Value Column by Hans Peter Schupp

3 OCTOBER 2025

Chemicals in a cyclical downturn – opportunities for investors

Hans Peter Schupp, Managing Partner of Fidecum AG and portfolio manager of the Contrarian Value Euroland Fund (ISIN: LU0370217092) on the prospects for the chemical industry and the fund investment Lanxess.

The chemical industry is going through a difficult phase. Demand and prices are falling, margins are under pressure, and share prices are declining. In Germany, many companies are cutting back on production and planning to reduce their workforce. According to the ifo Institute, capacity utilization in the industry is currently only 73.1 percent—before 2020, it averaged 82 percent.

A key leading indicator for the industry is the price of ethylene, the most important raw material in petrochemicals. For years, it fluctuated between €800 and €1,200 per ton, but is currently trading at around €675, well below that range.

This is primarily based on economic reasons: the construction and packaging markets are showing signs of weakness, while at the same time new facilities in China and the US have led to a significant increase in supply.

However, we do not see this as a structural crisis, but rather a typical cyclical dip. Following the price decline in 2023, many companies had expected a recovery as early as 2024 – this has not yet materialized, but is likely to be only delayed.

Some indicators already point to stabilization. S&P Global Commodity Insights reports slightly improved ethylene spreads, and the German Chemical Industry Association (VCI) also sees signs of a bottoming out in individual segments, although the overall environment remains weak.

At the same time, there is movement in the sector: OMV (ISIN: AT0000743059) plans to acquire Canadian manufacturer Nova Chemicals for around US$13.4 billion in a joint venture with Abu Dhabi National Oil Company (ADNOC). Berkshire Hathaway (ISIN: US0846707026) is acquiring OxyChem for around USD 9.7 billion, and the Carlyle Group is buying BASF’s (ISIN: DE000BASF111) coatings business for around EUR 7 billion. The major players are using the cyclical downturn to position themselves for the next upturn.

We also assume that the current development is part of a normal chemical cycle. With industrial demand recovering, ethylene prices are likely to rise again and the industry to regain its footing. This opens up interesting entry opportunities for long-term investors.

Lanxess – A corporation in crisis…

One example is our fund investment Lanxess (ISIN: DE0005470405). The company’s share price is currently between 50 and 70 percent below the range achieved between 2011 and 2023 – and thus still 40 percent below the level seen during the coronavirus crisis.

The reasons are obvious: sales are falling, and losses are also expected for 2025. Investors are particularly concerned about the high level of debt. At just over two billion euros, net debt exceeds the market capitalization of just under 1.8 billion euros.

… now reveals hidden values.

As is so often the case, however, it is worth taking a second look. In 2023, Lanxess contributed its High-Performance Materials business unit to the Envalior joint venture as a 41 percent stake. At the same time, a right to later tender the remaining share was agreed upon.

Since then, the investment has had a significant impact on the income statement. Around €160 million of the €177 million loss in fiscal year 2024 was attributable to Envalior.

In September, Lanxess announced that it would exercise its right of tender. According to conservative estimates, the proceeds from the sale are likely to be around €850 million. In addition, there would be the repayment of a shareholder loan in the amount of €200 million. This would provide the company with more than €1 billion. Against the backdrop of this influx of liquidity, the net debt looks far less dramatic.

In addition, a book profit of around €230 million would be expected. With the elimination of the negative earnings effects from the investment, Lanxess could return to profitability more quickly once it has overcome the cyclical downturn. Where many see risks, we see opportunities at the current price level.

Our investment approach

For 25 years, our Contrarian Value Euroland Fund (ISIN: LU0370217092) has remained model consistent. We invest in undervalued European companies with solid business models and a decent potential. We think like entrepreneurs buying an entire company—and, if necessary, we go against the market.

About the author:

Hans Peter Schupp is a managing partner at Fidecum AG and portfolio manager of the Contrarian Value Euroland Fund.

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