The global chemical industry must be prepared for "labor pains"

Eliminating inflation is a top priority for the Federal Reserve and the European Central Bank, and even if it means a recession and higher unemployment, the global chemical industry must prepare
for "labor pains.
"

Eurozone inflation is at record rates

Eurozone inflation reached a new high in August, rising 9.
1%
year-on-year.
This is the ninth consecutive month that the European consumer price index has set a record, underscoring the urgent need
for the European Central Bank to step up its interest rate hikes.
The latest consumer price index in the United States in July was flat month-on-month, but rose 8.
5% year-on-year, and the year-on-year increase remained at a nearly 40-year
high.
"While rising interest rates, slower economic growth and a weak labor market will depress inflation, these moves will also have some adverse effects on households and businesses, and people will suffer even more if
stable prices are not restored," Federal Reserve Chairman Jerome Powell said at the annual meeting of global central bankers in Jackson Hole, Wyoming, USA.
"This strong commitment to curbing inflation at all costs means a sharp slowdown in economic growth, sending a clear warning
to the global chemical industry, especially the more cyclically sensitive commodities sector.
" Kevin Swift, senior economist at Axunx's global chemicals business, said that while U.
S.
manufacturing activity is still expanding, a key conclusion of the PMI report is that there is a word
"slowdown" in terms of orders, sales and cost/cost / price increases.

Chemical companies' earnings expectations will be revised down sharply

Wall Street and European analysts' earnings expectations for large chemical companies in 2023 are slightly lower or even higher than in 2022, which seems to be at odds with economists
' forecasts for GDP.
It is likely that Wall Street and European analysts are over-the-top in 2023 for large chemical companies and will be sharply lowered
.
Alexei Yevremov, an analyst at KeyBanc Capital, a well-known Wall Street investment bank, said in a research note: "The recession in the petrochemical industry may happen to
us.
" In the research note, he sharply downgraded the profit forecasts of Dow Chemical, LyondellBassel and Westlake Chemical for 2022 and 2023, and downgraded the three companies to "underweight.
"
"Price trends for polyethylene (PE), polypropylene (PP), polyvinyl chloride (PVC) and acetyl groups are weakening
," Yefremov said.
In addition to the supply improvement, global demand is also declining, and not only European producers are facing higher energy cost pressures compared to the relatively strong second quarter, but also producers in the United States are facing some degree of energy cost increases
.
Yefremov lowered his 2022 earnings per share forecast for Dow Chemical Company by $0.
62 to $7.
10 and his 2023 earnings per share forecast for Dow Chemical Company by $0.
30 to $5.
79, both well below consensus expectations
.
His 2022 earnings per share forecasts for LyondellBassel and Westlake Chemical are also below consensus, and much lower for 2023
.
"Overall, given the weak global demand and its possible impact on commodity prices, we believe market analysts are overestimating
Dow Chemical, LyondellBassel and Westlake Chemical's EPS for the second half of this year and 2023," Yevremov said.
”

For Dow Chemical, earnings in its PE, propylene oxide (PO), diphenyl diisocyanate (MDI) and silicone businesses are expected to decline in the third quarter due to weak demand for durable goods in the United States and Europe, as well as a slow
economic recovery in China.
For Westlake Chemical, weakness in durable goods and construction is expected to affect PVC and caustic soda market demand
.

A rapid V-shaped reversal of the economy is not possible

Overall, the V-shaped reversal after a brief recession caused by the 2020 pandemic will not occur this time, as that rebound was driven by record-sized stimulus injected into economies, which in turn triggered today's runaway inflation
.
Instead, the Federal Reserve, the European Central Bank, and most other major central banks (except China) will risk a slowdown in raising interest rates in an attempt to undo the recent sharp rise in inflation
.
Moreover, even if central banks experience another round of sharp rate hikes, they will tend to keep rates high for an extended period of time, rather than reversing the trend
.
Fed Chairman Jerome Powell said: "Restoring price stability will take some time and will require us to use the tools forcefully to bring demand and supply to a better balance
.
" Reducing inflation may require a period of sustained below-trend levels
.
He also warned against loosening the policy
prematurely.