Price and market trends: Low US natural gas prices and housing recovery to drive Axiall PVC earnings

22 February 2013 10:25  [Source: ICB]

CEO Carrico encouraged by low natural gas prices in the company;sprofit outlook for chlor-alkali and PVC

Low US natural gas prices and the recovery in housing will drive the performance of newly-formed US chlor-alkali, polyvinyl chloride (PVC) and building products firm Axiall going forward, said CEO Paul Carrico.

 

 Carrico sees strong conditions for the US housing market

North America's natural gas cost advantage, compared with oil-based economies, should continue for many years, Carrico told analysts during Axiall's fourth-quarter results conference call on 13 February.

"This should allow consistent access to growing export markets for both chlorine, in the form of polyvinyl chloride (PVC), and caustic soda," Carrico said.

Equally important will be the recovery of the US housing market, both in terms of housing starts and renovations.

"The North American housing market really continues to show solid signs of recovery," he said. "The industry conditions we see for the next few years are by far the most favourable I have ever seen in my career."

Carrico also said that Axiall continues to look at "all options" for additional long-term ethylene supplies, including a possible investment in a condo cracker.

CONDO CRACKER OPTION
"There are multiple different paths, and a condo cracker is one option," he said in reply to analysts. Axiall could invest up to $1bn (€750m) in such an ethylene project over a 4-5 year period, he added.

Hassan Ahmed, head of research at New York-based equities firm Alembic Global Advisors, said that at current US natural gas prices, Axiall has a 60% cost advantage in chlor-alkali and a 40% cost-advantage in PVC, relative to marginal European producers.

"This cost advantage also bodes well for volumes via rising exports," Ahmed said. "[Alembic is] conservatively forecasting a steady move towards mid-cycle earnings by 2016 within the core chloro-vinyls segment - primarily due to baking in a modest US housing recovery. Cheap US natural gas, and in turn electricity prices, should be the source of significant cost advantage and earnings momentum at the company."

Axiall was formed in January out of the merger of Georgia Gulf with the commodity chemicals business of PPG Industries.


By: Stefan Baumgarten
+1 713 525 2653



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