JPMorgan on Friday maintained a cautious stance on European chemicals stocks, pointing to persistent structural overcapacity and intensifying competition from Chinese and other emerging-market producers.
The bank said near-term indicators remain broadly in line with expectations, but stressed that Europe faces "the clearest margin squeeze" from elevated feedstock and energy costs, weak demand, and deep spot discounts.
The July escalation of the Middle East conflict failed to produce broad-based price increases despite higher feedstock costs, according to JPMorgan. China commodity margins improved modestly into September but remain well below their March and April peaks. Middle East-related tailwinds have instead become incremental headwinds, compounded by higher European gas prices and low Rhine water levels.
JPMorgan noted its 2027 earnings estimates sit materially below consensus for much of the sector, underscoring the difficulty of recovery ahead.
Among its top picks, the bank named Novonesis its preferred long position, citing "the strongest structural organic growth profile in the sector" and a post-tax return on invested capital exceeding 20%.
Umicore and Syensqo were placed on positive Catalyst Watch ahead of upcoming results. Akzo Nobel received a reinstated Overweight rating, with JPMorgan calling its announced merger with Axalta "sensible consolidation with meaningful synergy-driven value creation." Other Overweight-rated names include Croda, Clariant, Fuchs, and Solvay.
JPMorgan noted it marks the first time since August 2018 it has rated Croda Overweight, highlighting room for cost optimization and pharma pipeline upside.
On the negative side, JPMorgan retained Underweight ratings on BASF, Wacker, Yara, Evonik, Brenntag, IMCD, DSM-Firmenich, and Arkema.
BASF was criticized for a "premium valuation disconnected from challenged fundamentals," with the bank flagging low ROIC, weak free cash flow generation, and potential for substantial downside to 2027-plus consensus earnings forecasts. JPMorgan also saw more limited upside for BASF from its reported interest in acquiring Evonik compared to alternatives such as pursuing Syensqo's Performance & Care unit.
Wacker was singled out for a projected return on tangible equity of just 1% to 3% for 2027-28, with valuation deemed too high relative to that outlook. Sector activity has also featured Syensqo's strategic review of its Performance & Care division.
