Our Outlook for Basic Materials Equities

As long as metals prices remain high and borrowing costs stay low, we're likely to see more marginal mining projects getting the green light and fewer projects ending up on the cutting room floor.

Elizabeth Collins, CFA 4 January, 2011 | 11:32AM

Industry-Level Insights: Chemicals
Most chemical players had a banner year in 2010, with revenue increases largely wiping out depressing 2009 figures. We attribute most of the growth to industrywide restocking, combined with a strong rebound in automobile production. However, we think 2011 will be less rosy than 2010. The OECD countries are experiencing fragile economic recoveries, and housing and construction markets will continue to be weak, in our view. We do not see a clear catalyst for both markets to rebound strongly in 2012, and we feel the story will continue to be managing cost structures in mature economies and taking advantage of emerging markets in 2011.

Additionally, the crude oil price has run up to almost $90 per barrel in the past quarter, and petrochemical players, particularly those relying on naphtha chains, will face disproportionately larger feedstock increases in the near term. We think that will put significant pressures on margins, unless companies are confident enough to push through price increases. We are also looking at ethylene capacity increases coming online in the Middle East in 2011-12, which may create an ethylene and propylene oversupply situation worldwide. We fear this low-cost production will encroach heavily on US petrochemical producers' margins.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Elizabeth Collins, CFA  is an associate director of equity research with Morningstar.

Audience Confirmation

By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies