Accelerating the transformation of European chemicals into specialty products

Credit Suisse analysts recently said that the global spread of the new crown pneumonia epidemic is becoming the main driving force for the transformation of European chemical production from general chemicals to specialty chemicals. At present, most European chemical companies continue to advance to downstream industries to resist the decline in profitability caused by large-scale basic chemical production capacity.

　　 At the same time, the weak demand caused by the economic recession has also prompted people to pay more attention to defensive stocks with high certainty and low odds. So far, investors have begun to pay attention to safe-haven assets because of the poor economic outlook. The bonds issued by some mature economies even have negative interest rates, which has also become the main factor that continues to push up the stock prices of specialty chemicals.

Credit Suisse (Credit Suisse) said that during the crisis, compared with bulk chemical manufacturers, the EBITDA multiple premium of specialty chemicals companies has risen to an average of 140%, while the historical multiple is about 90%.

　　 ICIS analysis believes that the continuous increase in China's bulk chemical production capacity may prompt China to become an exporter of several types of key chemicals such as polypropylene (PP). In the past, China has been a major importer of such commodities. This may also promote the de-generalization process of the European chemical industry. Among European listed companies, Covestro is one of the few companies that retains the general chemical business. Although the company is currently vigorously developing sustainable business, and focusing on research and development to develop new applications for this market.

　　 Ineos is listed by the rating agency Moody's as one of the companies with a low degree of specialty products, and it is most vulnerable to low demand in the chemical market. The company has made a lot of investment in many of the market-leading general chemical value chains. Compared with many peers, the investment risk is relatively small.

　　 Evonik sold its methyl methacrylate (MMA) business unit in early 2019. Arkema repositioned itself as a pure specialty chemicals company, with the goal of making its 2024 sales revenue come from non-generic chemicals. Part of the reason was to cope with pressure from activist investors to ask it to sell A Base acrylate business.

　　 Simplifying operations is also a factor in the fight against the so-called "conglomerate discount." Private equity companies are keen to acquire low-profit basic chemical businesses from large European companies. Some companies that have turned to specialty products have not yet fully convinced the market, and their valuations are still below the expectations of the underlying investment portfolio. Credit Suisse stated that Arkema has the greatest potential for market capitalization because they are discussing the divestiture of methacrylate and commodity fluorine gas.