Chemicals Sector Q4 2023 Update and 2024 Outlook
The fourth quarter of 2023 continued to prove a challenging environment for the chemical industry in a year that was characterized by significant macroeconomic and geopolitical headwinds, unprecedented inventory levels across end markets and unpredictable demand weakness that put downward pressure on volumes and prices. Companies across the chemicals value chain focused their efforts on levers which they could control: disciplined cost reductions through overhead eliminations, plant shutdowns, performance improvements and portfolio optimization. Inventory destocking, which began in late 2022 and has mostly returned to normalized levels across industries, was also a significant focus in 2023. The overwhelming sentiment of chemical executives is that businesses are streamlined and well-positioned for a recovery, whenever that may occur.
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Q3 2023 Chemicals Sector Quarterly Update – The Prolonged (Delayed) Recovery
While it may not seem like it, there were a handful of green shoots in the third quarter that cause us to be cautiously optimistic about 2024 (despite executive sentiment reflecting more of a “grey sky” scenario, at least in the near-term). Several economic indicators point to a cooling economy and disinflationary environment – the former, generally not something to celebrate, but after 11 consecutive rate hikes by the Fed any sign of taming inflation is seen as a positive for the M&A market. Additionally, companies and customers across the chemicals value chain successfully reduced inventories while firming up their supply chains. We expect volume pressure and margins to improve as companies continue destocking efforts throughout the fourth quarter and into 2024.
Q3 2023 Chemicals Sector Quarterly Update – The Prolonged (Delayed) Recovery – PDF Download
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Chemicals Sector Quarterly Update: Key Themes and M&A Trends
The uplift in the chemicals sector in the first half of 2023, largely expected from China’s reopening of its economy following restrictive COVID lockdowns, did not materialize, diminishing the optimistic outlook on which a recovery was predicated. As a result, U.S. chemicals companies, most notably commodity companies, are heavily weighted on the second half of 2023 earnings expectations.
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