Chemical stocks are taking a bigger hit than the broader market Monday on fears that the U.K.'s decision to leave the European Union could hurt companies in the sector with exposure to Europe.
Shares of Celanese, Eastman Chemical, Lyondell Basell Industries, Dow Chemical, DuPont and PPG Industries are each down more than 3 percent in midday trading today. The Standard & Poor's 500 Chemicals Index was adding another 3.2 percent decline Monday to last week's 6.4 percent drop.
"The U.K.'s vote to leave the European Union introduces significant uncertainty and volatility into the global economy, which is rarely good for chemical companies," CLSA analyst Nils-Bertil Wallin said in a research note Monday.
The chemical group has an overall European market exposure that "is significant at an average revenue contribution of 24 percent," the analyst said. "Economic and currency headwinds represent the biggest risk, with a potential to erode earnings per share by 3 percent in 2017."
Chemical companies that are expected to have the greatest exposure to U.K. include PPG Industries followed by Celanese and Eastman Chemical, according to Wallin. The exact percentage of exposure to the U.K. market isn't known, but CLSA estimates Celanese has almost 40 percent exposure to the European market, while Lyondell is about 35 percent and Dow Chemical slightly more than 30 percent.
PPG, a supplier of chemicals, paints, specialty materials and fiber glass, has manufacturing and R&D facilities in several locations in the U.K. within its aerospace, fiber glass, automotive refinish, and other business units. PPG's stock was recently down $4.30 a share, or about 4.2 percent, at $98.41 a share, in heavier than usual volume.
Celanese, a maker of specialty materials and chemical products, fell $3.93 a share, or 6 percent, to $61.54. Shares of Eastman Chemical, maker and marketer of chemicals, fibers and plastics, shed $3.08 a share, or 4.5 percent, to $65.33.
Wallin said he expects the market reaction may be overdone on PPG. He added, while Celanese and Eastman have exposure too, "a portion of that is likely in cigarette filter tow, whose muted cyclicality, could mitigate the economic sensitivity of the rest of the portfolio."