Low Oil Prices May Bolster Niche Chemicals Firms, Lucror Says
(Bloomberg) -- Plunging oil prices could provide some relief for chemicals borrowers that operate in niche markets but will have little immediate impact for those at the commodity end of the scale, according to high-yield debt research firm Lucror Analytics.
* Weak demand amid the Covid-19 outbreak has seen stockpiles of oil expand and prices slump, with a key benchmark falling to a 21-year low this week
* Lower oil prices could help boost margins by widening the gap between the cost of raw materials and what firms charge for their products
** Those with resilient end-markets such as food packaging are better placed than those exposed to cyclical sectors such as autos and construction
* “Low oil prices will help specialty chemicals firms preserve margins to a degree, and companies that supply some key products are in a stronger position unless demand from end-markets has totally stalled,” said Jayanth Kandalam, Lucror’s deputy head of Europe, said in a phone interview
* Lower raw materials prices will get passed on more quickly by commodity chemicals firms
** It will take several quarters for the impact of overall weak demand to work through their earnings
* “We are more focused on how well capitalized companies are and if they can avoid cash burn, as opposed to absolute earnings,” Kandalam said. Those with good liquidity levels include Ineos and Nouryon, he said
* Overall, the leveraged loan market has traded lower so far this week in Europe, with chemicals companies among decliners
** Ineos’s euro-denominated term loan fell 2.25 points to 95.25 by COB April 22, having rallied to 97.5 last week from its late- March low of 80, data compiled by Bloomberg show
** Nouryon’s EUR TLB also traded off, down just over 3pts to 91.5
By Ruth McGavin