HSBC analysts lower Wacker rating on pricing concerns

London – HSBC Global Research has downgraded Wacker Chemie AG from 'buy' to 'hold' and lowered its fourth-quarter earnings forecast for the group, due to a “difficult trading environment.”

In a 15 Jan report, HSBC Global Research said it expected Wacker’s results for the final quarter of 2023 to be impacted with “no chemicals [market] relief in the fourth quarter and pressure into 2024.”

The earnings outlook "drives our downgrade to 'hold',” said the analysis firm, which also factored in weakened demand and pricing scenario for chemicals, and ongoing price-pressure on polysilicons.

“Wacker is yet to see a clear sign of demand recovery in chemicals given ongoing customer inventory maintenance,” continued the HSBC Global Research report.

Furthermore, it noted that the latest lead indicators, including Germany’s industrial production in November, underline “weak activity levels” in consumer and construction segments.

HSBC Global Research, therefore, predicted that earnings margins at Wacker were “likely to remain under pressure” in first half of 2024.

The analysis also reflected "weak pricing in polymers and silicones, due to sluggish demand in the next one or two quarters, and signs that some raw materials are bottoming out." 

HSBC Global Research had previously issued a positive assessment on Wacker prospects, noting the German group's position as the main non-China polysilicon supplier to the solar industry.

Over time, the latest report said, the strategy should allow Wacker to benefit from the price premium for non-China vs China polysilicon in the solar market.

However, it added, Wacker currently "remains highly exposed to the China spot price via existing fixed contracts which do not roll over until yearend 2024”.

Expecting pricing to remain weak, the investment analysis firm said it did not expect “a meaningful recovery” in polysilicon margins until 2025.