Lehman Brothers 2 On The Way And A Deep Recession Styled In 2008 – Global Chemical Domino Alert

Last week a German chemical company Lanxess AG He cautioned that the recent declines in sales volume were more severe than during the 2008/2009 recession.
To reinforce his point, CEO Matthew Zuckert Added: “This is like Lehman II.”
Lanxess’ competitors in Europe and the United States, as well as a number of companies in other cyclical sectors, are facing similar problems as growing inventories combine with the fastest rate-raising cycle in decades, as well as a faltering Chinese economy.
Whether you call it “great inventories,” “low inventories,” or just a simple recession, it increasingly looks like the world of materials and manufacturing is either on the verge of collapse or on the brink of collapse — an impression reinforced by the gloomy outlook in the United States, based on the PMI.
While admittedly a less marketable topic than AI, chemicals still deserve attention:
They are often a reliable leading indicator of the global economy due to their place in value chains and diverse applications.
As such, the recent wave of warnings about chemical companies’ earnings is cause for concern.
Lanxess expected the customer disengagement that began last year to be short-lived, but the downturn has deepened.
Weak demand spread from construction and electronics to typical consumer durables.
The expected recovery in China did not materialize.
European fragrance and vitamin giant DSM-Firmenich AG also sounded the alarm when it announced last Wednesday, citing price pressures, that it is shedding a discount of about 30% year-on-year, which will be reflected in its adjusted second-quarter earnings. .
Earlier this month, British polymer maker Victrix plc warned of a 40% drop in sales volume in the April-June quarter compared to last year’s record.
In the same week, US specialty chemicals company Cabot Corp. withdrew guidance for the fiscal year ending in September, citing a “prolonged inventory cycle” and a weak recovery in China.

Type ’08 – ’09

Exan analyst Laurent Favre told clients the chemicals sector was going through a “deep recession on the lines of 08/09” and public sentiment was “terrible”.
It also warned companies in neighboring industries such as packaging and logistics could profit as customers run out of stock rather than place new orders.
References to “stocking” in corporate earnings conference calls have skyrocketed.
However, thanks to strong US employment and consumer confidence, global equity markets remain bullish.
“Either the chemical markets are wrong or the financial markets, and we obviously think it’s the latter,” said Paul Hodges, president of New Normal Consulting, an expert on chemicals.
“People thought China would recover quickly after Covid, but the growth of the Dragon Country since 2008 has been the product of stimulus and mass speculation especially in the construction industry, which cannot go on forever.”
A positive reading of these warnings is that the above is just another example of the “whiplash effect” in the supply chain that affected retailers and chipmakers last year.
Like retailers, buyers of chemicals overbooked in 2021 and early 2022 to ensure they could meet demand but also to avoid paying higher fees as inflation and energy costs rose.
As supply chains normalize, industrial customers can disappear, but memories of that disruption live on.
The argument goes that they won’t want to get rid of inventory, and so they’ll start restocking soon.
Unfortunately, the arrival of this recovery is still cumbersome, which raises concerns that this is not just a storage problem, but a basic ordering problem.

Weak request

Weak demand wouldn’t be surprising given that central banks are still looking to crush inflation by raising interest rates Companies want to conserve cash by optimizing working capital.
Although consumers have so far been “championing” travel, music events, and socializing, purchases of durable goods have declined.
Huge government subsidies, such as those made possible by the US deflationary law, are fueling the capital boom, and the auto and aviation industries still look relatively resilient.
However, capital goods may be the next sector to encounter inventory problems once the backlog runs out, Morgan Stanley analysts say.
Don’t forget that shipping and freight companies have been warning about recessionary conditions for months.
According to data compiled by shipping expert John McCown, ocean freight rates have collapsed, while incoming container volumes at the 10 largest US ports fell 20% year-on-year in May,
Shipments — a nice selection of goods sold — are shrinking at the fastest pace since the Great Depression, while Fedex Corp said last week it would cut more planes from its fleet due to lower demand.
You don’t have to believe we’re heading into a recession as severe or systemic as the one that followed the collapse of Lehman Brothers — but what starts in the chemicals rarely stays in the chemicals.

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