around 96° F, or 36° C, and in Toronto, it’s around 84° F, or 29° C, both much hotter than normal for this time of year.

And the US and Canadian economies were also running much, much hotter than could have ever been imagined a few months ago, posting stunning job gains compared to expectations of huge losses, and compared to even larger losses the previous month. It would appear that both economies have hit bottom and are on the rebound.

US

In the US, jobs rose a stunning +2.5 million jobs in May. It was literally stunning – the TV reporter I was watching had to stop, pause, squint, and re-read the number, with a “this can’t be right…  I must be reading this wrong” look on his face.  Economists and commentators had known that April was likely to have been the worst, but they were still expecting big job losses in May since many States were far from fully open. April job losses had set a record -21 million jobs so expectations were for a big improvement this month to a loss of only -8 million jobs. Instead, we got a massive gain of +2.5 million jobs, more than twice the previous record increase going back to 1939. The unemployment rate was equally stunning, actually falling from 14.7% to 13.3% versus much gloomier predictions of a sharp increase to 19.5%, which would have been the worst since the Great Depression.

The details of the report were superlative:

  • Job gains were widespread across almost all industries.
  • The biggest winner was leisure and hospitality which gained 1.2 million jobs, eight times the previous record vs. a loss of -7.5 million in April. Almost all of the gains in that sector came in restaurants and bars.
  • The labor force participation rate rose a very sharp +0.6% from 60.2% to 60.8% as the labor force grew by 1.7 million people, the second-largest increase ever.
  • The employment to population ratio rose an even more impressive 1.5% vs. the previous record of +1.0%, from 51.3% to 52.8%.
  • Average weekly hours worked rose a gargantuan +0.5 hours (previous record +0.2) to 34.7 hours, the highest on record.
  • Hourly wages fell -0.3% as workers in lower wage-earning jobs returned.

It’s no accident that the headline increase of +2.5 million very closely reflected the -2.7 million decrease in temporary layoffs. In other words, workers who had been laid off in the previous two months went right back to work in May, just as they thought they would. The data suggests that the idea the economy could just be simply be re-opened appears to have actually worked in May.

Canada

The Canadian economy posted an equally stunning performance in May, gaining +290k jobs vs. a consensus of a -500k loss. The gain came after two crushing months of losses. It was the largest increase on record, easily beating the previous record of +100k.  Quebec, which had opened several weeks before the other provinces, created the most jobs, +230k. All of the other provinces gained, and six set records. However, Ontario, which has been a bit slower to reopen, lost -64.5k jobs.

Job gains were widespread. The goods sector added +165k jobs, three times the previous record of +51k, while services piled on another +125k vs. the previous record of +89.3. On a more detailed level, big winners included manufacturing which added +79k (previous record +31k), construction which contributed +74k (previous record +41k), and accommodation and food services which piled on another +42k (previous record +31k).

Hours worked rose +6.3% m/m, twice the old record of +3.1%. The participation rate rose +1.6% (three times the old record) to 61.4%, while the employment rate rose 0.8% (vs. the previous record +0.5%) to 52.9%.  Even the increase in the unemployment rate from 13.0% to 13.7% was for the good reason that more Canadians who were out of work said they were now looking for jobs and hence are being counted as unemployed.

Let’s have some caution in our exuberance though.  The rapid turnaround in the jobs situation in May probably reflects the “low-hanging” fruit of workers who were anxious to return to their jobs, and who had jobs awaiting them. While next month may show another strong increase in jobs, further increases in the coming months and quarters are likely to evolve at a much slower pace. It will take until well after 2021 to get back to any semblance of “full employment”.

Finally, the COVID data, while not so encouraging worldwide, looks quite good in the US and Canada.

We have clearly bottomed out and in fact, we have made a sharp rebound about one month earlier than expected. And that is monumental, unabashed, definitive good news.
https://www.eulerhermes.com/en_US/resources-and-insights/economic-insights/us-canada-rebounds-june5.html?mkt_tok=eyJpIjoiTldaaU9Ua3pNbVUzTnpBMiIsInQiOiI1cVdpdldPd1g5ZlYrSjY2SG9xbmhtR0RQMys1RjhCcU90dHpZXC9zdmtCa3dVQlNjak1FMVpRSmUzbkhDNlo0VTFGa2Zaa3NyOHlsXC9hWFdTVjdXUW0zVFlPRWxGbmpUUUZGajFyQWNJcElIWm1KVVQzUlZaZ3gxNStUXC9nbU1hMiJ9

June 10, 2020

Economic Overview

US, Canada; Spectacular Rebounds

Dan North | June 5, 2020

It’s hot

Recently here in Baltimore, the temperature is around 96° F, or 36° C, and in Toronto, it’s around 84° F, or 29° C, both much hotter than normal for this time of year.

And the US and Canadian economies were also running much, much hotter than could have ever been imagined a few months ago, posting stunning job gains compared to expectations of huge losses, and compared to even larger losses the previous month. It would appear that both economies have hit bottom and are on the rebound.

US

In the US, jobs rose a stunning +2.5 million jobs in May. It was literally stunning – the TV reporter I was watching had to stop, pause, squint, and re-read the number, with a “this can’t be right…  I must be reading this wrong” look on his face.  Economists and commentators had known that April was likely to have been the worst, but they were still expecting big job losses in May since many States were far from fully open. April job losses had set a record -21 million jobs so expectations were for a big improvement this month to a loss of only -8 million jobs. Instead, we got a massive gain of +2.5 million jobs, more than twice the previous record increase going back to 1939. The unemployment rate was equally stunning, actually falling from 14.7% to 13.3% versus much gloomier predictions of a sharp increase to 19.5%, which would have been the worst since the Great Depression.

The details of the report were superlative:

  • Job gains were widespread across almost all industries.
  • The biggest winner was leisure and hospitality which gained 1.2 million jobs, eight times the previous record vs. a loss of -7.5 million in April. Almost all of the gains in that sector came in restaurants and bars.
  • The labor force participation rate rose a very sharp +0.6% from 60.2% to 60.8% as the labor force grew by 1.7 million people, the second-largest increase ever.
  • The employment to population ratio rose an even more impressive 1.5% vs. the previous record of +1.0%, from 51.3% to 52.8%.
  • Average weekly hours worked rose a gargantuan +0.5 hours (previous record +0.2) to 34.7 hours, the highest on record.
  • Hourly wages fell -0.3% as workers in lower wage-earning jobs returned.

It’s no accident that the headline increase of +2.5 million very closely reflected the -2.7 million decrease in temporary layoffs. In other words, workers who had been laid off in the previous two months went right back to work in May, just as they thought they would. The data suggests that the idea the economy could just be simply be re-opened appears to have actually worked in May.

Canada

The Canadian economy posted an equally stunning performance in May, gaining +290k jobs vs. a consensus of a -500k loss. The gain came after two crushing months of losses. It was the largest increase on record, easily beating the previous record of +100k.  Quebec, which had opened several weeks before the other provinces, created the most jobs, +230k. All of the other provinces gained, and six set records. However, Ontario, which has been a bit slower to reopen, lost -64.5k jobs.

Job gains were widespread. The goods sector added +165k jobs, three times the previous record of +51k, while services piled on another +125k vs. the previous record of +89.3. On a more detailed level, big winners included manufacturing which added +79k (previous record +31k), construction which contributed +74k (previous record +41k), and accommodation and food services which piled on another +42k (previous record +31k).

Hours worked rose +6.3% m/m, twice the old record of +3.1%. The participation rate rose +1.6% (three times the old record) to 61.4%, while the employment rate rose 0.8% (vs. the previous record +0.5%) to 52.9%.  Even the increase in the unemployment rate from 13.0% to 13.7% was for the good reason that more Canadians who were out of work said they were now looking for jobs and hence are being counted as unemployed.

Let’s have some caution in our exuberance though.  The rapid turnaround in the jobs situation in May probably reflects the “low-hanging” fruit of workers who were anxious to return to their jobs, and who had jobs awaiting them. While next month may show another strong increase in jobs, further increases in the coming months and quarters are likely to evolve at a much slower pace. It will take until well after 2021 to get back to any semblance of “full employment”.

Finally, the COVID data, while not so encouraging worldwide, looks quite good in the US and Canada.

We have clearly bottomed out and in fact, we have made a sharp rebound about one month earlier than expected. And that is monumental, unabashed, definitive good news.
https://www.eulerhermes.com/en_US/resources-and-insights/economic-insights/us-canada-rebounds-june5.html?mkt_tok=eyJpIjoiTldaaU9Ua3pNbVUzTnpBMiIsInQiOiI1cVdpdldPd1g5ZlYrSjY2SG9xbmhtR0RQMys1RjhCcU90dHpZXC9zdmtCa3dVQlNjak1FMVpRSmUzbkhDNlo0VTFGa2Zaa3NyOHlsXC9hWFdTVjdXUW0zVFlPRWxGbmpUUUZGajFyQWNJcElIWm1KVVQzUlZaZ3gxNStUXC9nbU1hMiJ9

June 10, 2020

Chemical M&A Update

ICIS WEBINAR: Players gear up for chemical M&A resurgence in H2 2020 – bankers

Author: Joseph Chang

2020/06/09

NEW YORK (ICIS)–Chemical mergers and acquisitions (M&A) activity is poised to pick up in the second half of 2020 as the coronavirus (Covid-19) lockdowns ease, and buyers and sellers prepare to get a start on making deals once again, investment bankers said on an ICIS Webinar on Tuesday.

“What we’ve seen is a significant rise in bilateral, one-off conversations. When you have management teams or sponsors or bankers who are no longer making trips to Asia, Europe, etc, suddenly people have more time to be on a call for half an hour or have an introductory call,” said David Ruf, managing director and head of chemicals and materials at KeyBanc Capital Markets.

“When you think of it from that perspective, there’s a fairly active level of dialogue going on right now,” he added.

Global chemical M&A activity slowed on the order of 30-40% in Q1 year-on-year, with March the most impacted from the coronavirus lockdowns, said Federico Mennella, managing director and co-head of the global chemical and materials practice at Rothschild & Co.

“For companies of a size where a robust, broad auction would require syndicated financing, we’ve seen a lot of those processes not surprisingly go on hold,” said Ruf.

However, companies are now looking ahead, moving beyond drawing down revolving credit facilities for liquidity needs, he noted.

“One difference between the past crisis and today is that liquidity seems to be available. People have cash and are [able] to find sources of liquidity,” said Mennella.

With immediate liquidity concerns largely on the back burner, that then leaves room for forward strategic thinking regarding M&A.

“Not surprisingly, we’re seeing a number of corporates look at what they want to do in H2 2020 and H1 2021 from a portfolio clean-up perspective, and they’re also very active in looking at what they want to do from an acquisition standpoint,” said Ruf.

Companies may find good opportunities to acquire businesses with strategic synergies for 1-1.5 turns [multiples on earnings before interest, tax, depreciation and amortisation (EBITDA)] less and on softer EBITDA levels than in previous years, said the banker.

Private equity firms have also transitioned from having alternative investment-type conversations – such as taking a minority stake or providing financing – during the crisis to preparing to approach targets for full buyouts, he noted.

“You have a lot of parties in the starting blocks – ready, loosened up and prepared to launch,” said Ruf.

Corporates will continue to do smaller tuck-ins or bolt-on deals but are likely to avoid large visionary or transformative deals, he noted.

Yet chemical companies still have to explain to investors “whether they are in good enough shape” to make acquisitions. “The hurdle is higher than it was before,” said Mennella.

Meanwhile, private equity firms have plenty of funds, but are still constrained by availability and cost of financing, especially for smaller deals, he noted.

INFRASTRUCTURE DEALS
As they review portfolios, chemical companies have an opportunity to monetise non-revenue generating infrastructure assets, noted Mennella.

“Selling or monetising assets from plants to infrastructure is a business that is growing… We also see different actors playing a role. We’re seeing asset managers or sovereign funds making investments in chemical companies, and they see that as a way to… [potentially] monetise their real assets,” said Mennella.

On 8 June, Brookfield Asset Management announced a stake in Canada-based propane distributor and chlor-alkali specialty chemicals producer Superior Plus through the purchase of around $260m in convertible preferred stock.

“The highest and best use of these assets… are by people that are involved in this and can manage them. Logistics are a very interesting part of the chemicals space, and one of the things we’ve seen in this pandemic is that the logistics chain is going to be re-thought,” noted Mennella.

Thus, players in the logistics space are likely to seek a more active role in this transition and potentially make more investments in logistics infrastructure, said the banker.

The shift in companies’ logistics strategies towards more diverse supply chains and away from deep single-region exposure in the aftermath of the coronavirus lockdowns could open up opportunities, said Ruf.

On 28 May, Dow CEO Jim Fitterling said the company is open to deals involving its infrastructure if it can find the right buyer. Such a company could be a global infrastructure firm, he noted.

Earlier there had been reports that Dow was considering selling its Gulf Coast ports and six railway hubs.

“This is a win-win scenario. We would be open to a best-owner mindset on assets like that where it makes sense,” Fitterling said in a virtual fireside chat hosted by Bernstein analyst Jonas Oxgaard.

“Any time an asset-intensive industry such as commodity chemicals has an opportunity to lighten some of the load from the asset intensity, there’s merit to that, especially if those assets could somehow redeployed in terms of filling up the load on those assets,” said Ruf.

Infrastructure funds also tend to have a lower cost of capital than chemical companies, offering the opportunity to earn better returns on those assets, he added.

ACTIVISTS TO RETURN?
Activist investors have largely been quiet in chemicals during the pandemic but may be poised for a comeback.

“I’m convinced that more activists are going to be looking at this space… The fact that you haven’t seen [as many] activists now, doesn’t mean they’re not patiently looking at things,” said Mennella.

It may be viewed as “bad form” to be attacking company management during a pandemic. Plus, there has been little visibility on earnings, making valuations difficult to gauge, he added.

Company managements clearly view activist investors as a threat, especially with stock prices having plummeted in March and April.

“Just the very fact that the number of ‘poison pills’ being adopted after the first two months of the year has been a magnitude higher than before, shows people are concerned about it,” said Mennella.

“I do think that chemicals is an industry where there’s a lot of activity that can be done for an activist – selling assets or changing the board,” he added.

On 4 June, activist investor Starboard Value took control over US-based construction chemicals company GCP Applied Technologies’ board in a proxy contest.

There are still a number of smaller publicly traded chemical companies, and some that are trading well below their 52-week highs despite the recovery in the sector and the overall stock market, Mennella noted.

With activists being active in chemicals for around a decade already, many company managements are already proactive in making portfolio and shareholder friendly moves.

“I’ve seen boards and management teams almost uniformly become much more proactive about portfolio focus. So it’s interesting to think of where activists go from here,” said Ruf.

Plus, the returns on investment from portfolio realignment by activists have not clearly demonstrated success, he noted.

Click here to view the ICIS Coronavirus, oil price crash – impact on chemicals topic page.

Focus article by Joseph Chang

https://www.icis.com/explore/resources/news/2020/06/09/10517402/icis-webinar-players-gear-up-for-chemical-m-amp-a-resurgence-in-h2-2020-bankers