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 America.
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 (NYSE:VAL-Free Report).
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
SOURCE Zacks Investment Research, Inc.