Chemical makers, having grown through the pandemic, are facing headwinds that are likely to persist in FY24.
Global chemical firms have cautioned of a demand slowdown. Swiss specialty chemicals firm Clariant, its German peers Lanxess AG and Evonik Industries AG, and U.S.-headquartered Food Machinery and Chemical Corp. have all guided for a weak second quarter. Analysts see an impact on Indian companies as well.
Realisations, which had peaked for most domestic companies in January-June of 2022, are likely to come down further in the first-quarter ended June, according to an analysis by Motilal Oswal Financial Services Ltd. They have already passed on the benefit of raw material price cuts to customers, it said.
Swiss specialty chemicals company Clariant lowered its sales expectations for the second quarter and its overall outlook, ahead of its quarterly results announcement, the company said on July 7.
“The uncertainties and risks related to the economic environment, including the pace of recovery in China, that we highlighted earlier this year have materialised and are weighing on the industry as a whole,” said Conrad Keijzer, chief executive officer at Clariant.
Specialty chemicals company Lanxess AG expects second quarter pre-exceptional Ebitda to remain below the average market expectations. The company adjusted the outlook downward for CY23 as well.
Weak demand, combined with continued customer destocking effects already seen in the first quarter will last into the second quarter and are ongoing, the company said. Demand weakness in the construction industry, electronics and stable consumer-related products burden utilisation and earnings, it said. A recovery within the month of June is not visible, according to the company.
Food Machinery and Chemical Corp. and Evonik Industries AG have also guided for a weak second quarter.
“Towards the end of May, we experienced unforeseen and unprecedented volume decline in three out of our four operating regions, as our channel partners rapidly reduced inventory levels. Even as we manage through this market contraction and significant inventory reduction by our channel partners, on-the-ground consumption of our products remains strong and at similar levels to last year,” said Mark Douglas, chief executive officer of FMC Corp.
The company slashed its 2023 revenue and Ebitda guidance by 15%.
“During the first quarter, there were signs of business recovery for the remainder of the year. Unfortunately, the recovery in May and June turned out to be much weaker than our expectations. Our contingency measures prevented a more significant earnings decline, but we are feeling the effects of a slowing global economy,” said Christian Kullmann, chairman of Evonik.
Companies expect another muted quarter due to global macro headwinds and slower-than-expected pickup in consumption. Additionally, aggressive dumping by Chinese players is hurting domestic companies as they are unable to compete effectively on the pricing front.