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FRANKFURT (dpa-AFX) - A profit warning from Lanxess put a further damper on sentiment in the European chemical sector on Tuesday. Shares in the specialty chemicals group slumped by double-digit percentages, a particularly sharp drop that dragged numerous other sector stocks down with it. Demand, which was already generally very weak at the beginning of the year, and continuing destocking by customers are not only making business development difficult for Lanxess.

JPMorgan analyst Chetan Udeshi also noted this in a recent analysis of demand trends in cyclical end markets. Over the past four quarters, he writes, chemical companies in the European Union have seen extensive destocking in addition to a decline in demand in some key end markets.

Around midday, shares in Lanxess, the bottom performer on the MDax, slumped 16.4 percent to 26.35 euros. At times, they even went down by just over 18 percent, reaching their lowest level since March 2020 - a record slump for Lanxess on a single trading day.

Evonik followed in second-to-last place in the index of medium-sized companies with a discount of 5.1 percent and Wacker Chemie lost 4.9 percent in third-to-last place.

In the Dax, shares in BASF, down 3.7 percent, and Covestro, down 6.8 percent, gathered at the bottom of the index. The shares of chemicals trader Brenntag lost 2.3 percent.

The previous evening, Lanxess had been more negative on its outlook for 2023 against the backdrop of a weaker-than-expected second quarter. According to analysts, the lowered full-year operating profit (Ebitda) target now implies a need for a correction of around 30 percent to the consensus, average analyst estimate. "While the weakness in the second quarter was anticipated by investors following various warnings from other companies about longer-than-expected destocking, the magnitude of today's target cut is definitely a surprise," commented Goldman analyst Georgina Fraser.

A trader made similar comments, saying the capping of full-year targets was in line with recent warnings in the sector, such as from Croda and Victrex, and therefore did not come as too much of a surprise. "Still, Lanxess' second quarter is already a big disappointment," he added, pointing to the short-term drag on sentiment for the sector as a whole.

UBS expert Andrew Stott also recalled Covestro's announcement of weaker-than-expected volume performance since the first quarter and a continuation of destocking in the construction and furniture end-markets. A slower overall business recovery is also a topic with regard to China, he said.

Capital market strategist Jürgen Molnar from broker RoboMarkets now expects that the focus will soon change towards Covestro and also BASF. The question now is whether these two are affected by the same problems "or whether the weaker demand is at least less significant here"./ck/ajx/men