FTSE 350: Chemical stocks need market revival

There’s little that binds these stocks together, aside from common vulnerability to market downturns, industrial developments and price movements. Johnson Matthey (JMAT) demonstrated a concerning exposure to short term price volatility last year, after a spike in palladium and rhodium prices prompted a £352m precious metal working capital outflow at its most recent half-year results. This took the battery materials specialist beyond its target debt threshold. The group, which is the largest secondary platinum group metals refiner in the world, manufactures catalytic converters and is also commercialising battery materials technology. It therefore straddles conventionally-fuelled vehicles, hybrid and fully-electric cars. Johnson Matthey has its bases covered, but it is a long term bet.

Synthomer (SYNT), which produces polymers for an array of uses including textiles, paper and synthetic latex gloves, cleared a significant regulatory hurdle in January when it received approval for its merger with Omnova, the only other European vinyl pyridine latex manufacturer (used particularly in the automotive industry). Peel Hunt analysts expect the deal to be completed soon, allowing the group to proceed with $30m (£23m) in cost savings. Management will hope the deal will help to soothe shareholder discontent over a lack of female boardroom representation and the commitment of chairman Neil Johnson, who also chairs QinetiQ (QQ.) and Electra Private Equity (ELTA).

Chemicals businesses Elementis (ELM) and Croda International (CRDA) have both issued profit warnings in response to weak market conditions, while plastics manufacturer Victrex (VCT) is heavily exposed to the automotive, electronic and industrial markets, which make up more than 60 per cent of its global volumes. The agreement of the first phase of a US-China trade agreement may go some way to allay the fallout this backdrop though, while there are signs that weak manufacturing data is bottoming out.