Market report: Melrose slams into reverse as BASF warns on car trade woe

Serious question marks were raised over Melrose’s decision to buy engineer GKN today, as yet more signs of turmoil in the global car industry emerged.

The turnaround specialist won a hostile battle for GKN, which supplies aircraft and car components, with an £8.1 billion assault last year but a warning from chemicals giant BASF sent shivers down Melrose investors’ spines.

Germany’s BASF, the world’s largest chemicals firm, issued a massive profit alert, after the company became the latest victim of US President Donald Trump’s trade war with China.

BASF slashed its full-year profits forecast for 2019 by 30%, citing a decline in the car industry as the primary reason.

This had a knock-on effect on Melrose as GKN is a huge supplier to the automotive industry, especially of driveshafts and propshaft systems, and has 29 production facilities in 23 countries, supplying over 90% of the world’s car manufacturers.

There are now worries among brokers that sales could be hit.

Melrose shares fell to the bottom of the FTSE 100, off 6%, or 11p, to 176p.

Shares of industrial chemicals maker Johnson Matthey were also down 1p to 41p. It was proving a rough session for the FTSE 100, off 20.52 points to 7528.75 after the Irish finance minister Paschal Donohoe warned of the risk of a disorderly Brexit.

He added that the Irish government is taking measures to protect itself from any legal consequences.

He also believes the EU’s new leaders would side with the Irish during Brexit talks.

The warning sent airlines and tourism companies down. TUI fell 23.8p to 765p, British Airways owner IAG lost 4.4p to 445p, while easyJet tumbled 25.5p to 992p and Thomas Cook was down 0.7p to 11.9p. It was a rotten session for Renold, which makes cables for lifts, as it lost 21%, or 7p, to 25p.

The firm was forced to delay its annual meeting next week after it identified accounting mistakes in previous results, leading to profits being overstated by around £1.8 million.

The glitches were discovered over three years.

Renold has drafted in PwC to help with an internal audit investigation to confirm the findings and “identify any contributory control weaknesses”.