Destocking hits Q1 chemicals outlook

Inventory destocking is a major theme on chemical company Q4 earnings conference calls. While the bulk of the destocking may be behind us, the continuing process is likely to hit profits in Q1 and potentially beyond. Destocking was clearly widespread late last year as crude oil prices plunged 40% through Q4 2018 – rather than a sharp, quick move, it was more of a steady and relentless decline. In a falling crude oil price environment, buyers of chemicals and plastics tend to wait on the sidelines in anticipation of lower prices, instead drawing down their inventories. This “buyers’ strike”, which was increasingly pronounced towards the end of December, led to big year-on-year profit declines. “The US/China trade war and the slump in oil prices have led to a particularly sharp destock cycle, which we expect to turn positive after the Chinese New Year, even before there is any resolution of the US-China disputes,” said Laurence Alexander, chemicals analyst at Jefferies & C.