US rate cuts could trigger durable goods, commodity chemical upcycle in 2026-2027 – Jefferies

NEW YORK (ICIS)–It has been a long time coming and there is plenty more time before the chemical industry finally sees a meaningful upturn in the durable goods cycle, in turn giving a much-needed boost to commodity chemicals, according to Jefferies.

“We expect demand stabilization in 2025, with a restock cycle and a rate-driven durables goods cycle in 2026-2027 to set the stage for the next period of tight commodity chemical supply/demand balances – MDI (methylene diphenyl diisocyanate) and methanol first, in our view, then acetyls, then olefins,” said Laurence Alexander, analyst at Jefferies, in a research note.

In his base case scenario, the analyst sees US durable goods demand flat to down 3% in 2025 and up around 10% in 2026.

The anticipated turn in the cycle for housing and durable goods would be a strong catalyst for shares of Eastman, Huntsman, Avient and DuPont, he pointed out.

For chemicals in the near term, Alexander expects Q3 2024 to show a return to “normal seasonality” and Q4 volume outlooks to be trimmed 1-2% on more caution on the Christmas spending season – especially in Europe – as well as automotive production this winter.

TRIMMING OUTLOOK FOR CELANESE
Given the softer near-term outlook, the Jefferies analyst also trimmed his earnings per share (EPS) estimates on Celanese for Q3 (by $0.06 to $2.84), Q4 (by $0.05 to $3.09) and for 2025 (by $0.10 to $10.40).

“Credit easing is likely needed to trigger a demand rebound, and any tailwind from an improved credit environment will likely not be evident until mid-2025 at the earliest,” said Alexander.

“Although destocking has faded, demand trends remain broadly sluggish with few signs of a recovery. European demand has yet to trough, North America is flattish and the recovery in Asia has been muted,” he added.

By end-market, he sees electronics likely rebounding but at a slower pace until consumer confidence improves and automotive production accelerates.

Consumer durables and construction demand is likely to remain soft into next summer.

And automotive demand is muted overall, with headwinds to production schedules likely in the near term. Longer term, he expects better momentum in electric vehicle (EV) sales in China.

Focus article by Joseph Chang