FRANKFURT (dpa-AFX) - European chemical stocks are mostly under pressure on Friday following bearish sentiment from JPMorgan and Goldman Sachs. Lanxess shares are seeing particularly sharp declines after being downgraded by analysts Chetan Udeshi and Georgina Fraser, falling around 5 percent on the Tradegate trading platform. Lanxess is also trading ex-dividend on Friday at 0.10 euros per share.

Udeshi and Fraser dampened hopes for a windfall boost from the Middle East conflict, which had significantly driven the entire sector since March. The Stoxx Europe 600 Chemicals had climbed up to 15 percent from its lowest level since autumn 2022, but has been in retreat since mid-April. Lanxess had even recovered by almost 77 percent at its peak from a low since 2009 of around 11 euros.

However, Udeshi and Fraser have now poured cold water on the rally. 'The sector blues are likely returning,' wrote JPMorgan expert Udeshi regarding the industry. While the duration of the Middle East conflict remains difficult to gauge, recent data has already shown that the short-term tailwind from its disruptions is likely to be weaker than expected and is probably already flattening out. Investors should therefore not place too much weight on the second quarter, as a weak second half and even 2027 bring the industry's structural problems back into focus: immense overcapacity and ever-increasing competition in specialty products from China and the rest of Asia.

While Udeshi still maintains a 'Neutral' rating for Lanxess with a price target of 18 euros, down from 'Overweight', Goldman Sachs expert Fraser advises selling with a fair value estimate of 13 euros. She questioned the price momentum caused by the Middle East conflict disruptions and emphasized persistent balance sheet risks. Her upgrade to 'Neutral' in February was based on an improvement in the US business, Fraser noted. However, global prices for energy and chemical products then took control due to the war.

First-quarter results offered little, if any, sign that Lanxess was benefiting from higher prices. Furthermore, the outlook for operating profit in the second quarter is 10 percent below consensus and as much as 37 percent below her estimate, according to Fraser. In her view, the war has increased risks without offering genuine margin opportunities in return./ag/ajx/stk