NEW YORK, NY--(Marketwire - Dec 14, 2012) - Economic conditions in the United States and Europe are making growth challenging but within reach for chemical producers such as E. I. du Pont de Nemours and Company (NYSE: DD) and The Dow Chemical Company (NYSE: DOW). The pending and much ballyhooed fiscal cliff is clouding the future of the U.S. market while sovereign debt crises continue to portend uncertainty and pricing difficulty in Europe. The future of the much-debated natural gas export market will also factor into the outlook of chemical producers. Companies within the industry are responding effectively to those challenges by adjusting strategies, shifting focus to higher growth potential markets and lowering input costs where possible.
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In direct response to the nearing fiscal cliff, some chemical producers are upping share buybacks in favor of dividend payouts to reassure shareholders and provide further stability in the event of greater economic turmoil in January. E. I. du Pont de Nemours and Company is among companies employing this strategy. It recently announced that its board authorized a $1 billion share repurchase program that led to an uptick in activity.
Uneven demand is making it especially important to capitalize on select markets moving in positive directions. Both The Dow Chemical Company and Du Pont de Nemours are effectively executing this strategy at this time. A business unit of Dow is responding to better global demand of dispersants products with plans to ramp up production. Specifically, it will start making more TAMOL and OROTAN High-Performance Hydrophobically Modified Copolymer Dispersants beginning in the first quarter of next year. Growth in this particular market is encouraging because applications for such products are incredibly varied and in turn, less susceptible to sudden changes in demand levels. Pricing levels may have created challenges for Dow in the previous quarter but the company appears to be moving in a positive direction heading into next year.
Like Dow, DuPont is responding effectively to varying demand levels and an unclear economic outlook. In a recent interview, DuPont chair and chief executive officer Ellen Kullman said the company plans to spend less than initially expected next year on capital projects. Furthermore, it will delay some projects and lower spending now until there is a better understanding of what the U.S. tax policy will look like next year. The move appears to stem from an industry-wide trend of not knowing how consumers will act until a resolution is reached in Washington. Some areas of its operations will see fewer cuts and delays than others though. Agricultural and nutrition projects, for example, currently offer high potential for growth and may get even more funding. Conversely, uncertainty out of the automotive sector is a concern at this time.
The future of the natural gas export market is another factor to consider when looking at major chemical producers. Natural gas plays a significant role in the production of a variety of chemicals and products. Natural gas gluts have spurred talks of ramping up export activities but many chemical companies favor keeping supplies domestic to keep prices at their current low levels. These low prices also give them a competitive advantage over foreign rivals. Increased exports may neutralize this edge and pressure margins.
Overall, substantial gains in the short-term may be ambitious, but chemical companies are doing an admirable job of putting themselves in a position to not only provide stability in the event of an economic slow-down, but to actually grow. Resolution of the fiscal cliff in the U.S. and a further easing of sovereign debt concerns in Europe should facilitate growth in the region. Stability-minded investors might want to look closely at major chemical producers tapping into high-growth potential markets while also keeping an eye on exposure to the natural gas export situation.
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