We see BASF taking a major risk by reaffirming its 2022 outlook today, as the uncertainty factors, especially in Europe, are rising. This week’s inflation and economic growth data in Europe, suggest an economy that is lowing quickly and the confidence levels in Europe are much lower, as we have discussed already this week. BASF and others will likely continue to push prices, but if consumer spending continues to slow, volumes will disappoint and at some point, there will be pushback on both volumes and pricing. Separately, as we mentioned above, we could see another leg up in energy prices as we approach next winter in Europe, especially if there is no resolution to the Ukraine conflict, which seems likely.
Source: BASF 1Q22 – Earnings Release Presentation, April 2022
The other theme that is emerging with today’s earnings is the continued weakness in autos (BASF, Eastman, Celanese, and LyondellBasell – comments today alone), and an expectation that the auto recovery will take longer, with production expectations for 2023 still below pre-Pandemic and semiconductor constraint levels. If we are right about demand slowdowns more generally, the auto industries may find parts become more plentiful more quickly than expected, which would drive an upside surprise in production. If we head into a consumer slowdown, however, demand for new autos will likely disappoint and we could correct the new auto supply chain more quickly than expected. For more see our Macro blog from today highlighting more of our research.
Source: Eastman chemical – 1Q22 Earnings Release Presentation, April 2022
