Zacks Industry Outlook Highlights: Albemarle, Eastman Chemical, PPG Industries, Olin and Dow Chemical

Chicago, IL - December 17, 2015 - Today, Zacks Equity Research discusses the Chemicals (Part 2), including Albemarle Corp. ( ALB ), Eastman Chemical Company ( EMN ), PPG Industries Inc. ( PPG ), Olin Corp. ( OLN ) and Dow Chemical ( DOW ).

Industry: Chemicals (Part 2)


The chemical industry is still feeling the bite of weak demand across agricultural and energy markets, slowdown in China and headwinds from a strong dollar, as witnessed in the September quarter. Nevertheless, the industry is gradually gaining strength, aided by an improving U.S. economy, sustained healthy momentum in the automotive space and rebounding construction markets. There are a number of reasons to be optimistic about the broader chemical industry for both the short and long haul, which we have highlighted below:

Shale Bounty Driving Chemical Investments

The shale gas revolution in the U.S. has been a huge driving force behind chemical investment on plants and equipment in the country. According to the American Chemistry Council (ACC), abundant shale gas production is driving U.S. chemical exports. New methods of extraction such as horizontal drilling and hydraulic fracturing (or fracking) are boosting shale production, bringing down prices of ethane (derived from shale gas) in the process.

Leveraging the abundant natural gas supply, chemical makers are ratcheting up investment on shale gas-linked projects which is expected to beef up capacity. The shale revolution made the U.S. an attractive investment hotspot and incentivized a number of chemical companies to pump in billions of dollars for setting up facilities (crackers) to produce ethylene and propylene in a cost-effective way.

Per an ACC report, domestic chemical investment related to shale gas has reached as high as $153 billion, more than 60% of which are from firms outside the U.S. Already 246 projects -- many backed by the Federal government -- have been announced by chemical makers to take advantage of ample natural gas supplies. Such investments are expected to boost capacity and export over the next several years.

Automotive Racing Ahead

The automotive sector is witnessing significant momentum. This major chemical end-use market is enjoying the fruits of low gasoline prices. Global automotive sales are expected to hit 88.12 million units in 2016, representing a 2.1% rise from 86.31 million units expected this year, according to IHS Automotive.

The U.S. auto industry also remains in high gear, with new car and light truck sales expected to jump to 17.3 million units in 2015 (from 16.4 million units in 2014) and further rise to 17.7 million units in 2016 on the back of reduced gasoline prices and low interest rate on auto loans, as per The National Automobile Dealers Association (NADA) estimates.

In particular, U.S. light vehicles (a key end-user market) sales are expected to increase this year, riding on improving employment rates and household income, lower fuel prices, attractive financing options and pent-up demand. The Auto industry in Asian countries, especially China, is also expected to thrive over the next several years. As such, chemical makers are expected to gain from higher demand from this important end-market.

Strategic Moves

Chemical companies continue to shift their focus on attractive, growth markets (driven by megatrends) in an effort to cut their exposure on other businesses that are struggling with weak demand and input costs pressure. Moreover, cost-cutting measures -- including plant closures and headcount reduction -- and productivity improvement actions by chemical companies are expected to yield industry-wide margin improvements. Several chemical makers are also disposing non-core assets as they shift their focus on high-margin businesses.

M&A Activity Gathering Steam

Chemical companies remain actively focused on mergers and acquisitions to diversify and shore up growth in a still-challenging economic environment. These companies continue to explore growth opportunities in the fast-growing emerging markets, particularly in the lucrative regions of Asia-Pacific and Latin America. The industry saw a pick-up in consolidation activities in 2014 and the momentum continues this year.

Albemarle Corp.'s ( ALB ) $6.2 billion buyout of Rockwood Holdings, Inc., Eastman Chemical Company's ( EMN ) purchase of specialty chemical company Taminco Corp. for $2.8 billion, PPG Industries Inc.'s ( PPG ) acquisition of Mexican paint company Comex, Olin Corp.'s ( OLN ) acquisition of a significant portion of Dow Chemical's ( DOW ) chlorine business for $5 billion, Merck KGaA's $17 billion acquisition of Sigma-Aldrich, FMC Corp.'s acquisition of Cheminova A/S, CF Industries' planned acquisition of certain assets of Netherlands-based OCI N.V. for around $8 billion, and the $130 billion proposed mega-merger of Dow Chemical and DuPont -- the largest chemical deal of all time -- are among the major deals that have taken place in the chemical space in the recent past.

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ALBEMARLE CORP (ALB): Free Stock Analysis Report

EASTMAN CHEM CO (EMN): Free Stock Analysis Report

PPG INDS INC (PPG): Free Stock Analysis Report

OLIN CORP (OLN): Free Stock Analysis Report

DOW CHEMICAL (DOW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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