Zacks Industry Outlook Highlights: E.I. DuPont de Nemours, Dow Chemical, PPG
Industries, Methanex and Valspar
CHICAGO, Dec. 18, 2013
CHICAGO, Dec. 18, 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), PPG Industries Inc.
(NYSE:PPG-Free Report), Methanex Corp. (Nasdaq:MEOH-Free Report) and The
Valspar Corporation (NYSE:VAL-Free Report).
Shale Boom Driving U.S. Chemicals
According to the 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 emerging markets.
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.
Boost from Agriculture
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 growers across North and Latin America, solid order book and healthy supply
of seeds and crop protection products represents driving factors.
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
Moreover, 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.
Recovery in Chinese Demand
China, a major market, is expected to see a recovery in 2014. 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.
China's economy grew at its fastest clip this year in the third quarter. The
nation's GDP rose to 7.8% in the quarter from 7.5% in the second riding on
government stimulus measures, improving domestic demand and a recovery in
exports. Government-backed investments in infrastructure are supporting
growth. An improved demand outlook for China bodes well for the chemical
industry next year.
Stocks We Like
Stocks in the chemical space that we like include E.I. DuPont de Nemours & Co.
(NYSE:DD-Free Report), The Dow Chemical Company (NYSE:DOW-Free Report), PPG
Industries Inc. (NYSE:PPG-Free Report) and Methanex Corp. (Nasdaq:MEOH-Free
Report). DuPont and Dow, in particular, are witnessing significant momentum in
agriculture, driven by higher demand for crop protection products. We also
have a bullish view on specialty chemical company The Valspar Corporation
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