Berenberg Bank has downgraded shares of Akzo Nobel (PINK: AKZOY) to sell' from hold, saying that deteriorating demand conditions would offset the near-term margin benefits.

The brokerage also cut the price target on shares of Akzo Nobel, a global paints and coatings company, to 39 euros from 45 euros.

This is mainly on the back of deteriorating demand conditions, which in our view will offset the benefits the company may see from an improving margin squeeze in the near future, analyst Jaideep Pandya wrote in a note to clients.

Pandya said Akzo Nobel now has to implement a two-pronged strategy of investing in emerging markets and cutting costs most likely in mature markets.

In our view, this is challenging, especially considering the volatile macro environment and the fact that the company will have a new CEO in the next 12 months, the analyst said.

Akzo Nobel continues to expect 5 percent top-line growth for 2011, while EBITDA is expected to be at least in line with last year's level.

But, the overall macroeconomic scenario as well as demand has worsened, at least in mature markets.

The company also expects a 20 percent increase in raw material costs for the year, as it sees no signs of weakening in the prices of key raw materials although products such as acrylic acid have seen a slowdown.