Analysts at Bernstein Research said on Tuesday that German chemicals giant BASF has benefited from the more-than-expected demand in Europe and the closure of many polluting factories in China, while global chemical prices have soared.
The analyst raised the forecast for BASF's stock outlook by saying that previously "underperforming" BASF in 2016 was driven by fears that the overcapacity of chemicals in European markets would cut corporate profits.
However, the economic performance in 2017 far exceeded expectations, changing the current situation and will make BASF profitable.
Bernstein conducted a 'market-performance' assessment of BASF's stock - or 'neutral' in other investment banking terms - is expected to reach 88 euros in 12 months.
On Tuesday morning, BASF shares rose 0.6%, the latest traded price of 94.19 euros.
The analyst explained that they had previously incorrectly assessed the European chemicals market when they worried that 'overcapacity and stagnant, uncompetitive European industries' could cut BASF's profits.
"Coupled with the stagnant supply in the European chemicals market, we think (in 2016) that price competition exert pressure on profits is only a matter of time ... However, overcapacity does not seem to be the issue we are worried about. The European chemicals market Growth is also accelerating ... We are surprised that supply and demand tensions lead to even higher profits, "Bernstein Research said.
'Because of environmental reasons, a large number of factories in China closed down, the market supply decreases.It is not yet clear that the closure of thousands of factories is temporary or permanent, so a lot of chemicals prices soared. Since there is no significant outside China Production disruptions and global overcapacity must be different from what we think. '
The analyst said sales of chemicals increased this year, up 4% in September from a year earlier.
However, he also said that in the BASF case, the company is still unable to upgrade to 'fantastic' or 'buy' because of his reservations about the positive changes in the German company's portfolio.
Earlier this month, BASF announced that it is in talks with Letter One, a subsidiary of Luxembourg-based investment firm DEA Group, hoping to merge with each other's oil and gas operations and look forward to an initial public offering.
"Although we expect BASF to make some significant investment portfolios, we still have reservations about the reasons such as BASF's ongoing negotiations to separate its oil and gas operations - which are of strategic importance but have little effect on the valuation, and maybe BASF may consider buying Dow Specialty Chemicals business under DuPont, but BASF's integration record is mixed.