Sector News

Europe chems to reap windfall from US tax reform – UBS

January 24, 2018
Chemical Value Chain

Corporate tax cuts are likely to deliver an uplift in earnings per share of up to 8% for listed European chemicals firms, more than balancing out headwinds from a stronger euro against the dollar, investment bank UBS said on Wednesday.

The measures would represent the most significant reform to US tax system in decades, cutting US corporate tax from 35% to 21%.

South Africa’s Sasol predicted that the profitability of its $11.13bn Lake Charles, Louisiana, cracker complex would also be boosted by the measures when it comes on-stream.

The US economy is also likely to benefit, according to revised IMF data this week, which forecast a 1.2% uplift to country GDP in the years to 2020 as a result of the cuts.

Despite the uplift expected for European firms from the US, UBS’ outlook for the first months of 2018 was cautious, projecting solid macroeconomic conditions on the back of the surging eurozone profitability but with the risk of intensifying currency exchange headwinds and raw material pricing pressure.

Stalled demand from China, despite cutbacks to domestic output in the country as a result of air purity-driven shutdowns, may also weigh on commodity chemicals players, UBS added.

The US tax cuts are not the only upside of the current political administration for US firms, according to DowDuPont’s CEO Andrew Liveris.

Speaking at the World Economic Forum (WEF) summit on 23 January, Liveris spoke of a “paradigm shift” for US companies operating internationally, with fear of reprisals from the US government for foreign companies strengthening domestic firms’ bargaining power.

“A global US company operating in some foreign jurisdiction before had no leverage [but] we suddenly have leverage, and I didn’t ask for it. Because people are now worried about the US,” Liveris said.

“People are worried that if [they] don’t give a US company a shot, then [their] company won’t get a shot in the US. It’s had an unintended consequence which is actually amazing,” he added.

The former US manufacturing council chief said that the post-Bretton Woods global order had been upended by the election of Donald Trump, and by populist surges elsewhere in the world.

“We are at a tipping point, that the world is moving to this incredible world where we are all connected… yet our political systems, when you look at capitalist democracies, [have] created income inequality [and] that has led to populism, which has caused this pushback,” Liveris said.

“The collision of these forces is causing all of us to back away and say: Is the market model that the US created post-World War II, where the US is the market for all, and everyone can benefit from that market, and the jobs get created everywhere else… we have just upended that with this election,” he added.

The movement towards more tribal global politics has also had implications for the self-image of companies, he added.

“[Companies] may have to answer the question for the first time that we have never had to answer: are we a global company based in the US, or are we a US company that operates globally? We’ve never had to think about that before,” he concluded.

By Tom Brown

Source: ICIS News

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