Chemicals: Is the worst behind us?
Materials
Frank Mitsch sees early signs of stabilisation in the chemicals sector, despite short interest sitting at 52-week (or longer) highs and persistent investor concerns around potential dividend cuts. While he remains cautious on Tronox and Huntsman’s payouts, he considers dividends from Dow and LyondellBasell to be safe. Roughly 60% of 1Q results landed within 4% of his expectations, with Olin, Corteva, FMC and Celanese leading on beats vs. the Street. Westlake was the notable miss, due to underperformance in its PEM segment, partly from unplanned downtime. After over two years of sector underperformance, exacerbated by the overreaction to Liberation Day, Frank believes the worst may be behind us; hence his recent upgrades (to Buy) on DOW, LYB and PPG. He has also been heartened by how the credit markets have been open to companies such as CE and OLN.
Edition: 212
- 30 May, 2025
Materials
Frank Mitsch applauds the action to delay the Ft. Saskatchewan Path2Zero project, which is resulting in an additional $600m in capex savings during 2025. And combined with the Macquarie infrastructure sale(s) and anticipated NOVA litigation proceeds, suggests concerns over dividend sustainability in 2025/26 should diminish. Despite weak sentiment, heavy short interest and near-term pressures (up to $1bn FCF outflow in 1H25), he expects improvement in 2H25 as working capital normalises, maintenance spending falls and new projects ramp up. Trading at ~9.4x EBITDA with a ~9.5% dividend yield and shares back at Covid lows, Frank sees an attractive mid- to long-term risk/reward and upgrades the stock to Buy.
Edition: 210
- 02 May, 2025
Chemicals: Natural gas price spike concerns overblown
Materials
This decade could see US ethylene margins even stronger than last decade's lofty margins - in addition to discussing how the crude oil-to-natural gas price ratio remains squarely in the US chemical industry’s favour, Hassan Ahmed contends that higher margins are sustainable, particularly keeping in mind that 79% of all ethylene capacity expected to come online between 2021-2026 will be based in the cost-disadvantaged regions of Asia and Europe. His analysis suggests that as much as 21% of this incremental capacity is at risk of being cancelled or delayed, which bodes well for Dow Inc (TP $75), LyondellBasell (TP $120) and Westlake (TP $140).
Edition: 134
- 29 April, 2022
Materials
Reports strong 3Q21 numbers while guiding to an above-consensus 4Q21 - Alembic continues to believe that Dow's near-term earnings power is underappreciated, its valuation multiple is unjustly depressed (FCF yield sits at an attractive mid-teens level), and its medium- to long-term earnings prospects look solid (trough-to-peak EBITDA guidance increased from $6-12bn to $9-15bn). Alembic raise their 2021 EPS estimate to $9.15 (from $8.60) and 2022 estimate to $6.65 ($6.30). 12-month TP $85 (45% upside).
Edition: 123
- 12 November, 2021
US Chemicals: Expect a Strong Q3 21 and 2021
Materials
Current consensus expectations for the sector in Q3 still seem tepid, keeping in mind product margin gains and pricing strength. It is highly possible that companies under coverage will experience positive earnings revisions throughout 2021. Covestro AG, TP $73 (~25% upside); Chemours Company, TP $46 (~50% upside); Celanese Corp., TP $200 (~25% upside); Dow Inc, TP $85 (~45% upside)
Edition: 121
- 15 October, 2021