APAC chemicals sector navigates toward recovery amidst destocking shift: Fitch Ratings
Dec 18, 2023
New Delhi [India], December 18 : Fitch Ratings anticipates a gradual recovery for rated APAC chemicals companies as they approach the end of the destocking cycle, signalling positive revenue growth in the years 2024-2025.
According to Fitch Ratings, this outlook suggests a potential upturn in the financial profiles of these entities.
The chemicals sector in the Asia-Pacific (APAC) region is poised for improvement, with indications that the prolonged destocking cycle is reaching its conclusion.
Fitch notes that the sector, predominantly influenced by conditions in China, where over 40% of the global chemicals industry's turnover resides, has experienced a slowdown in inventory additions for more than a year.
While a recovery in China is expected to be modest, largely driven by restocking activities, Fitch emphasizes that end-market demand might face constraints due to the persistent weakness in the property sector.
Nevertheless, signs of stability and potential growth are apparent in other APAC markets, notably India, where the economy demonstrates resilience.
Despite the expected improvement from 2023, Fitch projects that margins in the APAC chemicals sector for 2024 will likely remain below the levels observed in 2021-2022.
Oversupply concerns, particularly in commodity chemicals, are anticipated to constrain any significant upside in chemicals prices and margins.
Fitch foresees a decrease in the average level of APAC chemicals issuers' leverage, measured by net debt/EBITDA, during 2024-2025.
The anticipated improvement in profit and cash flow generation, coupled with a mild recovery in market conditions, is expected to contribute to this downward trend in leverage levels.
The dynamics of the chemicals market in the APAC region are evolving, with the potential for recovery buoyed by resilient economic conditions in markets like India.
The destocking cycle's conclusion sets the stage for companies to recalibrate and navigate a path toward positive growth, aligning with the broader economic recovery.
The chemicals sector in the APAC region is cautiously optimistic as it emerges from the destocking phase. While challenges persist, signs of stabilization and recovery offer hope for improved financial performance.
Companies in the sector are expected to adapt to the evolving market conditions, leveraging resilience in specific markets and strategic measures to navigate toward a period of positive growth in the coming years.
