Email of the day
Comment of the Day

December 26 2012

Commentary by Eoin Treacy

Email of the day

on companies that benefit from low energy input prices:
“I really appreciated the Deutsche Bank report posted on Friday. I think the last theme « US shale to give chemicals and manufacturing sectors competitive advantage » is particularly prescient.

“Could you identify some companies - since there does not seem to be any ETFs exclusively for the Chemical sector - that could provide exposure to this US sector going forward.

“I have searched the Library and already identified Stepan, PPG Industries and Ashland which all seem to be starting a new uptrend.

“Can you suggest others?

“Thank you and Merry Christmas to Sarah, David and Eoin. ”

Eoin Treacy's view Thank you for your well wishes and let me reciprocate to you and all our subscribers. Have a peaceful and happy Christmas.

The competitive advantage that chemical companies, with access to the USA's low natural gas prices, have over their foreign competitors has been remarked on by Fullermoney for a number of years. Here is a link to one of our original comments from March 15th 2010.

PPG Industries had been trending consistently with a step sequence of one short-term range above another. However, it has picked up pace over the last couple of weeks and is becoming increasingly overextended relative to the 200-day MA and is therefore susceptible to mean reversion. Eastman Chemical has also rallied particularly impressively over the last month and is also becoming increasingly susceptible to mean reversion.

Air Products and Chemicals has been ranging mostly above $75 for a year and is firming from the lower side at present. It is now testing the progression of lower rally highs and a sustained move above $86 would likely signal a return to medium-term demand dominance.

Dow Chemical has held a downward bias for much of the year but rallied in December to challenge the progression of lower rally highs. While a little overbought in the very short-term, a sustained move below $30 would be required to check medium-term potential for additional upside.

Agrium has been among the better performing fertiliser companies not least because it has benefitted from the low cost of natural gas. The share has returned to test the region of the 200-day MA and a sustained move below $92 would be required to check medium-term potential for additional upside.

I also wrote about the MLP and pipelines sectors which benefit from the transportation of increased volumes of natural gas last week. (Also see Comment of the Day on the 18th

David's piece on factory automation from Comment of the Day on August 21st may also be of interest.

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