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Quarter-End Insights

Our Outlook for Basic Materials Stocks

Weak demand abounds, with some pockets of strength and a few surprises.

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The beginning of 2009 has been a period of great uncertainty for basic materials companies. The weak global economy continues to weigh on demand for commodities such as steel, aluminum, chemicals, coal, and fertilizers. During their earnings conference calls, many companies' management teams commented that activity in the first quarter was so far mirroring the weakness seen during the end of 2008. The drop in revenues, combined with fixed cost deleveraging, is hurting many firms' earnings and cash flows. Companies are continuing to respond with layoffs, reduced capital expenditure budgets, curtailed production, and now dividend cuts. Some outfits haven't made it, though, and we saw two bankruptcies from our coverage list during the first quarter: containerboard and corrugated box producer  Smurfit Stone (SSCCQ) and  Chemtura (CEMJQ), a chemicals company.

Elizabeth Collins has a position in the following securities mentioned above: CCJ, MT. Find out about Morningstar’s editorial policies.

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