JP Morgan has warned that the rise of shale gas could prove to be a "structural negative" for the European chemicals industry.
JP Morgan remains negative on the European chemical sector citing BASF, Solvay, Lanxess (all under weight) as its least preferred options.
However, US chemical producers are booming due to a sharp fall in energy prices and significantly lower raw material costs, increasing their competitiveness in global export markets.
US capacity for ethylene (the largest petrochemical building block) is expected to grow by as much as 30 per cent by 2018.
European and Asian producers remain at a disadvantage compared to their US counterparts, with a greater reliance on more expensive oil-based feed stock.
Ethylene is already 30 per cent cheaper for US companies than their European counterparts. The research note forecasts that pricing power for European companies may be significantly limited in the near future. However, the multinational bank highlighted three categories which may see some winners emerge.
1. Shale gas companies
Companies directly involved in providing the necessary equipment for the exploration and extraction of shale gas.
2. Companies benefiting from new US chemical production facilities
Companies involved in the engineering and building of chemical plants will benefit from the surge in US activity. Suppliers to the chemicals industry will also receive substantial gains. JP Morgan cites companies such as Air Liquide or Linde, which it estimates could see continuous revenue growth of seven per cent mid-term.
3. Companies benefiting from structural changes in the chemicals production chain
Increased use of natural gas feedstock for ethylene will produce less propylene/butadiene by-products, paving the way for alternative technology. The note points to dehydrogentation which is expected to grow by 300 per cent from 2013-16. JP Morgan believe Clariant should benefit most from this.