According a report released by the American Chemistry Council
(ACC), U.S. chemicals exports are poised to rise significantly in
the near future. Exports have already increased in 2013,
primarily due to a spurt in shale gas production.
CHESAPEAKE ENGY (CHK): Free Stock Analysis
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A Spurt in Exports
According to the ACC, the industry association of chemicals
producers, U.S. chemicals exports will increase 45% over the next
five years. These exports will be made possible by investments
which will substantially increase capacity.
In fact, such capacity has been created to cater to burgeoning
export demand. From a net importer of chemicals in 2011, the U.S.
has now become a major player in export markets. In 2013, net
export value for chemicals was $2.7 billion. The ACC expects this
figure to rise to $30 billion by 2018.
The ACC expects U.S. chemical production to increase by 2.5% in
2014 and 3.5% in 2015. Higher external demand for plastic resins
and organic chemicals is also expected going forward, the ACC
The Shale Advantage
An increase in the production of shale gas and liquids is the
primary reason for the resurgence of the U.S. chemicals sector.
Affordable natural gas and ethane present U.S. producers with a
compelling cost advantage over their global counterparts who use
a more expensive, oil-based feedstock.
The ACC report indicates that over 50 projects worth $40 billion
will be operational in the next few years. The leading players in
the U.S. shale arena include
Chesapeake Energy Corp.
EOG Resources, Inc.
3 Chemicals Picks
The increase in shale gas production has provided a boost to the
entire chemicals sector. Below we present three companies gaining
from the shale effect, each of which also have a good Zacks rank.
LyondellBasell Industries NV
) is a prominent plastics, chemical and refining company. The
company said that it has restarted its methanol plant at
Channelview, Texas, in fourth-quarter 2013 to benefit from
low-cost natural gas from shale formations.
Methanol is used to make chemicals such as acetic acid and
formaldehyde as well as several other products. Natural gas is a
key feedstock for producing methanol.
LyondellBasell holds a Zacks Rank #2 (Buy) and has expected
earnings growth of 17.50%. The forward price-to-earnings Ratios
(P/E) for the current financial year (F1) is 11.24.
OCI Partners LP
) was hived off in early 2013 from OCI NV, which is a Netherlands
based construction contractor and fertilizer producer. The
company produces methanol and ammonia at an integrated plant at
Beaumont. The facility enjoys a strategic location on the Texas
Currently, the company produces 730,000 metric tons of methanol
and 265,000 metric tons of ammonia per year. In late 2013, the
company said it was setting up a plant which will produce 5,000
metric tons of methanol per day.
OCI believes that when completed in 2016, this will be the
largest methanol producing facility in the U.S. Currently the
company holds a Zacks Rank #2 (Buy) and has expected earnings
growth of 8.80%. It has a P/E (F1) of 11.80.
PPG Industries Inc.
). The company supplies protective and decorative coatings
worldwide. It operates across several business segments. These
include performance, architectural and industrial coatings.
Following the divestiture of its basic chemicals business, it may
not gain as much from the shale advantage. However, its glass and
fiber glass businesses still use natural gas and it may be able
to leverage the situation indirectly.
The company believes that it could become a key supplier of
coatings as well as fiber glass pipes which could be used in
natural gas drilling operations. Besides a Zacks Rank #2 (Buy),
the company has expected earnings growth of 11.50%. It has a P/E
(F1) of 20.05.
The increase in shale gas production and the resultant lowering
of prices has resulted in benefits which are expected to
continue, at least over the medium term. This is why these three
choices would make good additions to your portfolio.