CHEMICAL & ENGINEERING
NEWS VOLUME
40, NUMBER 24
T h e Chemical W o r l d T h i s W e e k
JUNE
n, 1962
Chemicals Slump in a Skidding Stock Market the decline. On the other hand, institutional buying (by pension funds, insurance companies, mutual funds, and the like) is given a lot of credit for stemming the ebb tide. Whatever the cause, few investors are likely to forget a week which saw stock prices drop more sharply than at any time since 1929, with the DowJones industrial stock average plummeting 8% on heavy trading in less than two days, only to recover practically all the week's losses by the end of the week. Most chemical company stocks followed the over-all market pattern for the week; they closed low on Monday, May 28, but after sinking further the next day began to recover and continued to gain through the rest of the week. There were exceptions, however. Allied Chemical, Monsanto, Hercules Powder, and Stauffer, for example, recovered some of Monday's losses on Tuesday but slipped back again by Friday. Last week brought further gyrations, with prices down as the week began and then striving valiantly to make some recovery by midweek.
But falling stock prices fail to halt industry expansion plans, at least so far; European shares also tumble The stock market's frantic gyrations of the past couple of weeks apparently have not caused chemical companies to change their expansion plans. This is the consensus of chemical companies checked last week by C&EN. Most chemical firms get the bulk of their expansion funds from internal sources—retained profits and depreciation charges. Therefore, what happens on Wall Street has little immediate impact on plans for capital spending. Nor is it likely to affect the ability of companies to borrow money, at least from banks and institutional investors; borrowing is the biggest outside source of financing for most chemical firms. The market's slump did trigger a change in financing plans for Air Reduction, however. The company deferred last week its plans to sell up to $45 million worth of convertible debentures because of unsettled conditions in the stock market. The offering, it said, would be postponed until "market conditions become more settled and favorable." Instead, the company will meet its need with shortterm borrowing from banks. The debentures were to be part of a $95 million program to raise money for repaying existing debt and for capital spending. Few chemical industry executives
HECTIC DAYS. Hectic waves of trading on the New York Stock Exchange made prices of chemical stocks fluctuate wildly along with the over-all trend of the market in the past couple of weeks
care to comment, at least on the record, about the reasons behind the market's antics. Those who do are likely to blame the start of the recent roller coaster ride on excessively high prices of stocks in relation to earnings, not only for chemical shares but also for blue chip and glamor issues in general. They also point to "government interference in business/' And some say that withdrawal of European money from the market helped trigger
As June began, chemical shares were trading at the lowest level since the lows of October 1960. An advance that took a year to build up had been wiped out in half that time. And if prices should fall much further, chemical stocks will be at the lowest level in almost four years. Europe, Too. The wild trading on Wall Street was also reflected in European markets. This, of course, is no surprise; European economies are, to use Europe's own view, only little eddies in the wake of the American economic battleship. Nonetheless, the shock wave from Wall Street was strong enough to lift the market news directly onto the front pages of European newspapers and into news reports on radio and television. The pattern in Europe was similar to that in New York. The market JUNE
1 1 , 1962
C&EN
21
Prices of Chemical Stocks Wither in a Fading Market 1961 High
Company
Air Reduction Allied Chemical American Cyanamid American Potash Atlas Chemical Celanese Commercial Solvents Diamond Alkali Dow Chemical Du Pontt Freeport Sulphur Hercules Powder Heyden Newport Hooker Chemical Monsanto Nopco Chemical Olin Mathieson Perjnsalt Chemicals Reichhold Chemicals Rohm & Haas Spencer Chemical Stauffer Texas Gulf Sulphur Thiokol Chemical Union Carbide *Made since May 27.
84
707s
66V4
57 48
50 62
C&EN
JUNE
1962 Low*
Recent Price
457« 3774
53 41 40 37 16 32 21 45 49 210 23 35 14 30 39 26 30 32 11 90 31 36 14 22 95
36
30·/,
5474 2572
3374 1578
4oy 8
44
30
377«
1874 3874 457,
397, 74»A 853/8 2547, 35«/8 55]Λ 2878 437s 5878 577s 5274 4578
25 1677, 447s 6074 2774
50 144
69 7274 25474 29V, 52V, 197s 4172 5272 3872 4178
41 1674 13874 4272 4778 2372 447, 1217s
197 2174 3072
13 2978 387,
23 2774 2972
974 81 28 3174 13'A 187, 90»A
fPrices prior to distribution of General Motors stock.
dropped sharply for two days, then came surging back to make up most, if not all, the preceding losses. However, the economic situation in which the European markets reacted is somewhat different from that in the U.S. German stock values, for ex ample, have been on a steep, two-year toboggan ride. France and Italy have had fuzzy patterns for many months, resulting, in France, from uncertainties arising from Algeria and in Italy from a political swing to the left. Switzer land's market has been slipping, too, since March. And British trading has been very sluggish for a year. German chemical stocks, for exam ple, had dropped by about one third in value since last June; the over-all index had dropped about 20%. This performance reflects the general indus trial slowdown and profit squeeze there. Bayer, BASF, and Hoechst are all down by 25 to 35% from the levels of 1960. Each dropped some 30 points on "Schwarzer Dienstag" (Black Tuesday, May 29) and re covered most of the loss the next day. In Switzerland, even such blue chips as Ciba and Sandoz fell sharply. 22
1962 High
1 1 , 196 2
But the next day, they more than re covered their losses. General reaction among European chemical executives, however, was that this market activity is not impor tant to the conduct of their business. It is a necessary short-term correction to values inflated by over-optimism and competitive bidding—and long overdue. As a short-term effect, it cannot possibly have much impact on industrial planning. But, they add, the general market trend downward is certainly a deep worry. It reflects concern over pros pects for tougher competition, rising costs, and permanently depressed profit margins. It reflects, in fact, the end of the European postwar boom. The long period of high markets in the U.S., furthermore, has been hard to understand from Europe, in view of the obvious pressures on profit mar gins and stock yields. What Now? Viewing the sobering effects of the past three months, many investors seem ready to write off as dead the 12-year-old bull market. They see a bear market of unknown length now under way. Others see
the setback more as a correction to the overvaluation of stocks and excess speculation of the past year or so. Emphasis, they say, now will be more on dividend income, current earnings, near-term developments, and financial strength, rather than on long-term, often nebulous growth prospects. And some feel that stock prices have been knocked down to a point where many shares seem reasonably priced. And some security analysts feel that many chemical stocks, which have been declining for six months or more, look more attractive at current prices, with solid if not spectacular growth ahead for industry sales. Robert New ton, chemical analyst for Clark, Dodge & Co., for example, feels that chemi cal stocks are now nearly as low as they might go, although he does not expect them to go back up to their > previous highs any time in the fore seeable future. (For more on chemi cal stocks, see page 30. )
Du Pont Starts to Shed General Motors Shares Du Pont will begin disposing of its 63 million shares of General Motors stock on July 9. On that date, Du Pont shareholders will receive a half share of GM for each Du Pont share held on June 8. The July 9 distribu tion will involve almost 23 million GM shares, with a current market value of more than $1.1 billion. The divestiture was ordered by U.S. District Court Judge Walter La Buy last March (C&EN, March 12, page 23) to begin by July 30, 1962, and to be completed by Feb. 28, 1965. Under a law passed this year (C&EN, Jan. 29, page 19), Du Pont stockholders will not have to pay in come tax on the GM shares they re ceive unless and until the market value of the GM shares exceeds the original cost of the Du Pont stock. If it does exceed the cost of the Du Pont stock, stockholders will have to pay a capital gains tax (which does not exceed 25% ) on the excess. Although Judge La Buy left Du Pont free to dispose of the stock by any means or combination of means it selected, Du Pont says it intends to distribute all or substantially all of the 63 million shares to stockholders. If all the stock goes to shareholders, they will receive 1.37 shares of GM for each share of Du Pont.
