It Feels Like 'Lehman II’ in This Crucial Industry

Last week, German specialty chemical maker Lanxess AG warned recent declines in sales volumes were more severe than during the 2008/2009 recession. To bludgeon home his point, Chief Executive Officer Matthias Zachert added: “This feels like Lehman II.” Gulp.

Lanxess’s European and US chemical peers, plus a host of companies in other cyclical sectors, face similar problems as elevated customer inventories meet the most rapid interest rate hiking cycle in decades, as well as a stuttering Chinese economy.

Whether you call it the “Great Destocking,” an “inventory recession,” or just a plain old recession, it looks increasingly like the materials and industrial world is either in, or heading for one – an impression reinforced by last week’s bleak US and European manufacturing purchasing managers’ data.

Chemicals Recession | European chemicals production is the weakest since 2009 amid destocking, poor demand and high energy costs

Though admittedly a less sexy topic than artificial intelligence, chemicals still deserve attention: They are often a reliable leading indicator of the global economy, owing to their upstream position in value chains and diverse end-use applications. The recent deluge of chemical company profit warnings is therefore concerning.

Lanxess expected customer destocking that began last year to be short-lived, but the slump has instead become more pronounced. Demand weakness has spread from construction and electronics to typically resilient consumer-facing segments; the expected rebound in China has not materialized.