The US chemicals sector entered H2 under a "decidedly negative" macroeconomic setup, with commodity oversupply, soft demand, and destocking continuing to pressure earnings, BofA said in a Monday note.

The investment bank said specialty chemical companies are showing mixed trends, with investors consolidating around like Ecolab (ECL) and Linde (LIN), who are seen as having "more resilient growth profiles."

BofA downgraded Albemarle (ALB) to neutral from buy, Huntsman (HUN) to underperform from neutral, Nutrien (NTR) to neutral from buy, and Westlake (WLK) to neutral from buy, citing weak market conditions and potential dividend risks. It also upgraded RPM International (RPM) to buy from neutral and FMC (FMC) to neutral from underperform after a sharp underperformance.

The report said dividend cuts could loom for Huntsman and LyondellBasell (LYB) as cash flow coverage weakens, while Olin (OLN) remains its top pick for value in commodity chemicals.

BofA also said that agricultural chemical makers face "peak cycle dynamics" as farmer profits shrink, while Element Solutions (ESI) remains its top specialty pick for artificial intelligence and data center exposure.

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