US chems find support from Wall Street − investment advisor

26 March 2014 23:00  [Source: ICIS news]

HOUSTON (ICIS)--North American chemical company stocks are the strongest among their peers in the world, followed by Europe and Asia, an investment advisor said on Wednesday at the IHS Chemical World Petrochemical Conference.

Companies with the most exposure to the shale boom have shown the strongest stock performance in the last few years. Very strong performers were companies exposed to the US housing rebound. High-end chemical companies also had excellent performance, Paul Smith, head of global chemicals for Citi, said.

"All exceeding the S&P 500," he said.

An improving economy and low interest rates also have helped those stocks do well. GDP growth has been increasing, unemployment has been falling and consumer confidence has been up, he said.

But the market has rewarded chemicals companies, especially those with active portfolio management, specialty chemicals and companies exposed to the shale boom, he said.

Chemicals companies, along with the rest of Wall Street, have seen a rise in activist shareholders. The activists are pushing for portfolio action and a return of cash to shareholders, he said.

"They have plenty of capital, they have plenty of active campaigns going on at any one time, and the chemicals industry is very much in the cross-hairs," Smith said.

Activist hedge funds have been the group's strongest performing class in the last few years, generating a 20% annualised returns. The success attracts more capital and drives more activist activity, he said.

"So I think we're in the middle innings of this story," he said.

Wall Street was slow to recognise the true value of shale gas to the petrochemical industry. But over the last three or four years, it has woken up to the opportunity, Smith said.

"I would say today that Wall Street is fully bought in, and the relevant stocks are priced to reflect the unique and growing shale gas advantage," he said.

Analysts predict ethane utilisation will increase and ethylene margins will stay high. Costs are expected to be a modest headwind, but the medium and long term outlooks are very good, he said.

"It's hard to come up with scenarios – when you talk to folks on Wall Street – that are going to disrupt this advantage," Smith said. "And so Wall Street has definitely gotten behind the shale gas story."

By: Jessie Waldheim

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