Specialties are back in fashion: the expected downcycle in certain markets is causing basics firms to acquire specialty chemical assets.

The specialty chemical sector has become fashionable again. Specialties have in recent years been largely the domain of pure-play companies, but the sector has started to attract producers that were previously focused on basic chemicals. Basics are headed for a downcycle that has caused some diversified producers, most notably BASF and Dow Chemical, to announce specialty chemical investment plans in a bid to improve profits and margins.

The specialties sector is also once more attracting the attention of investors, because it has a more stable earnings profile, says David Begleiter, analyst at Deutsche Bank (New York). "The basic and diversified chemical sectors are …