Chemicals & Ingredients Sector: Is the tide turning back to defensives?

研报英文原文证据摘录

Chemicals & Ingredients Sector: Is the tide turning back to defensives?

ngs upside within cyclical chemicals (of which we

acknowledge there is some, albeit unlikely as much as some of the more bullish investors

have argued in recent months) does not detract from: A) the continued oversupply

across main value chains globally, B) the unattractive positioning of European chemicals

assets on the global cost curve; and/or C) the sluggish demand outlook across key end

markets (namely autos, construction and consumer); which is in part driving the

narrowing of spreads in recent weeks. Our top pick within Ingredients is Symrise,

followed by Croda (#2) and Novonesis (#3); see details: here.

EU ETS update in July is a potential near term catalyst for cyclical Chems

We have previously acknowledged that there are some upcoming catalysts which could

potentially provide some green shoots of optimism for the European Chemicals sector in

the coming years; 1) Germany's €500bn special fund for infrastructure (albeit the

involvement for chemicals is likely to be more late cycle), 2) Chinese 'anti-involution'

policy (albeit any closures look unlikely to offset stated supply additions), 3) European

anti-dumping duties, 4) the EU Action Plan for Chemicals. Another area could be

amendments to the EU ETS schemes and there were headlines on this subject last week

(link). In summary, it is being reported that the upcoming proposal (due 15 July) will

extend free allowances from the current deadline of 2034 albeit contingent on

companies committing to investments in the EU. It also suggests there will be plans to

ensure that the proceeds from the ETS are spent by member states on decarbonising ETS

sectors. This could be positive for cyclical chems as it would reduce the pace at which