Commentary: Chemical stocks fly high, defying the tough outlook

10 August 2012 12:24  [Source: ICB]

If the chemical cycle is headed towards a trough, you wouldn't know it from the stock prices. Two of the most heavily weighted commodity chemical names traded on the New York Stock Exchange - Netherlands-based LyondellBasell and US-based Westlake Chemical, surged to all-time highs last week.

Both reported strong second quarter earnings, benefiting from low US natural gas liquids feedstocks.

This feedstock advantage lifted Westlake's olefins profits to record levels, while its vinyls earnings also improved on lower feedstocks.

Buffeting the companies from any downturn are their rock solid balance sheets - atypical of capital intensive, cyclical companies.

Westlake had net cash of $346m (€280m) on its books at the end of the second quarter, while LyondellBasell clocked in with just $2.4bn in net debt. LyondellBasell's debt level is easily manageable for a company that generated $3.1bn in earnings before interest, tax, depreciation and amortization (EBITDA) in just the first half of 2012.

US-based Eastman Chemical, Georgia Gulf and TPC Group have also roared ahead. Investors are encouraged that firms can maintain strong earnings in tough times. And if profits remain high today, imagine the upside when the economic tide inevitably turns.

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