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
Chemicals: Recent declines are overdone
Materials
Chemical equities' performance is worse than anything we have seen in recessionary periods over the last 60 years, suggesting limited downside and significant upside for some. Sector balance sheets and cash flows are far better positioned today than in 2008/09. For 2023, Hassan Ahmed prefers companies that may benefit from catalysts (Tronox and Braskem), secular changes within their markets (Olin), or have high China / Europe exposure (Covestro and Tronox). He sees PureCycle as a high-risk / high-return play - TP $30 (300%+ upside).
Edition: 151
- 06 January, 2023
Chemicals: Recent TiO2 share price weakness a buying opportunity
Materials
Fears around demand destruction on the back of higher prices unfounded - Hassan Ahmed’s analysis suggests that a 50% boost in ore costs, all other costs remaining flat, could be offset by a 14% hike in TiO2 prices and a mere 4% hike in coatings prices. Current TiO2 prices are only slightly above their 17-year averages and 2008/2009 distress period-levels, while fundamentals remain healthy. Top pick is Tronox (benefits from higher TiO2 prices, but can also, via the firm's integration into feedstock ore, hold onto margin). Chemours and Venator also offer considerable upside.
Edition: 132
- 01 April, 2022
Chemicals: Macro stars aligned
Materials
Global economic stimulus, a weakening USD, rising vaccination rates and lean inventories are perfectly aligned for continued commodity chemical strength, with higher oil prices providing an additional tailwind. Multiple compression at Olin, Chemours, Huntsman and Tronox seems excessive, particularly when compared to earnings growth prospects. FCF yields at Venator, Braskem and Trinseo are very attractive. For 2022, Hassan Ahmed prefers companies that may benefit from activism/M&A-like catalysts (Braskem, Huntsman and Tronox), secular changes within their markets (Olin), or have underappreciated proforma earnings power (Trinseo and Westlake).
Edition: 126
- 07 January, 2022
Tronox (TROX)
Materials
Markets are massively underestimating the positive impact of price rises in TROX’s key products (TiO2, pig iron and zircon). TiO2 price hikes alone could boost EBITDA by $582m YoY in 2021. Favourable supply/demand fundamentals mean that these higher prices are sustainable. Alembic raise their 2021 EPS forecast to $2.20 (from $1.70) and 2022 estimate to $3.05 (from $2.30). 12-month TP $29 (35% upside).
Edition: 109
- 30 April, 2021