Strong Q1 earnings season expected for US chemical industry – analysts

HOUSTON (ICSI)–US chemical groups are expected to average 10.6% year-on-year gains for earnings per share (EPS) in the first quarter, a strong expectation despite volume fears, an analyst at Alembic Global Advisors said on Monday.

Higher product prices year on year combined with relatively flat ethane costs resulted in integrated product margin expansion year on year, said Hassan Ahmed, head of research at Alembic Global Advisors. He made his comments in a research note.

The group also noted that the market is full of talk regarding weak Q1 volumes from concerns about trade war-related global GDP compression. However, Alembic believe the data suggest otherwise.

“In terms of US volumes and demand, we find it constructive to focus on weekly chemical railcar-loading data as a coincident indicator,” Ahmed said.

Railcar loadings, which have been a good volume indicator historically, rose 2.6% year on year for the first quarter, Alembic noted.

Margins were analysed by Alembic at higher levels than 2017 averages, implying that the consensus may be creating an overly harsh margin compression scenario.

Alembic said it was “meaningfully” above first quarter and 2018 consensus estimates for the following companies:

– Braskem
– DowDuPont
– Celanese
– Huntsman
– LyondellBasell
– Methanex
– OCI Partners
– Trinseo
– Tronox
– Venator
– Westlake Chemical

“Additionally, Praxair, Huntsman, and DowDuPont appear to be closest to their short interest 52-week highs, while OCI Partners, Braskem and Tronox are furthest away,” Ahmed said.

It’s also possible that Praxair, Huntsman, and/or DowDuPont could have substantial outperformance, he added.

Despite what Alembic said was a still favourable US commodity chemical macro environment, the analyst group couldn’t completely ignore market sentiment on account of recent crude oil price declines, and further back, the sharp chemical market correction in the second half of 2011.