Zacks Industry Outlook Highlights: E.I. DuPont de Nemours, Dow Chemical,
Eastman Chemical, Air Products and Chemicals and PPG Industries
CHICAGO, Aug. 21, 2013
CHICAGO, Aug. 21, 2013 /PRNewswire/ --Today, Zacks Equity Research discusses
the U.S. Chemicals, including E.I. DuPont de Nemours & Co. (NYSE:DD-Free
Report), The Dow Chemical Company (NYSE:DOW-Free Report), Eastman Chemical
Company (NYSE:EMN-Free Report), Air Products and Chemicals Inc. (NYSE:APD-Free
Report) and PPG Industries Inc. (NYSE:PPG-Free Report).
According to the American Chemistry Council (ACC), emerging market growth and
abundant shale gas should help drive U.S. chemical exports. A string of
factors are driving growth in the export markets including favorable energy
costs stemming from the abundance of shale gas and strong demand from the
Affordable natural gas and ethane (derived from shale gas) offer U.S.
producers a compelling cost advantage over their global counterparts who use a
more expensive, oil-based feedstock. New methods of extraction such as
horizontal drilling and hydraulic fracturing are boosting shale production,
bringing down prices of ethane in the process.
Leveraging the abundant natural gas supply and cost advantage, chemical
companies are investing billions of dollars for setting up facilities
(crackers) that produce ethylene from ethane. ACC report indicated that over
50 projects have been announced by the U.S. chemical makers (representing
capital investment of more than $40 billion) to take advantage of ample
natural gas supplies. Such investments are expected to boost capacity and
export over the next several years.
Further, cost-cutting measures implemented by chemical companies including
plant closures and headcount reduction should yield industry-wide margin
improvements. Cash flows derived through these actions can be used for growth.
Mergers and acquisitions offer chemical companies another means to shore up
growth in a still challenging economic scenario. These companies remain
focused on exploring growth opportunities in the fast-growing emerging
markets, particularly in the lucrative regions of Asia-Pacific and Latin
(especially China and Brazil).
China is expected to see a recovery this year following a somewhat soft 2012.
Government stimulus actions coupled with efforts to staunch inflation appears
to bear fruit and exports to the U.S. and other key markets are regaining
momentum. An improved demand outlook for China bodes well for the chemical
industry in 2013.
Major chemical makers are increasingly focusing on businesses that cater to
agriculture and nutrition markets in an effort to cut their exposure on other
businesses (such as titanium pigment) that are grappling with weak demand and
input costs pressure. In particular, agriculture is emerging as a lucrative
market as evident from recent trends.
A healthy start in the North American growing season, strong planting activity
by the growers across North and Latin America, solid order book and healthy
supply of seeds and crop protection products represents the driving factors.
Chemical titanE.I. DuPont de Nemours & Co. (NYSE:DD-Free Report) is witnessing
significant momentum in its agriculture business, driven by higher volume and
market share gains in seed genetics and crop protection. Its Agriculture
segment delivered healthy sales in the June quarter boosted by higher seed
pricing. The company expects continued strong gain in agriculture in the
second half driven by new products and strength in Latin America. DuPont
should also benefit from synergies of Danisco acquisition and its aggressive
U.S. chemical giant The Dow Chemical Company (NYSE:DOW-Free Report) saw its
profit skyrocket in the June quarter on strength in its agriculture business,
buoyed by higher demand for crop protection products. While Dow still faces
challenges in Western Europe, it is benefiting from strong fundamentals in
agriculture and food markets.
The company is also leveraging its North American feedstock advantage and its
investments in the U.S. and Middle East are focused on boosting this
advantage. A string of innovative products in its pipeline adds to its
We have a bullish view on Eastman Chemical Company (NYSE:EMN-Free Report),
which delivered better-than-expected results in the most recent quarter and is
well placed to benefit from its Solutia acquisition. The company's diversified
chemical portfolio and integrated and diverse downstream businesses represent
the pillars of strength. It also benefits from business restructuring,
cost-cutting measures and increased capacity additions.
We also have a favorable view on Air Products and Chemicals Inc.
(NYSE:APD-Free Report). Strength across merchant and tonnage gases businesses
coupled with acquisitions helped it to rake in healthy sales gain in the June
quarter. Air Products benefits from a diverse customer base, pricing power and
cost-reduction measures. New business deals and strategic investments are
expected to support results this year. We are also encouraged by the
incremental opportunities in liquefied natural gas (LNG) market.
In the specialty chemical space, PPG Industries Inc. (NYSE:PPG-Free Report)
represents an attractive play. The company saw a healthy rise in profit in the
June quarter on strong results from its coatings business and cost reduction
initiatives. PPG Industries has a diversified base of products and markets,
and looks to grow its businesses strategically along with controlling costs.
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