david begleiter q1 (march quarter) 2016 earnings...
TRANSCRIPT
Deutsche Bank Markets Research
North America
United States
Industrials
Chemicals / Specialty
Industry
Chemicals
Date
18 April 2016
Forecast Change
Q1 (March Quarter) 2016 Earnings Preview
Positive Q1 results due to demand, price increases and costs. Outlooks positive
________________________________________________________________________________________________________________
Deutsche Bank Securities Inc.
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.
David Begleiter
Research Analyst
(+1) 212 250-5473
Jermaine Brown
Research Associate
(+1) 212 250-3624
Top picks
Dow Chemical (DOW.N),USD52.37 Buy
DuPont (DD.N),USD65.27 Buy
Source: Deutsche Bank
Chemicals sector trading above its historical multiples and the market The US Chemicals sector is trading at 16.9x forward EPS, a 13% premium to its 15-year average. The sector also currently trades at a 1% premium to the S&P 500 on forward EPS vs a historical discount of 4%. We view multiple expansion as unlikely until concerns over currency, crude oil Chinese and Latin American growth abate. Longer term, we remain positive on US Chemicals due to a number of structural tailwinds including the US ethane advantage, and solid balance sheets which are supporting aggressive shareholder remuneration. We maintain our equal weight stance on the group due to lack of clarity on global macro conditions.
We expect US chemicals to have positive March quarter results as low NGL feedstock prices, polyethylene price increases, healthy auto and housing demand, in-line China demand, better than expected FX and cost actions more than offset weak ag and Latam demand and oil price volatility. Overall, we expect companies to provide modestly positive Q2 and '16 outlooks. Our top picks are DD, DOW and EMN.
US housing continue to be relative bright spots DB’s economics team forecasts US GDP growth slowed to 0.5% in Q1 vs 2% in Q4’15). In ‘16, US GDP is forecasted to grow 1% in Q2 and 1.4% for the full year on strong housing/construction activity (housing starts up 14% YoY in ‘16E), partially offset by weaker manufacturing on lower oil and a stronger dollar. Europe is continuing to show signs of recovery with 1.5% forecasted growth in Q1 (vs 1.3% in Q4’15), 1.4% in Q2 and 1.5% in ‘16 (vs 1.5% in ’15). DB’s economics team forecasts China’s GDP growth to be 6.8% in Q1 vs 6.8% in Q4’15 and 6.9% in ’15. This marks its slowest quarterly growth since Q1’09 and slowest annual growth in 25 years.
Coatings companies stand to benefit from lower oil prices Since the start of ‘16, US Chemicals are up 6.3% vs 0.8% for the S&P. Notable outperformers during this period have been the coatings producers (VAL, 29%, Hold), PPG (13%, Buy), Sherwin-Williams (SHW, 10%, NR) and Axalta (AXTA, 10%, Buy) which are benefitting from lower raw material costs. Going forward, coating companies (PPG, Axalta and Valspar) are poised to benefit further from lower oil prices as propylene, a derivative of crude oil and a key feedstock for coating intermediate chemicals, is down 34% YoY and 58% from ’14 highs. In addition, TiO2 prices continued to weaken in Q1 falling 5%, 3% and 4% QoQ in NA, Europe and Asia, respectively. TiO2 prices are down 40-50% since ’12.
Ethylene producers hit hard on lower oil prices Notable underperformers during this period have been the ethylene producers: Westlake (WLK, -14%, Hold), Lyondell (LYB, -2%, Hold) and Dow (-1%, Buy). US ethylene producers are being adversely impacted by the decline in oil prices (down 60% from ’14 highs) and the subsequent narrowing of the natural gas-based cost advantage vs oil-based producers in Europe and Asia. While lower oil prices have and will pressure US ethylene margins, the impact is being partially offset by near record low ethane and propane prices.
Ethylene margins rise 0.3 c/lb in Q1 to 16 c/lb. Expected to rise 3.8 c/lb in Q2 US contract ethylene margins rose 0.3 c/lb to 16 c/lb in Q1. Ethylene pricing fell 0.8 c/lb or 3% QoQ in Q4 to 26.75 c/lb. Ethylene production costs fell 1 c/lb QoQ to 9.8 c/lb and fell 0.5 c/lb, or 5%, vs 10.3 c/lb a year prior and remain depressed, as ethane prices remain near all-time lows (vs 16 c/gal in Q1, a high of 39 c/gal in ’14 and a 10-yr average of 52 c/gal) due to oversupply and a shift to higher propane cracking. In ’16, we expect ethane to trade at/near fuel value, or 15-20 c/gal, equating to 10 c/lb ethane-based ethylene production costs and resulting in ethylene contract cash margins of 16 c/lb vs prior peaks of 10-15 c/lb.
March quarter: Differentiated and Specialty chemical EPS +5% YoY In Q1, we expect Specialty and Differentiated Chemical companies to post 5% YoY EPS growth. We expect commodity companies, namely ethylene producers, to post lower growth owing to lower oil prices partially offset by share repurchases and growth projects.
Ch
em
icals
Ch
em
icals / S
pecia
lty
18
Ap
ril 20
16
Pag
e 2
D
eu
tsch
e B
an
k S
ecu
rities In
c.
Figure 1: US Chemicals Earnings Calendar: March Quarter 2016
Apr-16 All Times EasternMonday Tuesday Wednesday Thursday Friday
1
4 5 6 7 8
Monsanto (MON) - 9:30 AM
Conf Call # NA
Passcode: #NA
Street: $2.42
OMNOVA Solutions (OMN) - 11:00 AM
Conf Call # NA
Passcode: N/A
Street: $0.04
11 12 13 14 15
18 19 20 21 22
Celanese (CE) - 10:00 AM PPG Industries (PPG) - 02:00 PM LyondellBasell (LYB) - 10:00 AM
Conf Call # 866.235.9919 Conf Call # 866.777.2509 Conf Call # 888.677.1826
Passcode: N/A Passcode: NA Passcode: 6934553
Street: $1.50 Street: $1.30 Street: $2.29
25 26 27 28 29
DuPont (DD)- 9:00 AM Ashland (ASH) - 9:00 AM Dow Chemical (DOW) - 9:00 AM Eastman Chemicals (EMN) - 08:00 AM
Conf Call # N/A Conf Call # 877.303.6152 Conf Call # NA Conf Call # 913.312.1112
Passcode: N/A Passcode: 81000048 Passcode: NA Passcode: 4665956
Street: $1.04 Street: $1.73 Street: $0.83 Street: $1.53
Compass Minerals (CMP) - 9:00 AM Ferro (FOE) - Projected Air Products (APD) - 10:00 AM Praxair (PX) - 11:00 AM
Conf Call # 877.614.0009 Conf Call # NA Conf Call # 913.312.0726 Conf Call # 631.485.4849
Passcode: 9383614 Passcode: NA Passcode: 6881421 Passcode: 85141182
Street: $1.33 Street: $0.21 Street: $1.81 Street: $1.27
Potash Corp (POT) - 1:00 PM
Conf Call # 800.597.1419
Passcode: NA
Street: $0.16
Source: Deutsche Bank, Thomson One
Ch
em
icals
Ch
em
icals / S
pecia
lty
18
Ap
ril 20
16
Deu
tsch
e B
an
k S
ecu
rities In
c.
Pag
e 3
Figure 2: US Chemicals Earnings Calendar: March Quarter 2016
May-16 All Times EasternMonday Tuesday Wednesday Thursday Friday
2 3 4 5 6
Westlake Ch. Prtnrs (WLKP) - Projected Trinseo (TSE) - Projected
Conf Call # N/A Conf call # NA
Passcode: N/A Passcode: NA
Street: $0.41 Street: $1.34
Ecolab (ECL)- 1:00PM Axalta Coating (AXTA) - Projected
Conf Call # NA Conf call # NA
Passcode: NA Passcode: NA
Street: $0.76 Street: $0.18
Cabot (CBT) - 2:00 PM Mosaic (MOS) - 08:30 AM
Conf Call # N/A Conf Call #: NA
Passcode: N/A Passcode: NA
Street: $0.77 Street: $0.14
9 10 11 12 13
Albemarle (ALB) - 9:00 AM
Conf Call # 888.680.0892
Passcode: 61447742
Street: $0.86
16 17 18 19 20
23 24 25 26 27
Valspar (VAL) - Projected
Conf Call #: NA
Passcode: NA
Street: $1.26
30
Source: Deutsche Bank, Thomson One
18 April 2016
Chemicals / Specialty
Chemicals
Page 4 Deutsche Bank Securities Inc.
Figure 3: US Chemicals March 2016 quarterly earnings calendar
Company Earnings Release
Name Ticker Rating QTR DB Est. % YoY Consensus Date Date Time
Air Products (APD) APD Hold Q216 $1.80 16% $1.81 28-Apr 28-Apr 10:00 AM
Airgas (ARG) ARG Hold Q416 $1.19 3% $1.24 Projected Projected Projected
Albemarle (ALB) ALB Buy Q116 $0.88 (25%) $0.86 10-May 11-May 9:00 AM
Ashland (ASH) ASH Buy Q216 $1.75 (12%) $1.73 26-Apr 27-Apr 9:00 AM
Cabot (CBT) CBT Hold Q216 $0.80 51% $0.77 Projected Projected Projected
Celanese (CE) CE Buy Q116 $1.50 (13%) $1.50 18-Apr 19-Apr 10:00 AM
Compass Minerals (CMP) CMP Hold Q116 $1.50 (17%) $1.33 25-Apr 26-Apr 9:00 AM
Dow Chemical (DOW) DOW Buy Q116 $0.75 (11%) $0.83 28-Apr 28-Apr 9:00 AM
DuPont (DD) DD Buy Q116 $1.00 (20%) $1.04 26-Apr 26-Apr 9:00 AM
Eastman (EMN) EMN Buy Q116 $1.50 (19%) $1.53 28-Apr 29-Apr 8:00 AM
Ecolab (ECL) ECL Hold Q116 $0.77 (3%) $0.76 3-May 3-May 1:00 PM
Ferro (FOE) FOE Buy Q116 $0.20 (14%) $0.21 Projected Projected Projected
H.B. Fuller (FUL) FUL Buy Q116 $0.43 45% $0.39 23-Mar 24-Mar 10:30 AM
Lyondell Basel (LYB) LYB Hold Q116 $2.30 (11%) $2.29 22-Apr 22-Apr 10:00 AM
Monsanto (MON) MON Buy Q216 $2.42 (17%) $2.44 6-Apr 6-Apr 9:30 AM
OMNOVA (OMN) OMN Buy Q116 $0.04 NM $0.01 6-Apr 6-Apr 9:00 AM
PPG Industries (PPG) PPG Buy Q116 $1.25 5% $1.30 21-Apr 21-Apr 2:00 PM
Praxair (PX) PX Hold Q116 $1.28 (10%) $1.27 29-Apr 29-Apr 11:00 AM
Trinseo S.A. (TSE) TSE Buy Q116 $1.40 75% $1.37 Projected Projected Projected
Valspar (VAL) VAL Hold Q216 $1.25 12% $1.26 Projected Projected Projected
Westlake Chemical Partners
(WLKP)
WLKP Buy Q116 $0.41 Projected Projected Projected
March Quarter Estimates Conference Call Details
Source: Deutsche Bank, Thomson One
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 5
Figure 4: US specialty and differentiated chemicals EPS % change YoY, Q4’11-Q1’16E
1%
11%
2%
0%
7%
5%
4%
7%
17%
11%
12%
10%
9% 9%
5%
14%
6%
5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16E
Source: Deutsche Bank, Thomson One
18 April 2016
Chemicals / Specialty
Chemicals
Page 6 Deutsche Bank Securities Inc.
Figure 5: March quarter ’16 EPS growth by company (%YoY, estimated)
(150%)
(83%)
(25%)
(25%)
(20%)
(19%)
(17%)
(14%)
(13%)
(12%)
(11%)
(11%)
(10%)
(6%)
0%
3%
5%
5%
12%
12%
13%
16%
17%
24%
37%
45%
51%
75%
189%
32%
4%
590%
(62%)
(3%)
(125%)
39%
(3%)
(7%)
10%
(12%)
(6%)
(5%)
10%
(3%)
6%
18%
(4%)
(28%)
6%
10%
40%
81%
(95%)
7%
(34%)
0%
(200%) (100%) 0% 100% 200%
AGU
Agricultural Chems
ALB
GRA
DD
EMN
MON
FOE
CE
ASH
DOW
LYB
PX
NEU
S&P 500
ARG
Sp. & Diff Chems
PPG
AVY
VAL
SIAL
APD
SHW
OLN
CHMT
FUL
CBT
TSE
Last Quarter
Source: Deutsche Bank, Thomson One
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 7
Figure 6: Chemicals 2016E EPS growth by company (%YoY, estimated)
(75%)
(35%)
(17%)
(16%)
(14%)
(14%)
(13%)
(11%)
(7%)
(5%)
(4%)
(4%)
(4%)
(2%)
(0%)
1%
3%
5%
5%
6%
6%
6%
6%
9%
10%
10%
11%
12%
13%
17%
18%
20%
23%
42%
54%
(100%) (60%) (20%) 20% 60% 100%
AXLL
GRA
MON
Agricultural Chems
AGU
HUN
CMP
OLN
DOW
ALB
LYB
EMN
PX
NEU
ARG
ASH
ECL
S&P 500
RPM
VAL
FMC
Sp. & Diff Chems
CE
AVY
PPG
DD
SHW
FOE
APD
FUL
TSE
CHMT
CBT
AXTA
OMN
Source: Deutsche Bank, Thomson One
18 April 2016
Chemicals / Specialty
Chemicals
Page 8 Deutsche Bank Securities Inc.
Chemicals end-markets
Global auto production expected to rise by 2.3% in Q2
Global auto production in Q2 is projected to be up 2.3% YoY driven by 2.7%
growth in North America, 5.5% growth in Europe, weak LatAm (-14%) and
slowing growth in China (2% vs 3.9% in Q1’16). For ‘16, global production
growth is expected to grow 1.4% YoY to 89.9MM units.
North America: Deutsche Bank’s Autos Research team estimates
North American light vehicle production will total 4.6MM (+2.7% YoY,
3.7% QoQ) in Q2 and 17.9MM units for ’16E, (up 2.4%).
Europe: Deutsche Bank’s Autos Research team estimates European
auto production will rise 5.5%YoY (+2.7% QoQ) to 5.0MM units in Q2,
and 3.1% to 18.9MM units for ’16E.
China: Deutsche Bank’s Global Autos team estimates that Q2
production in China will rise 2% YoY (-6.1% QoQ) to 5.9MM units. We
expect 2.5% growth in ‘16E to 24.6MM units.
Each new vehicle contains ~$2,650 of chemical processing and products
(including >330 pounds of plastics). The companies in our coverage with the
greatest exposure to the automotive end-market include: Celanese (11%), PPG
(10%), Cabot (15%), Dow (8%), and DuPont (7%).
Figure 7: North American Light Vehicle Auto Production (2013-2017E; units in ‘000’s)
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16E
3Q
16E
4Q
16E
1Q
17E
2Q
17E
3Q
17E
4Q
17E
Avg. 4,232
Source: Deutsche Bank
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 9
Housing / Construction:
US housing and construction continues to improve and is poised to remain one
of the global bright spots in ’16. Deutsche Bank’s housing team expects new
home sales in the US to rise 13% YoY to 565k units in ’16E vs 501k units in ’15
and housing starts to rise 14% to 1,263k units from 1,112k units.
Highlights of Q1 housing and construction data points include the following:
1. U.S. building permits rose 7.2% YoY in February (Latest data available)
to 1,177k seasonally adjusted units and 13.7% YoY in January to 1,204k units.
2. Per the National Association of Realtors, existing home sales in
February (latest data available) rose 2.2% YoY (down (fell 7.1% MoM) to a
seasonally-adjusted 5.08MM units. The decline in existing home sales vs
January was more pronounced in the Northeast and Midwest due to the large
East Coast blizzard, the slump in the stock market, limited supply and
affordability issues with buyers as home prices and rents are outpacing wage
growth.
3. Distressed sales (foreclosures and short sales) in February rose to 10%
of the total (vs 9% in January and 11% in the prior year period), of which 7%
were foreclosures and 3% were short sales. Foreclosures sold for an average
discount of 17% (vs 13% in January) below market value while short sales
were sold for an average discounted of 16% (vs 12% in January).
Residential and non-residential construction are key end-markets for the
sector, driving sales of paints and coatings, synthetic fibers, insulation,
polyvinyl chloride (PVC), titanium dioxide (TiO2) and adhesives. Every 100K of
housing starts generates $1.5B in chemical and derivative sales, and every
$1,000 in non-residential construction spending generates $160-$230 worth of
chemicals and derivatives sales. Notable names most levered to
housing/construction are DuPont (DD; Buy), PPG (PPG; Buy) and Valspar (VAL;
Buy).
18 April 2016
Chemicals / Specialty
Chemicals
Page 10 Deutsche Bank Securities Inc.
Figure 8: US Architectural Billings Index (Jan 1996 – Feb 2016)
30
35
40
45
50
55
60
65
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Source: Haver Analytics
Figure 9: US construction data is improving
(50%)
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
30%
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
Total non-res constr. Feb-16 = $690 Total res-constr. Feb-16 = $454
Total res-constr. %YOY; Feb-16 = 10.5% Total non-res constr. %YOY; Feb-16 = 10.1%
Source: Haver Analytics
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 11
Figure 10: Homebuilder sentiment has improved markedly as housing starts continue to
improve
0
20
40
60
80
100
300
700
1,100
1,500
1,900
2,300 '8
8'8
9'9
0'9
1'9
2'9
3'9
4'9
5'9
6'9
7'9
8'9
9'0
0'0
1'0
2'0
3'0
4'0
5'0
6'0
7'0
8'0
9'1
0'1
1'1
2'1
3'1
4'1
5'1
6
Housing Starts, 3mo m.a. (000s, LHS): Feb-16 = 1,152
Homebuilders Sentiment (SA, All Good = 100): 15
Source Federal Reserve Board, Haver Analytics
Figure 11: Housing industry sentiment indicators trending
up strongly
Figure 12: Real resid investment contribution to real GDP
growth
Source: DB Global Economics Team, BEA, Haver Analytics, Deutsche Bank Global Market Research
Source: DB Global Economics Team, BEA, Haver Analytics, Deutsche Bank Global Market Research
18 April 2016
Chemicals / Specialty
Chemicals
Page 12 Deutsche Bank Securities Inc.
Figure 13: All components of residential investment are
adding to GDP
Figure 14: Homebuilders are seeing more interest in new
home purchases
Source DB Global Economics Team, BEA, Haver Analytics, Deutsche Bank Global Market Research
Source: : DB Global Economics Team, Census, Haver Analytics, Deutsche Bank Global Market Research
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 13
Agriculture
U.S. corn crop acreage is expected to fall 2.9% YoY to 88MM acres for the
15/16 planting season vs 90.6MM acres in 14/15 season and a 10-year average
of 88.9MM acres. Per the USDA, 80.7MM acres are expected to be harvested
with a yield of 168.4 bu/acre (vs 171 bu/acre in the 14/15 planting season).
U.S. soybean acreage is expected to fall 0.7% YoY to 82.7MM acres for the
15/16 planting season vs 83.3MM acres in 14/15 season and a 10-year average
of 75.5MM acres. Per the USDA, 81.8MM acres are expected to be harvested
with a yield of 48 bu/acre (vs 47.5 bu/acre in the 14/15 planting season).
Ag companies continue to be negatively impacted by the weak Ag market,
which is resulting in greater-than-expected seed discounting (not atypical at
the bottom of an Ag cycle), and continuing FX headwinds, particularly in Brazil
and Argentina.
While Monsanto remains our top defensive idea, it is not immune to a
challenging ag environment. As a result, Monsanto expects ’16 EPS to decline
11-23% to $4.40-$5.10. The cautious guide is due to persistent FX headwinds
(particularly the Argentine Peso), greater-than-expected seed price discounting
(due to the weak Ag market) and the delay in the EPA approval of dicamba for
in-crop use in the Roundup Ready Xtend system. Monsanto estimates that
$0.25-$0.30 of the guidance reduction is due to FX and $0.30 stems from its
Seeds and Genomics business. The ability to offset this additional FX headwind
is limited by a challenging ag environment which is leading to more seed price
discounting this year than in the last 2-3 years.
While ’16 is proving to be a challenging year for Monsanto due to a weak Ag
market which is resulting in greater-than-expected seed price discounting and
large FX headwinds ($0.90-$1.00), the company continues to forecast mid-
teens EPS growth in '17-'19. In '17, this growth will be driven by i) strong
soybean acreage ramp for Intacta in Brazil (35MM acres in '15 to 75MM acres
in '19) and Xtend in the US (3MM acres in '16E, targeted to be on 2/3 of US
acres by '19), ii) sharply lower Xtend launch costs (vs $70-$80MM, or $0.13, in
’16), iii) lower corn COGS (~$50MM, or $0.10E) iv) incremental cost savings of
$200MM, or 0.35, v) lower Other Expense of $180MM, or $0.30, from the
absence of the Argentine peso deval in '16 and vi) and corn germplasm
price/mix uplift. On Ag consolidation, while acquiring Syngenta or Bayer
Cropsciences would have accelerated Monsanto's goal of creating an
integrated solutions platform for farmers, management stated that its strategy
is not and was not dependent on a large scale crop chemical acquisition.
Rather, it is innovation driven and highly collaborative. And with large-scale
M&A no longer "likely", Monsanto has shifted to a "collaboration" model that
enhances its existing R&D and commercial base through licensing,
partnerships, collaborations and smaller scale M&A. We believe that Monsanto
is the partner of choice owing to its broadest, deepest and most proven
pipeline in the industry.
The breadth and scope of Monsanto’s R&D pipeline remains strong. In its
annual R&D update, Monsanto announced 30 R&D projects advancing phases
in ’16, vs. 26 in ’15, 29 in ’14 and 18 in ‘13.
18 April 2016
Chemicals / Specialty
Chemicals
Page 14 Deutsche Bank Securities Inc.
In the fertilizers space, we remain Hold-rated on Mosaic and PotashCorp as the
pricing environment will likely remain weak. Per Mosaic’s investor
presentation, potash shipments are expected to increase to 61-63MM m.t. in
‘16E vs of 59.1MM m.t. in 15. Mosaic expects phosphate shipments to
increase to 66-68MM m.t. in ‘16E vs 65-66MM m.t. in 15.
Figure 15: Corn stocks-to-use ratios are low by historical standards
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Corn Rice Wheat Soybean
Source: Deutsche Bank USDA
Figure 16: US Corn and Soybean Acreage (1970-2016E; millions of acres)
35
45
55
65
75
85
95
105
70/7
1
72/7
3
74/7
5
76/7
7
78/7
9
80/8
1
82/8
3
84/8
5
86/8
7
88/8
9
90/9
1
92/9
3
94/9
5
96/9
7
98/9
9
00/0
1
02/0
3
04/0
5
06/0
7
08/0
9
10/1
1
12/1
3
14/1
5
US Corn Acreage US Soy Acreage
Source: Deutsche Bank, USDA
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 15
Figure 17: US Corn Yields (1970-2016E; bu/acre) Figure 18: US Soybean Yields (1970-2016E; bu/acre)
60
80
100
120
140
160
180
70/7
1
72/7
3
74/7
5
76/7
7
78/7
9
80/8
1
82/8
3
84/8
5
86/8
7
88/8
9
90/9
1
92/9
3
94/9
5
96/9
7
98/9
9
00/0
1
02/0
3
04/0
5
06/0
7
08/0
9
10/1
1
12/1
3
14/1
5
20
25
30
35
40
45
50
70/7
1
72/7
3
74/7
5
76/7
7
78/7
9
80/8
1
82/8
3
84/8
5
86/8
7
88/8
9
90/9
1
92/9
3
94/9
5
96/9
7
98/9
9
00/0
1
02/0
3
04/0
5
06/0
7
08/0
9
10/1
1
12/1
3
14/1
5
Source Deutsche Bank, USDA
Source: Deutsche Bank, USDA
18 April 2016
Chemicals / Specialty
Chemicals
Page 16 Deutsche Bank Securities Inc.
Figure 19: Global Corn Consumption (MM tons) Figure 20: Arable Land Per Capita
220
410
600
970
1090
0
200
400
600
800
1000
1200
1965 1980 2000 2020E 2030E
MM Tons
1.02
0.75
0.55
0.44 0.41
0
0.2
0.4
0.6
0.8
1
1.2
1961 1980 2000 2020E 2030E
Acres/Capita
Source: Global Insights
Source: Global Insights
Figure 21: Global Corn Yields by Country / Region
(MT/acre; 2013/14)
Figure 22: Global Corn Acreage by Region (millions of
hectares; 2013/14)
10
10
9
8
76 6 6
55
4 4
3 3 32 2 2
0
2
4
6
8
10
12
Unite
d S
tate
s
Canada
Turk
ey
Egypt
Euro
pean
Unio
n
Ukr
ain
e
South
Am
erica
Chin
a
Russia
Serb
ia
Vie
tnam
Thaila
nd
Mexic
o
Indonesia
Philippin
es
India
Sub-S
ahara
nA
fric
a
Oth
ers
51
36 35
18
11 10 97
0
10
20
30
40
50
60O
thers
Chin
a
Unite
d S
tate
s
South
Am
erica
Sub-S
ahara
n
Afr
ica
Euro
pean
Unio
n
India
Mexic
o
Source: USDA
Source USDA
Figure 23: Potash prices ($/MT) Figure 24: Phosphate prices ($/MT)
0
100
200
300
400
500
600
700
800
900
1000
Jan-0
8
Apr-
08
Jul-
08
Oct-
08
Jan-0
9
Apr-
09
Jul-
09
Oct-
09
Jan-1
0
Apr-
10
Jul-10
Oct-
10
Jan-1
1
Apr-
11
Jul-
11
Oct-
11
Jan-1
2
Apr-
12
Jul-
12
Oct-
12
Jan-1
3
Apr-
13
Jul-
13
Oct-
13
Jan-1
4
Apr-
14
Jul-
14
Oct-
14
Jan-1
5
Apr-
15
Jul-
15
Oct-
15
300
350
400
450
500
550
600
650
700
Mar-
10
Jun
-10
Sep-1
0
Dec-1
0
Mar-
11
Jun
-11
Sep-1
1
Dec-1
1
Mar-
12
Jun
-12
Sep-1
2
Dec-1
2
Mar-
13
Jun
-13
Sep-1
3
Dec-1
3
Mar-
14
Jun
-14
Sep-1
4
Dec-1
4
Mar-
15
Jun
-15
Sep-1
5
Dec-1
5
Source: Argus Media
Source: Bloomberg Finance LP
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 17
Figure 25: Corn spot prices (USD/bu) Figure 26: Soybean prices (USD/bu)
0
1
2
3
4
5
6
7
8
9
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
Jan-1
5
Jul-15
Jan-1
6
8
10
12
14
16
18
20
Dec-1
0
Mar-
11
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
Sep-1
2
Dec-1
2
Mar-
13
Jun-1
3
Sep-1
3
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Dec-1
4
Ma
r-15
Jun-1
5
Sep-1
5
Dec-1
5
Mar-
16
Source: Bloomberg Finance LP
Source: Bloomberg Finance LP
18 April 2016
Chemicals / Specialty
Chemicals
Page 18 Deutsche Bank Securities Inc.
Ethylene and Raw Materials
Ethylene margins rise 0.3 c/lb to 16 c/lb in Q1
Ethylene contract margins rose 0.3 c/lb to 16 c/lb in Q1. Ethylene pricing fell
0.8 c/lb or 3% QoQ in Q4 to 26.75 c/lb. Ethylene production costs fell 1 c/lb
QoQ to 9.8 c/lb and fell 0.5 c/lb, or 5%, vs 10.3 c/lb a year prior and remain
near record lows. Lower propane and butane pricing is shifting ethylene
cracking to a higher propane and butane feedslates, which is in turn lowering
demand for ethane and boosting the supply of propylene.
Oversupply of ethane resulted in ethane prices dropping to 17 c/gal currently
from a 10-yr average of 52 c/gal, a 2012 average of 40 c/gal average, an early
’14 high of 39 c/gal, and 18.5 c/gal a year ago. We expect Q2’16E prices to
average 16.7 c/gal and remain above its fuel value of approximately 13.4 c/gal.
In ’16-’17, given the significant amount of ethane oversupply we expect US
ethane prices to trade in-line with, to slightly below their fuel value, or 15-20
c/gal based on DB’s US Natural Gas price forecasts of $2.25/MMBtu in ’16 and
$2.75/MMBtu in ’17. Starting in ’18, we believe ethane prices will move into
the 20-25 c/gal range on tightening ethane supply/demand fundamentals. Still,
even at 25 c/gal, US producers ethane-based ethylene cash costs would be an
attractive (and likely highly advantaged) 11 c/lb.
With 25-30 c/gal ethane equating to 11-13 c/lb ethylene production costs, we
expect ethane-based ethylene cash margins to be in 25 c/lb range thru at least
2017 when the first of new US ethylene crackers come on-online. While these
margins are lower than previously expected (30-40 c/lb), they are still well
above prior peaks of 10-15 c/lb.
Figure 27: North American ethylene capacity outages, 2016 (% of total North American
capacity)
0
1,000
2,000
3,000
4,000
5,000
6,000
0%
2%
4%
6%
8%
10%
12%
Jan-1
6
Feb-1
6
Mar-
16
Apr-
16
May-1
6
Jun-1
6
Jul-
16
Aug-1
6
Sep-1
6
Oct-
16
Nov-1
6
Dec-1
6
Unplanned outages % Scheduled maintenance %
2016 Cumalative Production Loss 2015 Cumulative Production Loss
Source: Deutsche Bank, IHS Chemical
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 19
Figure 28: North American ethylene capacity outages, 2015, 2016 & 5-year
averages (% of total North American capacity)
0%
2%
4%
6%
8%
10%
12%
January
Febru
ary
Marc
h
April
May
June
July
August
Septe
mber
Octo
ber
Novem
ber
Decem
ber
2015 2016 5 yr. average
Source: Deutsche Bank
Figure 29: North American estimated ethylene capacity outages for ’16 by
quarter
(70.5%)
21.7%
67.9%
(3.4%)
(72.8%)
26.8%
37.7%
4.6%
(80.0%)
(60.0%)
(40.0%)
(20.0%)
0.0%
20.0%
40.0%
60.0%
80.0%
Q1'16 Q2'16E Q3'16E Q4'16E
Premium/Discount to 5 Year Average Premium/Discount to 3 Year Average
Source: Deutsche Bank
18 April 2016
Chemicals / Specialty
Chemicals
Page 20 Deutsche Bank Securities Inc.
Figure 30: European ethylene capacity outages, 2015, 2016 & 5 year averages (% of
total European capacity)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
January
Febru
ary
Marc
h
April
May
June
July
August
Septe
mber
Octo
ber
Novem
ber
Decem
ber
2015 2016 5 yr. average
Source: IHS Chemical
Figure 31: Quarterly European ethylene outages vs historical averages (2016E)
44%
74%71%
66%
42%
85%
70%
76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Q1 Q2 Q3 Q4
Premium/Discount 3 yr qtrly avg Premium/Discount 5 yr qtrly avg
Source: Deutsche Bank; IHS
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 21
Figure 32: Ethane prices remain well below historical averages and are expected to
stay depressed for the foreseeable future (c/gal)
10
30
50
70
90
110
Jan-0
9A
pr-
09
Jul-09
Oct-
09
Jan-1
0A
pr-
10
Jul-
10
Oct-
10
Jan-1
1A
pr-
11
Jul-
11
Oct-
11
Jan-1
2A
pr-
12
Jul-
12
Oct-
12
Jan-1
3A
pr-
13
Jul-
13
Oct-
13
Jan-1
4A
pr-
14
Jul-
14
Oct-
14
Jan-1
5A
pr-
15
Jul-
15
Oct-
15
Jan-1
6A
pr-
16
Jul-
16
Oct-
16
Ja
n-1
7A
pr-
17
Jul-
17
Oct-
17
Source: IHS Chemical
18 April 2016
Chemicals / Specialty
Chemicals
Page 22 Deutsche Bank Securities Inc.
Figure 33: US ethane inventory levels remain above historical averages (thousands of
barrels)
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Feb-0
3
Aug-0
3
Feb-0
4
Aug-0
4
Feb-0
5
Aug-0
5
Feb-0
6
Aug-0
6
Feb-0
7
Aug-0
7
Feb-0
8
Aug-0
8
Feb-0
9
Aug-0
9
Feb-1
0
Aug-1
0
Feb-1
1
Aug-1
1
Feb-1
2
Aug-1
2
Feb-1
3
Aug-1
3
Feb-1
4
Aug-1
4
Feb-1
5
Aug-1
5
Source: EIA
Figure 34: US ethane and propane inventory levels (000’s of barrels)
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
Jan
-07
Jul-07
Jan
-08
Jul-08
Jan
-09
Jul-09
Jan
-10
Jul-10
Jan
-11
Jul-11
Jan
-12
Jul-12
Jan
-13
Jul-13
Jan
-14
Jul-14
Jan-1
5
Jul-15
Propane/Propylene (LHS) Ethane/Ethylene (RHS)
Source: EIA
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 23
Figure 35: North America ethylene avg margins (c/lb)
$0.27 $0.27
$0.19
$0.13 $0.13
$0.20
$0.17 $0.17
$0.38 $0.38
$0.29
$0.24 $0.24
$0.31
$0.28$0.30
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
Q115
Q215
Q315
Q415
Q116
Q216E
Q316E
Q416E
Avg acq. margins Contract prices
Source: IHS Chemical
New US ethylene capacity at risk due to lower margins
With the US ethylene industry in the longest and strongest cycle in its history,
over a dozen greenfield ethylene projects have been announced in the US to
take advantage of low cost NGL feedstocks. Of these, 6 are under construction
with 5 of them world-scale (>1MM m.t.) (CP Chem, Dow, Exxon, Formosa,
Sasol). Total capacity of the 6 projects is 8MM m.t., 5% of global capacity,
23% of NA capacity and 29% of US capacity. With all of these projects
experiencing 12-24 months delays due to prolonged permitting processes,
start-up for all 6 crackers under construction is ’17-’18.
With 6 world-scale ethylene projects under construction, cost increases,
bottlenecks and delays are occurring. On the labor front, craftsmen (welders,
pipe fitters) are the limiting (and cost inflating) factor. During the last two
turnaround seasons there was evidence of labor market tightness (high costs,
personnel shortages) on the US Gulf Coast. Of note, Lyondell has cited
meaningful cost inflation for its new projects (20%). We believe the greatest
impact from this construction up-cycle will be on producers building capacity
at the end of the decade.
Beyond the 6 crackers under construction, with oil prices down 50%-plus from
their ’14 highs (resulting in a similar 50%-plus decline in the US ethylene cost
advantage), projects not yet under construction are being delayed and are risk
for cancellation. We believe these delays/cancellations, coupled with a reduced
incentive to import ethane into Europe and Asia (due to lower oil prices), will
prolong the US ethylene cycle past ’20.
In recent US ethylene supply news: i) Our recent visit with Sasol’s
management in Houston was focused on their world-scale petrochemical
project in Lake Charles, LA. Currently Sasol has spent $3.7B of the targeted
18 April 2016
Chemicals / Specialty
Chemicals
Page 24 Deutsche Bank Securities Inc.
$8.9B capital cost for the project and is on track for the late’18 startup of the
ethylene/polyethylene plant. ii) Following a final investment decision (FID),
Axiall and Lotte Chemical have begun building a 1MM m.t./year ethane-based
cracker and 600k m.t./year monoethylene glycol (MEG) plant in Lake Charles,
LA. The facility is scheduled to start-up in 2019. iii) Dow Chemical has begun
commercial operation of its new world-scale PDH unit at the company’s Oyster
Creek site in Freeport, TX. The new facility’s capacity is 750k m.t. iv) Total has
begun a front-end engineering and design (FEED) for building its $2B steam
ethane cracker at Port Arthur, TX. CB&I has been given a contract to provide
FEED services. This cracker is expected to be 1MM m.t. of capacity and
startup in 2019. v) In October, privately held Badlands NGLs licensed Univation
Technologies’ Unipol PE process for four 600kmt production lines, two at a site
in North Dakota and two at an unnamed site. The facilities will produce both
HDPE and LLDPE. Badlands is in the process of developing a $4B-plus
integrated ethylene complex in North Dakota to take advantage of low-cost
ethane from the Bakkan shale formation. The project will consist of a 1.5MM
m.t. ethylene cracker and downstream PE plants. In September, Badlands
announced it had secured a second site in the US for an integrated ethylene
complex.
We believe the risks to an extended period of strong US ethylene profitability
are i) new ethylene capacity and ii) a further narrowing of the oil-to-gas ratio.
While North America is in the midst of a major ethylene capacity expansion
with announced projects totaling nearly 21MM m.t., or a 60% increase versus
2012, 50% of this capacity will come on-stream in 2018 or after. On the oil-to-
gas ratio, DB’s Oil and Gas team expects this ratio to remain in the high teens
to low 20s (vs 6-10x historically) through 2016.
Propylene prices fell 6% in Q4 vs Q3
Chemical grade propylene prices fell 0.4 c/lb or 1% QoQ in Q1 and fell 18.7 c/lb
or 39% YoY to 29.5 c/lb (contract prices). Prices are poised to increase by 2.3
c/lb or 8% in Q2 to 31.8 c/lb but remain near lows not seen since early ‘09. For
’16, IHS expects contract prices for US chemical grade propylene to decline
from 30.5 c/lb at year-end ’15 to 29.5 c/lb by year-end ’16 and the full year ’16
to average 29.5 c/lb vs 37.5 c/lb in ’15. With propylene and propylene
derivative pricing expected to remain depressed for ‘16, buyers of propylene
derivatives such as Ecolab and coatings companies (PPG, Valspar and
Sherwin) stand to benefit.
Propane-to-Propylene spread expanded in Q1 and will likely expand further
in Q2 on lower propane costs. The propane-to-propylene spread rose to 16.5
c/lb in Q1 from 15.9 c/lb in Q4’15 on lower propane costs (11.1 c/lb in Q1 vs
12.1 c/lb in Q4 {spot prices}). Looking ahead, the propane-to-propylene spread
is expected to expand 2.7 c/lb in Q2 to 19.2 c/lb on higher propylene prices and
then fall 3.7 c/lb in Q3 to 15.5 c/lb. The propane-to-propylene spread is most
relevant for Eastman as it generates ~13% of its earnings from commodities
with the propane-to-propylene spread comprising a significant portion of these
earnings.
Propane pricing is expected to remain depressed amid elevated inventories
partially offset by higher seasonal demand. To this point, propane inventories
ended Q1’16 at 64.9MM bbls, 55% and 66% above the 3-year and 5-year
averages.
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 25
On the propane export front, Phillips 66 is expected to bring on a new LPG
export terminal with an initial capacity of 4.4MM bbl/month (to export propane
and butane). This is expected to come on-line in mid-’16. Enterprise has
completed the expansion (in Q4 2015) of its Houston export capacity by
6.6MM/bbl month, or 73%, to 16MM bbls/month. This follows an expansion in
April 2015 which increased its propane export capacity by 1.5MM bbls/month
to 9MM bbls/month and an expansion in ’13 which increased its propane
export capacity to 7.5MM bbls/month from 4MM bbls/month. Targa also
expanded its propane export capacity in ’13 with its Galena Park, TX export
terminal increasing capacity to 3.25MM bbls/month from ~1MM bbls/month in
’12. Targa further expanded this facility to 5.25MM bbls/month in 2014. In
total, these projects have increased US propane export capacity from ~5MM
bbls/month at year-end ’12 to 11MM bbls/month at year-end ‘13, 13MM
bbls/month at year-end ‘14 and 21MM bbls/month at year-end ‘15.
Figure 36: Propane and propylene prices Figure 37: After compressing ~50% in 2015 on lower
propylene pricing, the US propane-to-propylene spread
(c/lb) is expected to remain range-bound through ‘17
0
10
20
30
40
50
60
70
80
90
100
0
20
40
60
80
100
120
140
160
180
Oct-
2010
Jan-2
011
Ap
r-2011
Jul-2011
Oct-
2011
Jan-2
012
Apr-
2012
Jul-2012
Oct-
2012
Jan-2
013
Apr-
2013
Jul-2013
Oct-
2013
Jan-2
014
Apr-
2014
Jul-2014
Oct-
2014
Jan-2
015
Apr-
2015
Jul-2015
Oct-
2015
Jan-2
016
Ap
r-2016
Jul-2016
Oct-
2016
Jan-2
017
Apr-
2017
Jul-2017
Oct-
2017
c/ poundc/ gallon
Propane (LHS) Propylene (RHS)
0
5
10
15
20
25
30
35
40
45
Q104
Q3
04
Q1
05
Q3
05
Q1
06
Q3
06
Q1
07
Q3
07
Q1
08
Q3
08
Q1
09
Q3
09
Q1
10
Q3
10
Q1
11
Q3
11
Q1
12
Q312
Q1
13
Q3
13
Q1
14
Q3
14
Q1
15
Q3
15
Q1
16
Q3
16
E
Q1
17
E
Q3
17
E
Source: IHS Chemical
Source: IHS Chemical, Deutsche Bank estimates
TiO2 pricing backdrop remains lackluster
Global TiO2 prices were down in Q1. Prices (midpoint) fell 5% to $1.24/lb in
North America, 3% to €1.96 in Europe and 4% to $2,008/m.t in Asia. Global
TiO2 pricing remains depressed due to i) excess global capacity, ii) tepid
European demand, iii) a stronger US dollar which is driving greater exports
from Europe to North America, iv) coatings customers utilizing greater
percentages of less expensive Chinese TiO2 in their formulations and v)
balanced-to-loose supply/demand with material readily available due in part to
increased exports from China.
While long-term TiO2 demand tends to closely track global GDP (R2> 0.94),
demand is currently below trend owing to: i) weak global demand and ii)
reduced usage of TiO2 at paint customers where industry consultant TZMI
estimates that 3-5% of demand has been substituted. In ‘16, TZMI expects
TiO2 global demand trends to normalize along with improving global GDP as
the construction end market has historically made up 60-65% of TiO2 demand
18 April 2016
Chemicals / Specialty
Chemicals
Page 26 Deutsche Bank Securities Inc.
In the near-to-medium term, TZMI expects global TiO2 demand to return to
trend-line growth (or in-line with global GDP) in ’16.
Given a tepid pricing back drop and our belief that there is low likelihood for
meaningful near-term price improvement in the TiO2 chain, we remain Hold
rated on Kronos (KRO), a pure play on global TiO2.
Figure 38: North American TiO2 pricing is well off of peak levels and have shown near-
term weakness amid tepid demand ($/lb)
$0.70
$0.90
$1.10
$1.30
$1.50
$1.70
$1.90
$2.10
$2.30
1990
1991
1993
1994
1996
1997
1998
2000
2001
2003
2004
2006
2007
2009
2010
2012
2013
2015
Source: Deutsche Bank; ICIS
Note: ICIS made a $0.12 one-time, non-market adjustment in Decembers
Figure 39: Asian TiO2 prices are off ~50% from their peak
($/m.t.)
Figure 40: European TiO2 prices have also exhibited
considerable weakness (Euros/kg)
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
€1.70
€1.90
€2.10
€2.30
€2.50
€2.70
€2.90
€3.10
€3.30
€3.50
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Deutsche Bank, ICIS
Source: Deutsche Bank, ICIS
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 27
Figure 41: Rutile and Synthetic Rutile (high grade titanium ore) pricing ($/ton; 2007-
2020E)
$0
$500
$1,000
$1,500
$2,000
$2,500
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
E
20
17
E
20
18
E
20
19
E
20
20
E
Rutile Synthetic Rutile
Source: Deutsche Bank
Group II base oil prices to remain depressed owing to supply growth and crude oil weakness
Base oil prices have fallen substantially as a result of i) capacity increases and
ii) a collapse in crude oil prices. Prices for Group II 200 grade base oil fell 15%
QoQ and 31% YoY to $1.80/gal in Q1. The bearish pricing environment is
driven by increased supply and competitive pricing following the 1H14 start-up
of Chevron’s new 25,000 bbl/day Group II base oil plant in Pascagoula, MS.
This plant increased US Group II base oil capacity by 19%. This was then
exacerbated by a sharp drop in crude oil (Brent oil down 60% from ’14 highs).
Going forward, we expect Group II prices to remain under pressure owing to
the increased supply and weakness crude oil prices. This base oil price
weakness is providing a boon to the longer-term profitability of Ashland’s
Consumer (Valvoline) segment (39% of ‘16E EBITDA) as the majority of the
base oil Valvoline buys is Group II, followed by Group III.
For Valvoline, which purchases 170MM gallons/yr of mostly Group II base oil
(it also purchases Group III and some Group I), a $0.25/gal change in base oil
prices impacts EBITDA by $57MM. Longer-term we expect Group II/III base oil
pricing to be subdued owing to added supply. Not only did the Chevron plant
increase US Group II capacity by 19%, but globally combined Group II/III
capacity is forecasted to increase 23% over the next 5 years. As a result, we
believe Valvoline could retain a larger portion of this price decrease for a longer
period of time than it has with prior price decreases.
18 April 2016
Chemicals / Specialty
Chemicals
Page 28 Deutsche Bank Securities Inc.
Figure 42: Group II base oil prices are falling due to crude oil weakness and supply
growth (cents/gal)
75
125
175
225
275
325
375
425
475
525
575
Se
p 0
1
Ma
y 0
2
Jan
03
Se
p 0
3
Ma
y 0
4
Jan
05
Se
p 0
5
Ma
y 0
6
Jan
07
Se
p 0
7
Ma
y 0
8
Jan
09
Se
p 0
9
Ma
y 1
0
Jan
11
Se
p 1
1
Ma
y 1
2
Jan
13
Se
p 1
3
Ma
y 1
4
Jan
15
Se
p 1
5
Source: Deutsche Bank, Lube Report
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 29
FX
DB forecasts USD strength on less dovish US monetary policy and Europe’s significant current account surplus
With Europe a key region for US chemical companies (the median US chemicals
producer has 26% of sales in Europe), we have found the EUR/USD relationship to be a
strong indicator of FX impacts across US chemicals.
We believe that a driver of the EUR/USD is the relative monetary policy. We believe
monetary policy is still poised to become less dovish over time and will thus lead to a
stronger USD.
In Q1, the EUR/USD rose 0.8% QoQ to $1.09 (down 2% YoY). DB’s FX team believes
USD will be entering a multi-year uptrend owing to resurgence in US growth and US
Federal Reserve normalization.
Deutsche Bank’s FX strategists expect the euro to reach parity versus the US dollar by
Q3 2016, decline to $0.95 by year-end 2016 and trough at $0.85 by year-end 2017.
There are a number of factors underpinning this view including Europe’s significant
current account surplus (excess savings) which will impact global asset prices through
the rest of this decade. Combined with the upcoming Fed rate hikes, ECB quantitative
easing and negative real rates, Deutsche Bank expects continued large-scale capital
flight from Europe as portfolios search for yield overseas. As this occurs, the euro will
come under additional pressure. The appreciation of the US dollar has negative
implications for most US chemical companies. While some are naturally hedged which
counteracts the sales headwind from adverse currency effects, the vast majority of US
chemical companies are not or only partially hedged (naturally or via derivatives).
Figure 43: The USD strengthened vs the EUR in ’15 and is
poised to strengthen further thru ‘16E
Figure 44: DB’s longer-term EUR/USD forecast
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
Q1'1
3
Q2'1
3
Q3'1
3
Q4'1
3
Q1'1
4
Q2'1
4
Q3'1
4
Q4'1
4
Q1'1
5
Q2'1
5
Q3'1
5
Q4'1
5
Q1'1
6
Q2'1
6E
Q3'1
6E
Q4'1
6E
$0.80
$0.85
$0.90
$0.95
$1.00
$1.05
$1.10
$1.15
$1.20
Latest
(spot)
Q1'16 Q2'16E 2016E 2017E 2018E 2019E 2020E
Source: Deutsche Bank FX Strategy Thomson One,
Source: Deutsche Bank,
18 April 2016
Chemicals / Specialty
Chemicals
Page 30 Deutsche Bank Securities Inc.
Figure 45: Estimated ’15 EPS impact of a 10% appreciation in the USD
Company Ticker % Sales
ex US '16
2016E
EPS
'16E impact of
10% stronger
USD
% of '16E EPS
Albemarle ALB 64% 3.75$ ($0.24) -6%
Air Products APD 57% 7.40$ ($0.42) -6%
Ashland ASH 47% 7.10$ ($0.33) -5%
Axalta AXTA 70% 1.30$ ($0.09) -7%
Cabot CBT 77% 3.30$ ($0.25) -8%
Celanese CE 72% 6.40$ ($0.46) -7%
Compass Minerals CMP 24% 4.10$ ($0.10) -2%
Dupont DD 60% 3.00$ ($0.18) -6%
Dow DOW 67% 3.30$ ($0.22) -7%
Ecolab ECL 49% 4.50$ ($0.22) -5%
Eastman EMN 54% 7.00$ ($0.38) -5%
Ferro FOE 77% 0.95$ ($0.07) -8%
H.B. Fuller FUL 58% 2.60$ ($0.15) -6%
Kronos Worldwide KRO 67% 0.20$ ($0.01) -7%
LyondellBasell LYB 48% 10.00$ ($0.48) -5%
3M MMM 63% 8.25$ ($0.52) -6%
Monsanto MON 46% 4.75$ ($0.22) -5%
Omnova OMN 41% 0.61$ ($0.03) -4%
PPG Industries PPG 59% 6.25$ ($0.37) -6%
Praxair PX 58% 5.60$ ($0.32) -6%
Valspar VAL 45% 4.90$ ($0.22) -5%
Trinseo TSE 87% 5.40$ ($0.47) -9%
Average 59% ($0.25) -6% Source: Deutsche Bank estimates
Figure 46: Estimated ’15 EPS impact of a 10% appreciation in the USD/EUR
Company Ticker % Sales
Europe
2016E
EPS
'16E impact of
10% stronger
USD
% of '16E EPS
Air Products APD 25% 7.40$ ($0.06) -1%
Ashland ASH 25% 7.10$ ($0.09) -1%
Celanese CE 39% 6.40$ ($0.20) -3%
Dupont DD 25% 3.00$ ($0.13) -4%
Dow DOW 34% 3.30$ ($0.06) -2%
Ecolab ECL 24% 4.50$ ($0.07) -2%
Eastman EMN 22% 7.00$ ($0.06) -1%
Ferro FOE 45% 0.95$ ($0.02) -2%
Kronos Worldwide KRO 59% 0.20$ ($0.04) -21%
LyondellBasell LYB 19% 10.00$ ($0.08) -1%
3M MMM 23% 8.25$ ($0.03) 0%
Monsanto MON 15% 4.75$ ($0.06) -1%
Omnova OMN 21% 0.61$ $0.00 0%
PPG Industries PPG 31% 6.25$ ($0.11) -2%
Praxair PX 13% 5.60$ ($0.07) -1%
Trinseo TSE 60% 5.40$ ($0.27) -5%
Average 30% ($0.08) -3% Source: Deutsche Bank estimates
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 31
Figure 47: US Chemicals exposure to geographical markets (2015)
Company US Canada Europe Asia-Pacific (inc.
China)
Latin America ROW China*
3M 40% 3% 21% 30% 7% 0% 0%
Air Products 43% 2% 23% 26% 5% 0% 11%
Airgas* 98% 0% 0% 0% 0% 2% 0%
Albemarle 31% 0% 0% 0% 0% 69% 0%
Ashland 53% 0% 24% 16% 7% 0% 10%
Axalta 34% 0% 35% 18% 13% 0% 10%
Cabot 25% 0% 0% 19% 0% 56% 19%
Celanese 26% 3% 39% 26% 4% 3% 14%
Compass Minerals 76% 18% 5% 0% 0% 1% 0%
Cytec* 48% 0% 31% 12% 8% 0% 0%
Dow 34% 0% 31% 0% 0% 34% 8%
Dupont 43% 0% 24% 22% 11% 0% 8%
Eastman 45% 0% 25% 24% 6% 0% 11%
Ecolab 52% 5% 18% 12% 8% 5% 0%
Ferro 25% 0% 44% 15% 15% 0% 0%
H.B. Fuller 43% 0% 0% 0% 0% 57% 0%
Huntsman Corp* 53% 0% 12% 14% 8% 12% 14%
Kronos* 33% 0% 51% 0% 0% 15% 0%
LyondellBasell 49% 0% 19% 0% 3% 29% 0%
Monsanto 57% 4% 12% 5% 0% 22% 0%
Mosaic 29% 8% 0% 0% 0% 63% 2%
Omnova Solutions 59% 0% 20% 21% 0% 0% 0%
Potash 59% 5% 0% 0% 0% 36% 10%
PPG* 41% 0% 31% 16% 11% 0% 0%
Praxair 44% 10% 12% 14% 13% 6% 7%
Trinseo* 13% 0% 60% 23% 0% 4% 0%
Valspar* 55% 0% 18% 22% 5% 0% 12%
WR Grace* 33% 0% 34% 22% 11% 0% 6%
Source: Deutsche Bank, company data; * represents 2014 data; ND = Not Disclosed
Figure 48: Ranking by 3-month performance (Jan’16- Mar’16)
42.9
%
30.5
%
29.4
%
18.8
%
18.1
%
16.8
%
14.7
%
13.2
%
12.5
%
11.4
%
11.4
%
10.0
%
9.6
%
7.7
%
7.4
%
6.7
%
6.1
%
3.6
%
2.8
%
1.8
%
0.8
%
(0.3
%)
(0.6
%)
(1.1
%)
(2.2
%)
(2.3
%)
(4.4
%)
(4.9
%)
(9.3
%)
(9.8
%)
(60%)
(40%)
(20%)
(0%)
20%
40%
60%
AX
LL
TS
E
VA
L
CB
T
HU
N
FU
L
ALB
PP
G
PX
AP
D
MM
M
SH
W
AX
TA
EM
N
AS
H
FO
E
Che
mic
als
FM
C
AR
G
OLN
S&
P 5
00
DO
W
LY
B
MO
S
EC
L
CE
DD
CM
P
OM
N
WLK
P
Source: Deutsche Bank, Thomson Reuters; include dividends
18 April 2016
Chemicals / Specialty
Chemicals
Page 32 Deutsche Bank Securities Inc.
Valuation
Valuation looks largely fair for US Chemical stocks. The US Chemicals sector is trading
at 16.9x forward EPS, 13% above its 10-year average. The sector also currently trades
at a 1% premium to the S&P 500 on forward EPS vs a historical discount of 4%. We
view multiple expansion as unlikely until Eurozone headwinds and worries over the
impact of lower oil subside. Longer term, we remain positive on US Chemicals due to a
number of structural tailwinds including the US ethane advantage, and solid balance
sheets which are supporting aggressive shareholder remuneration. We maintain our
equal weight stance on the group due to lack of clarity on global macro conditions.
With the greatest opportunity for investors, in our view, in the highest quality
companies in the sector, our top picks are Dow Chemical (a diversified way to gain
exposure with visible growth projects out through 2018), DuPont (substantial value to
be unlocked from Dow/DD merger; $1B targeted cost synergies and $3B targeted cost
savings), and Eastman (portfolio transformation).
Figure 49: While absolute valuations for US Chemicals are below historical averages, relative valuations are not cheap
0%
50%
100%
150%
200%
250%
300%
4
6
8
10
12
14
16
18
20
22
24
Jan-9
0
Jan-9
1
Jan-9
2
Jan-9
3
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
15yr avg. vs. S&P = 90%
15yr avg. = 15.0
Mar-16 = 91%
Mar-16 = 15.3
Chemicals NTM P/E vs. S&P 500 Chemicals NTM P/E
15-year average NTM P/E 15-year average NTM P/E vs. S&P 500
Source: Source: FirstCall Consensus, Thomson One Note: NTM EPS based on FirstCall consensus
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 33
US Chemicals Top Picks
Dow Chemical
We view the merger of Dow and DuPont as largely positive for Dow Chemical given 1)
the $3B of targeted cost synergies and 2) more importantly than cost synergies, both
companies will benefit as they transition from two unfocused, large companies to three
focused, smaller and more nimble and properly resourced, capitalized and incentivized
companies. Our experience shows that as companies transition into more focused
entities (e.g. Axalta, Lyondell, PPG), they can generate 3-5 years of above peer sales,
EBITDA, and EPS growth.
Valuation
Our 12-month price target of $56 for Dow is based on DowDuPont trading at 8.0x ’17
EBITDA, roughly in-line with the combined entity’s current multiple. Supporting our
target price is a detailed Sum-of-the-Parts analysis (see pp. 34).
Figure 50: Dow Chemical next 12-month P/E and relative P/E
0%
100%
200%
300%
400%
500%
0
10
20
30
40
50
60
70
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan-0
7
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
NTM P/E Vs. S&P 500 (RHS) NTM P/E (LHS)
Source: Thomson One
Risks
Key downside risks: narrowing of the oil-gas ratio, a stronger US dollar, heightened
import competition from lower-cost Middle East petrochemical producers, slower
economic growth in either developed or emerging markets.
18 April 2016
Chemicals / Specialty
Chemicals
Page 34 Deutsche Bank Securities Inc.
Figure 51: SOTP Based on 2017 EBITDA and 2016 EBITDA Multiples
SOTP Based on 2017 EBITDA and 2016 EBITDA Multiples
Segment 2017E EBITDA Multiple Enterprise Value Comment
Agriculture 2,967
Pioneer 2,265 10.9x $24,666 10% discount to Monsanto
Crop Protection 702 12.9x $9,046 10% discount to Syngenta
Electronics & Communications 557 11.8x $6,574 Air Products, Albemarle
Industrial Biosciences 323 13.0x $4,193 High growth multiple
Nutrition & Health 738 13.8x $10,167 10% Discount to Givaudan, Symrise
Performance Materials 1,309 10.0x $13,093 High end diversified chemicals
Safety & Protection 1,005 12.5x $12,545 3M Multiple
Other (259) 10.0x ($2,590)
Corporate (340) 9.0x ($3,060)
2017 Cost Savings 500 9.0x $4,500 Assume 50% of $1B in cost savings
Present Value of Remaining Cost Savings & Sales Synergies 1,125 9.0x $10,125 Assume 50% of $3B in cost savings and sales synergies
Present Value of Add'l Operational Improvement / Restructuring 1,000 9.0x $9,000 Assume 50% of an additional $3B of
DuPont Enterprise Value 8,926 11.0x $98,258
Agricultural Sciences 800 14.3x $11,449 Syngenta multiple
Consumer Solutions 1,182 9.5x $11,229 Premium Specialty Chemical multiple
Infrastructure Solutions 1,950 8.0x $15,604 Differentiated chemical multiple
Performance Materials & Chemicals 1,868 8.0x $14,947 Differentiated chemical multiple
Performance Plastics 5,068 6.0x $30,407 Commodity Chemical multiple
Corporate (375) 9.0x ($3,375)
2017 Cost Savings 500 9.0x $4,500 Assume 50% of $1B in cost savings
Present Value of Remaining $2B Cost Savings & $1B in Sales Synergies 1,125 9.0x $10,125 Assume 50% of $3B in cost savings
Present Value of Add'l Operational Improvement / Restructuring 1,000 9.0x $9,000
Dow Enterprise Value 13,119 7.9x $103,885
DuPont + Dow Enterprise Value $202,144
DuPont Equity Value
DuPont Enterprise Value $98,258
Less: Net Debt $3,714 Year-End '16
Plus: Options Proceeds from In-the-Money Options $913
Less: Imprelis Liability $0
Less: Underfunded Pension & OPEB Plans $12,112
Less: Environmental Remediation $478
DuPont Equity Value $82,868
Dow Equity Value
Dow Enterprise Value $103,885
Less: Net Debt $12,398
Plus: Options Proceeds from In-the-Money Options $1,934
Less: Underfunded Pension & OPEB Plans $10,057
Less: Environmental Remediation $706
Dow Equity Value $82,659
DuPont + Dow Equity Value $165,527
DuPont shareholder ownership of DowDuPont 48%
Dow shareholder ownership of DowDuPont 52%
DuPont portion of equity value $80,017
DuPont Per Share Equity Value $89.26
Current Share Price $64.31
DuPont Upside / (Downside) 39%
Dow portion of equity value $85,509
Dow Per Share Equity Value $74.07
Current Share Price $51.62
Dow Upside / (Downside) 43% Source: Deutsche Bank
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 35
DuPont
We view the merger of Dow and DuPont as largely positive for DuPont given 1) the $3B
of targeted cost synergies and 2) more importantly than cost synergies, both companies
will benefit as they transition from two unfocused, large companies to three focused,
smaller and more nimble and properly resourced, capitalized and incentivized
companies. Our experience shows that as companies transition into more focused
entities (e.g. Axalta, Lyondell, PPG), they can generate 3-5 years of above peer sales,
EBITDA, and EPS growth.
Valuation
Our 12-month price targets of $64 for DuPont is based on DowDuPont trading at 8.0x
’17 EBITDA, roughly in-line with the combined entity’s current multiple. Supporting our
target price is a detailed Sum-of-the-Parts analysis (see pp. 83).
Figure 153: DuPont next 12-month P/E and relative P/E
40%
60%
80%
100%
120%
140%
160%
5
10
15
20
25
30
35
Jan
-91
Jan
-92
Jan
-93
Jan
-94
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan-1
2
Jan
-13
Jan
-14
Jan
-15
Jan
-16
NTM P/E Vs. S&P 500 (RHS) NTM P/E (LHS)
Source: Thomson One
Risks
Key risks include: i) A failure to complete the potential merger of Dow and DuPont, ii) A
failure to complete the potential three way breakup of the combined Dow/DuPont
entity, iii) lower oil prices, iv) reduced US ethane/propane production and v) lower corn
and soybean prices.
18 April 2016
Chemicals / Specialty
Chemicals
Page 36 Deutsche Bank Securities Inc.
Figure 52: SOTP Based on 2017 EBITDA and 2016 EBITDA Multiples
SOTP Based on 2017 EBITDA and 2016 EBITDA Multiples
Segment 2017E EBITDA Multiple Enterprise Value Comment
Agriculture 2,963
Pioneer 2,261 10.9x $24,627 10% discount to Monsanto
Crop Protection 701 12.9x $9,032 10% discount to Syngenta
Electronics & Communications 557 11.5x $6,415 Air Products, Albemarle
Industrial Biosciences 323 13.0x $4,193 High growth multiple
Nutrition & Health 738 13.8x $10,167 10% Discount to Givaudan, Symrise
Performance Materials 1,309 10.0x $13,093 High end diversified chemicals
Safety & Protection 1,005 12.5x $12,545 3M Multiple
Other (259) 10.0x ($2,590)
Corporate (340) 9.0x ($3,060)
2017 Cost Savings 500 9.0x $4,500 Assume 50% of $1B in cost savings
Present Value of Remaining Cost Savings & Sales Synergies 1,125 9.0x $10,125 Assume 50% of $3B in cost savings and sales synergies
Present Value of Add'l Operational Improvement / Restructuring 1,000 9.0x $9,000 Assume 50% of an additional $3B of
DuPont Enterprise Value 8,921 11.0x $98,047
Agricultural Sciences 795 14.3x $11,382 Syngenta multiple
Consumer Solutions 1,182 9.5x $11,229 Premium Specialty Chemical multiple
Infrastructure Solutions 1,950 8.0x $15,604 Differentiated chemical multiple
Performance Materials & Chemicals 1,868 8.0x $14,947 Differentiated chemical multiple
Performance Plastics 5,068 6.0x $30,407 Commodity Chemical multiple
Corporate (375) 9.0x ($3,375)
2017 Cost Savings 500 9.0x $4,500 Assume 50% of $1B in cost savings
Present Value of Remaining $2B Cost Savings & $1B in Sales Synergies 1,125 9.0x $10,125 Assume 50% of $3B in cost savings
Present Value of Add'l Operational Improvement / Restructuring 1,000 9.0x $9,000
Dow Enterprise Value 13,114 7.9x $103,819
DuPont + Dow Enterprise Value $201,865
DuPont Equity Value
DuPont Enterprise Value $98,047
Less: Net Debt $3,714 Year-End '16
Plus: Options Proceeds from In-the-Money Options $913
Less: Imprelis Liability $0
Less: Underfunded Pension & OPEB Plans $12,112
Less: Environmental Remediation $478
DuPont Equity Value $82,656
Dow Equity Value
Dow Enterprise Value $103,819
Less: Net Debt $12,494
Plus: Options Proceeds from In-the-Money Options $1,934
Less: Underfunded Pension & OPEB Plans $10,057
Less: Environmental Remediation $706
Dow Equity Value $82,496
DuPont + Dow Equity Value $165,152
DuPont shareholder ownership of DowDuPont 48%
Dow shareholder ownership of DowDuPont 52%
DuPont portion of equity value $79,836
DuPont Per Share Equity Value $91.62
Current Share Price $64.31
DuPont Upside / (Downside) 42%
Dow portion of equity value $85,316
Dow Per Share Equity Value $76.04
Current Share Price $51.62
Dow Upside / (Downside) 47% Source: Deutsche Bank
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 37
Appendix A: US chemicals sales by region
Figure 53: Ranking by 2015 Sales to the US
98.0
%
76.0
%
59.2
%
58.5
%
57.4
%
55.0
%
53.0
%
52.8
%
52.2
%
49.2
%
48.3
%
45.0
%
44.3
%
43.3
%
43.0
%
42.8
%
41.2
%
39.8
%
34.5
%
34.0
%
33.5
%
33.0
%
30.6
%
29.3
%
25.8
%
25.2
%
24.6
%
13.0
%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
110.0%
AR
G
CM
P
PO
T
OM
N
MO
N
VA
L
AS
H
HU
N
EC
L
LY
B
CY
T
EM
N
PX
AP
D
DD
FU
L
PP
G
MM
M
DO
W
AX
TA
KR
O
GR
A
ALB
MO
S
CE
FO
E
CB
T
TS
E
Source: Deutsche Bank, Thomson One, Company data
Figure 54: Ranking by 2015 Sales to Europe
60%
51%
44%
39%
35% 34%31% 31% 31%
25% 24% 24% 23%21% 20% 19% 18% 18%
12% 12% 12%
5%
0%
10%
20%
30%
40%
50%
60%
70%
TS
E
KR
O
FO
E
CE
AX
TA
GR
A
CY
T
DO
W
PP
G
EM
N
AS
H
DD
AP
D
MM
M
OM
N
LY
B
EC
L
VA
L
HU
N
PX
MO
N
CM
P
Source: Deutsche Bank, Thomson One, Company data
18 April 2016
Chemicals / Specialty
Chemicals
Page 38 Deutsche Bank Securities Inc.
Figure 55: Ranking by 2015 Sales to Asia- Pacific
30%
26%26%
24%23% 22% 22% 22% 21%
19%18%
16% 16% 15%14% 14%
12% 12%
5%
0%
5%
10%
15%
20%
25%
30%
35%
MM
M
CE
AP
D
EM
N
TS
E
DD
VA
L
GR
A
OM
N
CB
T
AX
TA
PP
G
AS
H
FO
E
PX
HU
N
EC
L
CY
T
MO
N
Source: Deutsche Bank, Thomson One, Company data
Figure 56: Ranking by 2015 Sales to China
19%
14% 14%
12% 11% 11%10% 10% 10%
8% 8%7%
6%
2%
0%
5%
10%
15%
20%
25%
CB
T
CE
HU
N
VA
L
AP
D
EM
N
AS
H
AX
TA
PO
T
DO
W
DD
PX
GR
A
MO
S
Source: Deutsche Bank, Thomson One, Company data
Ch
em
icals
Ch
em
icals / S
pecia
lty
18
Ap
ril 20
16
Deu
tsch
e B
an
k S
ecu
rities In
c.
Pag
e 3
9
Figure 57: Chemicals valuation ratios
Market Segment/ Price 52-Week Mkt Cap Div. Net Debt/
Company Symbol Rating 4/13/16 Range ($MM) 2015 2016E 2015 2016E 2015 2016E 2015 2016E 2015 2016E Yield '15E EBITDA
Specialty Chemicals
Albemarle ALB Buy 65$ 67$ 41$ 7,293$ 17.3 16.2 0.99 0.94 11.6 11.4 2.6% 5.6% 37.8 18.0 - 3.8
Ashland ASH Buy 112$ 132$ 88$ 7,462$ 16.0 15.2 0.92 0.88 8.8 8.8 (2.3%) 4.8% -43.7 21.0 1.3% 2.2
Cabot CBT Hold 48$ 50$ 31$ 3,111$ 13.6 11.4 0.78 0.66 7.3 6.6 5.2% 7.3% 19.4 13.8 1.8% 1.7
Chemtura CHMT - 27$ 32$ 24$ 1,765$ 19.0 15.5 1.09 0.90 8.0 6.9 5.3% 6.6% 19.0 15.1 - 0.2
Ecolab ECL Hold 114$ 122$ 99$ 33,703$ 25.9 23.3 1.49 1.35 14.3 13.4 4.4% 3.8% 22.5 26.4 1.2% 2.3
Ferro FOE Buy 12$ 17$ 8$ 1,044$ 14.4 10.5 0.82 0.61 11.3 8.7 3.4% 8.1% 29.8 12.3 - 2.3
H.B. Fuller FUL Buy 45$ 45$ 31$ 2,253$ 20.0 16.8 1.15 0.98 10.7 9.6 7.5% 5.9% 13.3 17.0 1.1% 2.4
W.R. Grace GRA - 76$ 84$ 63$ 5,355$ 16.1 24.5 0.93 1.42 9.6 14.2 5.9% 5.9% 16.9 16.8 - 1.4
3M MMM Hold 169$ 169$ 134$ 105,326$ 21.5 19.4 1.23 1.13 12.8 11.9 4.4% 4.9% 22.6 20.4 2.4% 0.6
Minerals Technologies MTX - 60$ 73$ 36$ 2,101$ 14.1 13.6 0.81 0.79 8.8 8.6 5.5% 8.4% 18.2 11.9 0.3% 1.5
NewMarket Corp. NEU - 401$ 483$ 323$ 4,747$ 20.7 20.8 1.19 1.21 13.5 14.1 2.6% 2.4% 39.2 42.3 1.4% 0.0
Orion Engineered Carbons S.A. OEC 14$ 21$ 10$ 829$ 10.8 10.8 0.62 0.63 6.5 6.1 14.0% 11.4% 7.1 8.8 5.2% 2.9
Polyone POL - 32$ 41$ 22$ 2,707$ 15.9 15.0 0.92 0.87 8.3 8.1 9.1% 6.0% 11.0 16.7 1.3% 2.4
RPM RPM - 51$ 51$ 37$ 6,717$ 20.9 19.1 1.20 1.11 13.5 12.3 3.9% 5.0% 25.7 19.9 2.0% 1.5
A. Schulman SHLM - 27$ 48$ 21$ 783$ 11.1 10.4 0.64 0.60 9.9 8.0 14.1% 15.2% 7.1 6.6 3.1% 5.5
Specialty Chemical Average 17.2 16.2 0.99 0.94 10.3 9.9 5.7% 6.7% 16.4 17.8 1.9% 2.0
Coatings
Axalta Coating Systems AXTA Buy 30$ 37$ 21$ 7,155$ 28.5 23.5 1.63 1.37 11.8 11.1 5.3% 6.8% 18.9 14.6 - 3.6
PPG PPG Buy 114$ 119$ 83$ 30,925$ 20.1 18.0 1.16 1.05 12.7 11.9 3.5% 5.5% 28.6 18.3 1.2% 1.2
Sherwin Williams SHW - 297$ 300$ 218$ 27,392$ 27.2 23.9 1.56 1.39 16.4 14.7 2.9% 3.3% 34.0 30.4 0.9% 0.8
Valspar VAL Buy 107$ 108$ 71$ 8,775$ 23.5 20.6 1.35 1.20 14.1 13.1 4.3% 4.5% 23.3 22.3 1.1% 2.0
RPM RPM - 51$ 51$ 37$ 6,717$ 20.9 19.1 1.20 1.11 13.5 12.3 3.9% 5.0% 25.7 19.9 2.0% 1.5
Coatings Average 24.0 21.0 1.4 1.2 13.7 12.6 4.0% 5.0% 26.1 21.1 1.3% 1.5
P/E Ratio P/E Rel. to S&P 500 EV/EBITDA FCF Yield P/FCF
Source: Deutsche Bank, Thomson One
Ch
em
icals
Ch
em
icals / S
pecia
lty
18
Ap
ril 20
16
Pag
e 4
0
Deu
tsch
e B
an
k S
ecu
rities In
c.
Figure 58: Chemicals valuation ratios (Cont´d)
Market Segment/ Price 52-Week Mkt Cap Div. Net Debt/
Company Symbol Rating 4/13/16 Range ($MM) 2015 2016E 2015 2016E 2015 2016E 2015 2016E 2015 2016E Yield '15E EBITDA
Industrial Gases
Airgas ARG Hold 142$ 142$ 86$ 10,561$ 29.2 28.3 1.68 1.65 13.6 13.3 2.3% 2.4% 43.1 41.4 1.6% 2.8
Air Products APD Buy 144$ 154$ 115$ 31,043$ 22.0 19.5 1.26 1.13 12.4 11.3 2.6% 2.4% 38.3 40.9 2.2% 1.8
Praxair PX Buy 116$ 125$ 96$ 34,020$ 19.9 18.9 1.14 1.10 12.0 11.7 3.7% 3.8% 26.8 26.0 2.5% 2.0
Industrial Gases Average 23.7 22.3 1.36 1.29 12.7 12.1 2.9% 2.9% 36.1 36.1 2.1% 2.2
Differentiated Chemicals ,
Celanese CE Buy 69$ 74$ 54$ 10,152$ 11.4 10.6 0.66 0.62 8.4 8.2 7.6% 8.9% 13.1 11.2 1.7% 1.3
Dow Chemical DOW Buy 52$ 57$ 35$ 60,465$ 16.1 16.1 0.92 0.93 8.1 8.5 3.7% 3.6% 27.3 27.9 3.3% 1.3
Dupont DD Buy 65$ 76$ 47$ 56,785$ 23.6 19.9 1.35 1.16 12.1 11.8 3.6% 4.5% 27.4 22.3 2.7% 1.3
FMC FMC - 40$ 61$ 32$ 5,299$ 16.7 15.1 0.96 0.88 11.5 10.7 4.6% NA 21.6 15.2 1.7% 2.5
Eastman Chemical EMN Buy 74$ 84$ 56$ 11,051$ 10.3 10.0 0.59 0.58 7.9 7.7 8.3% 8.8% 12.0 11.4 2.2% 3.1
Kraton KRA - 19$ 25$ 13$ 595$ 10.9 7.6 0.62 0.44 6.8 2.7 - 559.3% - 0.2 - 11.3
OMNOVA Solutions OMN Buy 7$ 8$ 4$ 311$ 13.2 8.3 0.76 0.48 6.6 5.5 11.9% 12.4% 8.4 8.0 - 3.4
Trinseo TSE Buy 40$ 40$ 21$ 1,874$ 8.7 8.1 0.50 0.47 5.7 5.6 4.2% 8.3% 23.9 12.1 - 1.8
Huntsman HUN - 14$ 24$ 7$ 3,332$ 8.1 8.1 0.46 0.47 6.6 6.8 (0.5%) 0.3% -186.5 297.7 3.6% 3.6
Differentiated Chemical Average 13.2 11.5 0.8 0.7 8.2 7.5 5.4% 75.8% -6.6 45.1 2.5% 3.3
Commodity Chemicals
Chemours CC - 8$ 22$ 3$ 1,389$ 8.5 11.0 0.49 0.64 8.5 8.0 13.3% 6.4% 7.5 15.6 7.6% 6.0
Kronos KRO Hold 6$ 14$ 4$ 742$ 34.8 34.2 2.00 1.99 10.7 9.8 10.0% 1.4% 10.0 73.9 9.4% 1.9
Kraton KRA - 19$ 25$ 13$ 595$ 10.9 7.6 0.62 0.44 6.8 2.7 - 559.3% - 0.2 - 11.3
LyondellBasell LYB Hold 88$ 107$ 69$ 38,052$ 8.6 8.8 0.50 0.51 5.4 5.8 10.1% 7.8% 9.9 12.8 3.4% 0.6
Methanex MEOH - 34$ 61$ 23$ 3,031$ 22.8 88.0 1.31 5.11 10.9 13.3 3.1% 8.6% 32.7 11.7 3.2% 3.1
Olin OLN - 18$ 32$ 12$ 2,951$ 17.1 14.4 0.98 0.84 15.0 7.0 30.4% 5.9% 3.3 17.0 4.5% 7.7
Tronox TROX - 7$ 23$ 3$ 437$ -3.9 -12.6 -0.22 -0.73 1.4 1.4 (6.4%) 34.3% (15.7) 2.9 14.9% 8.3
Westlake Chemical WLK Hold 47$ 79$ 40$ 3,108$ 9.3 11.9 0.54 0.69 2.4 2.7 8.3% 3.1% 12.0 32.7 1.5% -0.3
Commodity Chemical Average 14.2 21.8 0.8 1.3 7.5 6.1 7.3% 81.2% 8.7 21.6 6.1% 4.7
Ag Biotech
Monsanto MON Buy 90$ 124$ 81$ 42,050$ 15.7 17.3 0.90 1.00 9.4 10.7 5.0% 3.5% 20.2 28.2 2.2% 1.0
Syngenta SYNN-CH - 406$ 435$ 289$ 37,699$ 23.0 23.4 1.32 1.36 14.4 15.2 3.3% 3.0% 30.2 33.7 2.7% 0.8
Dupont DD Buy 65$ 76$ 47$ 56,785$ 23.6 19.9 1.35 1.16 12.1 11.8 3.6% 4.5% 27.4 22.3 2.7% 1.3
Ag Biotech Average 20.8 20.2 1.2 1.2 12.0 12.6 4.0% 3.7% 26.0 28.1 2.5% 1.0
Agchems/Fertilizers TSX:agu
CF Industries CF - 31$ 70$ 26$ 7,277$ 8.3 12.1 - - 6.7 7.2 (32.0%) (1.2%) -3.1 -80.5 3.8% 2.0
Compass Minerals CMP Hold 72$ 93$ 66$ 2,434$ 13.2 12.6 0.76 0.73 8.2 7.9 3.0% 2.3% 32.9 42.8 3.7% 1.4
Intrepid Potash IPI - 1$ 13$ 1$ 84$ -6.9 -2.2 - - 2.6 7.8 6.8% 4.5% 14.7 22.0 - 0.6
Mosaic MOS Hold 27$ 48$ 22$ 9,464$ 8.1 6.4 0.47 0.37 4.7 4.2 5.4% 13.6% 18.7 7.4 4.1% 0.7
Potash Corp. POT Hold 16.66$ 34$ 15$ 13,823$ 10.6 17.4 0.61 1.01 5.6 5.2 10.5% 12.2% 9.6 8.2 9.1% 1.3
Ag/Fertilizer Average 12.0 13.4 0.6 0.7 5.6 6.4 -1.3% 6.3% 14.5 0.0 5.2% 1.2
Chemical Average (ex-Ag.) 17.0 17.3 1.0 1.0 10.0 9.2 6.0% 37.6% 18.6 19.6 2.8% 2.7
S&P 500 SPX 2,082.42$ 2,135$ 1,810$ 18,160,000$ 17.4 17.2
P/FCFP/E Ratio P/E Rel. to S&P 500 EV/EBITDA FCF Yield
Source: Deutsche Bank, Thomson One
Ch
em
icals
Ch
em
icals / S
pecia
lty
18
Ap
ril 20
16
Deu
tsch
e B
an
k S
ecu
rities In
c.
Pag
e 4
1
Figure 59: Chemicals valuation metrics
Market Segment/ Price 52-Week Mkt Cap EV
Company Symbol Rating 4/13/16 Range ($MM) ($MM) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E
Specialty Chemicals
Albemarle ALB Buy 65.00$ 67$ 41$ 7,293$ 11,038$ $3.75 $4.00 (10%) 7% $8.52 $8.66 1.72$ 3.61$
Ashland ASH Buy 112.21$ 132$ 88$ 7,462$ 9,934$ $7.02 $7.40 16% 5% $16.41 $18.12 (2.57)$ 5.35$
Cabot CBT Hold 48.32$ 50$ 31$ 3,111$ 4,221$ $3.55 $4.25 2% 20% $8.91 $9.88 2.49$ 3.50$
Chemtura CHMT - 27.31$ 32$ 24$ 1,765$ 1,960$ $1.44 $1.76 98% 22% $3.66 $4.37 1.44$ 1.81$
Ecolab ECL Hold 114.13$ 122$ 99$ 33,703$ 40,348$ $4.40 $4.90 5% 11% $9.64 $10.41 5.08$ 4.32$
Ferro FOE Buy 12.04$ 17$ 8$ 1,044$ 1,409$ $0.84 $1.15 34% 37% $1.75 $2.33 0.40$ 0.98$
H.B. Fuller FUL Buy 44.57$ 45$ 31$ 2,253$ 2,896$ $2.23 $2.65 (4%) 19% $6.75 $6.38 3.35$ 2.61$
W.R. Grace GRA - 75.81$ 84$ 63$ 5,355$ 7,259$ $4.70 $3.10 9% (34%) $10.68 $7.22 4.47$ 4.50$
3M MMM Hold 168.59$ 169$ 134$ 105,326$ 110,899$ $7.85 $8.70 5% 11% $13.49 $14.85 7.46$ 8.27$
Minerals Technologies MTX - 60.32$ 73$ 36$ 2,101$ 3,161$ $4.27 $4.43 - 4% $10.37 $10.54 3.31$ 5.09$
NewMarket Corp. NEU - 400.57$ 483$ 323$ 4,747$ 5,148$ $19.34 $19.23 6% (1%) $31.93 $30.72 10.22$ 9.48$
Orion Engineered Carbons S.A. OEC 13.96$ 21$ 10$ 829$ 1,466$ $1.29 $1.29 85% 0% $3.78 $4.03 1.95$ 1.59$
Polyone POL - 31.65$ 41$ 22$ 2,707$ 3,575$ $1.99 $2.11 12% 6% $5.02 $5.18 2.87$ 1.89$
RPM RPM - 50.56$ 51$ 37$ 6,717$ 8,200$ $2.42 $2.65 8% 9% $4.57 $5.03 1.97$ 2.54$
A. Schulman SHLM - 26.62$ 48$ 21$ 783$ 1,761$ $2.39 $2.57 - 7% $6.05 $7.44 3.75$ 4.05$
Specialty Chemical Average 20% 8%
Coatings
Axalta Coating Systems AXTA 30.00$ 37$ 21$ 7,155$ 10,364$ $1.05 $1.28 (2%) 21% $3.65 $3.90 1.58$ 2.05$
PPG PPG Buy 114.23$ 119$ 83$ 30,925$ 34,152$ $5.68 $6.35 16% 12% $9.80 $10.80 3.99$ 6.23$
Sherwin-Williams SHW - 297.08$ 300$ 218$ 27,392$ 29,149$ $10.93 $12.42 24% 14% $19.10 NM 8.73$ 9.77$
Valspar VAL Buy 107.01$ 108$ 71$ 8,775$ 10,203$ $4.55 $5.20 5% 14% $8.78 $9.84 4.60$ 4.80$
RPM RPM - 50.56$ 51$ 37$ 6,717$ 8,200$ $2.42 $2.65 8% 9% $4.57 NM 1.97$ 2.54$
10% 14%
FCF Per ShareEarnings Per Share EPS Change EBITDA Per Share
Source: Deutsche Bank, Thomson One
Ch
em
icals
Ch
em
icals / S
pecia
lty
18
Ap
ril 20
16
Pag
e 4
2
Deu
tsch
e B
an
k S
ecu
rities In
c.
Figure 60: Chemicals valuation metrics (Cont´d).
Market Segment/ Price 52-Week Mkt Cap EV
Company Symbol Rating 4/13/16 Range ($MM) ($MM) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E
Industrial Gases
Airgas ARG Hold 141.62$ 142$ 86$ 10,561$ 13,267$ $4.85 $5.00 3% 3% $12.86 $13.53 3.29$ 3.42$
Air Products APD Buy 144.40$ 154$ 115$ 31,043$ 36,408$ $6.57 $7.40 14% 13% $13.51 $14.76 3.77$ 3.53$
Praxair PX Buy 115.57$ 125$ 96$ 34,020$ 43,050$ $5.82 $6.10 (7%) 5% $14.83 $12.90 4.32$ 4.45$
Industrial Gases Average 3% 7%
Differentiated Chemicals
Celanese CE Buy 69.20$ 74$ 54$ 10,152$ 12,635$ $6.05 $6.50 7% 7% $10.28 $11.18 5.27$ 6.17$
Dow Chemical DOW Buy 52.21$ 57$ 35$ 60,465$ 73,511$ $3.25 $3.25 4% 0% $7.98 $8.11 1.91$ 1.87$
Dupont DD Buy 64.80$ 76$ 47$ 56,785$ 63,462$ $2.75 $3.25 (32%) 18% $5.81 $6.19 2.36$ 2.90$
FMC FMC - 39.62$ 61$ 32$ 5,299$ 7,412$ $2.37 $2.62 43% 10% $4.83 $5.20 1.84$ 2.61$
Eastman Chemical EMN Buy 74.36$ 84$ 56$ 11,051$ 18,186$ $7.25 $7.45 3% 3% $15.40 $15.81 6.20$ 6.53$
Kraton KRA - 19.31$ 25$ 13$ 595$ 989$ $1.78 $2.55 55% 43% $4.78 $12.09 - 108.00$
OMNOVA Solutions OMN Buy 6.65$ 8$ 4$ 311$ 639$ $0.50 $0.80 82% 60% $2.07 $2.49 0.79$ 0.83$
Trinseo TSE Buy 39.65$ 40$ 21$ 1,874$ 2,774$ $4.55 $4.90 3838% 8% $7.97 $10.07 1.66$ 3.29$
Huntsman HUN - 13.99$ 24$ 7$ 3,332$ 8,058$ $1.73 $1.72 (13%) (1%) $4.96 $5.01 (0.08)$ 0.05$
Differentiated Chemical Average 443% 17%
Commodity Chemicals
Chemours CC - 7.66$ 22$ 3$ 1,389$ 4,981$ $0.90 $0.69 - (23%) $3.23 $3.45 1.02$ 0.49$
Kronos KRO Hold 6.40$ 14$ 4$ 742$ 906$ $0.18 $0.19 (77%) 2% $0.73 $0.80 0.64$ 0.09$
Kraton KRA - 19.31$ 25$ 13$ 595$ 989$ $1.78 $2.55 55% 43% $4.78 $12.09 ... 108.00$
LyondellBasell LYB Hold 88.40$ 107$ 69$ 38,052$ 43,321$ $10.25 $10.05 16% (2%) $17.31 $17.19 8.94$ 6.91$
Methanex MEOH - 33.62$ 61$ 23$ 3,031$ 4,561$ $1.47 $0.38 (65%) (74%) $4.67 $3.81 1.03$ 2.88$
Olin OLN - 17.87$ 32$ 12$ 2,951$ 6,439$ $1.05 $1.24 (28%) 18% $2.60 $5.60 5.44$ 1.05$
Tronox TROX - 6.73$ 23$ 3$ 437$ 486$ -$1.74 -$0.53 74% (69%) $5.19 $5.24 (0.43)$ 2.31$
Westlake Chemical WLK Hold 46.74$ 79$ 40$ 3,108$ 2,986$ $5.01 $3.92 (8%) (22%) $9.56 $8.42 3.90$ 1.43$
Commodity Chemical Average (5%) (15%)
Ag Biotech
Monsanto MON Buy 89.74$ 124$ 81$ 42,050$ 47,368$ $5.72 $5.20 9% (9%) $10.52 $9.87 4.45$ 3.18$
Syngenta SYNN-CH - 405.60$ 435$ 289$ 37,699$ 40,309$ $17.60 $17.35 2% (1%) $29.02 NM 13.41$ 12.02$
Dupont DD Buy 64.80$ 76$ 47$ 56,785$ 63,462$ $2.75 $3.25 (32%) 18% $5.81 $6.19 2.36$ 2.90$
Ag Biotech Average (7%) 3%
Fertilizers
CF Industries CF - 31.22$ 70$ 26$ 7,277$ 12,936$ $3.75 $2.57 (1%) (31%) $8.32 NM (9.99)$ (0.39)$
Compass Minerals CMP Hold 72.23$ 93$ 66$ 2,434$ 2,938$ $5.45 $5.75 13% 5% $10.58 $11.07 2.19$ 1.69$
Intrepid Potash IPI - 1.10$ 13$ 1$ 84$ 174$ -$0.16 -$0.50 (311%) 213% $0.9 NM 0.08$ 0.05$
Mosaic MOS Hold 26.52$ 48$ 22$ 9,464$ 11,060$ $3.26 $4.17 21% 28% $6.46 $7.77 1.42$ 3.59$
Potash Corp. POT Hold 16.66$ 34$ 15$ 13,823$ 17,863$ $1.58 $0.96 (13%) (39%) $3.85 $4.15 1.74$ 2.04$
Ag/Fertilizer Average (1%) 5%
Chemical Average (ex-Ag.) 8% 8%
S&P 500 SPX 2,082 2,135 1,810 $119.53 $120.99 2% 1%
FCF Per ShareEarnings Per Share EPS Change EBITDA Per Share
Source: Deutsche Bank, Thomson One consensus estimates for NR stocks
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 43
Sector valuation & risks
We value the sector based on the strong correlation (R2>75%) we have found
between chemical sector valuations and returns on capital. Key risks for the
sector include an economic recession and a surge in natural gas prices.
18 April 2016
Chemicals / Specialty
Chemicals
Page 44 Deutsche Bank Securities Inc.
The author of this report wishes to acknowledge the contribution made by
Manish Agrawal and Aneesh Agarwal, employee of Evalueserve, a third-party
provider to Deutsche Bank of offshore research support services.
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 45
Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
LyondellBasell LYB.N 88.15 (USD) 15 Apr 16 6,7,8,9,14,15
Dow Chemical DOW.N 52.37 (USD) 15 Apr 16 7,8,14,15,17 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
Important Disclosures Required by U.S. Regulators
Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes.
6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law.
7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.
8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.
15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services.
Important Disclosures Required by Non-U.S. Regulators
Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.
6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law.
7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.
9. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by India law.
17. Deutsche Bank and or/its affiliate(s) has a significant Non-Equity financial interest (this can include Bonds, Convertible Bonds, Credit Derivatives and Traded Loans) where the aggregate net exposure to the following issuer(s), or issuer(s) group, is more than 25m Euros.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
18 April 2016
Chemicals / Specialty
Chemicals
Page 46 Deutsche Bank Securities Inc.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. David Begleiter
Historical recommendations and target price: LyondellBasell (LYB.N) (as of 4/15/2016)
1
23
4
5
6
7
89
10
1112
13
1415
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
1. 07/29/2013: Buy, Target Price Change USD80.00 9. 02/13/2015: Downgrade to Hold, USD96.00
2. 10/30/2013: Buy, Target Price Change USD90.00 10. 04/27/2015: Hold, Target Price Change USD105.00
3. 02/03/2014: Buy, Target Price Change USD92.00 11. 07/29/2015: Hold, Target Price Change USD100.00
4. 04/30/2014: Buy, Target Price Change USD108.00 12. 09/17/2015: Hold, Target Price Change USD95.00
5. 07/28/2014: Buy, Target Price Change USD125.00 13. 10/23/2015: Hold, Target Price Change USD100.00
6. 10/26/2014: Buy, Target Price Change USD113.00 14. 01/21/2016: Hold, Target Price Change USD84.00
7. 12/15/2014: Buy, Target Price Change USD90.00 15. 02/04/2016: Hold, Target Price Change USD82.00
8. 02/04/2015: Buy, Target Price Change USD96.00
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 47
Historical recommendations and target price: Dow Chemical (DOW.N) (as of 4/15/2016)
1
2
3
4 5
6
78
9
10
11
12
13
14
15
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
1. 04/26/2013: Hold, Target Price Change USD37.00 9. 01/30/2015: Buy, Target Price Change USD55.00
2. 10/25/2013: Hold, Target Price Change USD43.00 10. 04/24/2015: Buy, Target Price Change USD60.00
3. 01/22/2014: Hold, Target Price Change USD48.00 11. 09/17/2015: Buy, Target Price Change USD55.00
4. 03/20/2014: Hold, Target Price Change USD50.00 12. 10/23/2015: Buy, Target Price Change USD58.00
5. 04/24/2014: Hold, Target Price Change USD54.00 13. 12/10/2015: Buy, Target Price Change USD65.00
6. 07/24/2014: Hold, Target Price Change USD57.00 14. 12/14/2015: Buy, Target Price Change USD62.00
7. 10/23/2014: Upgrade to Buy, Target Price Change USD58.00 15. 02/03/2016: Buy, Target Price Change USD56.00
8. 11/14/2014: Buy, Target Price Change USD60.00
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock
Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.
Newly issued research recommendations and target prices supersede previously published research.
48 % 50 %
3 %
51 % 43 %
25 %0
50100150200250300350400450500
Buy Hold Sell
North American Universe
Companies Covered Cos. w/ Banking Relationship
18 April 2016
Chemicals / Specialty
Chemicals
Page 48 Deutsche Bank Securities Inc.
Regulatory Disclosures
1.Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2.Short-Term Trade Ideas
Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are
consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the
SOLAR link at http://gm.db.com.
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 49
Additional Information
The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively
"Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources
believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness.
If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this
report, or is included or discussed in another communication (oral or written) from a Deutsche Bank analyst, Deutsche
Bank may act as principal for its own account or as agent for another person.
Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own
account or with customers, in a manner inconsistent with the views taken in this research report. Others within
Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those
taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis,
equity-linked analysis, quantitative analysis and trade ideas. Recommendations contained in one type of communication
may differ from recommendations contained in others, whether as a result of differing time horizons, methodologies or
otherwise. Deutsche Bank and/or its affiliates may also be holding debt securities of the issuers it writes on.
Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment
banking revenues.
Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do
not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no
obligation to update, modify or amend this report or to otherwise notify a recipient thereof if any opinion, forecast or
estimate contained herein changes or subsequently becomes inaccurate. This report is provided for informational
purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any
particular trading strategy. Target prices are inherently imprecise and a product of the analyst’s judgment. The financial
instruments discussed in this report may not be suitable for all investors and investors must make their own informed
investment decisions. Prices and availability of financial instruments are subject to change without notice and
investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is
denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the
investment. Past performance is not necessarily indicative of future results. Unless otherwise indicated, prices are
current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and
other vendors. Data is sourced from Deutsche Bank, subject companies, and in some cases, other parties.
Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise
to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash
flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a
loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the
loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse
macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation
(including changes in assets holding limits for different types of investors), changes in tax policies, currency
convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and
settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed
income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to
FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the
index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended
to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon
rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is
also important to acknowledge that funding in a currency that differs from the currency in which coupons are
denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to
the risks related to rates movements.
18 April 2016
Chemicals / Specialty
Chemicals
Page 50 Deutsche Bank Securities Inc.
Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk.
The appropriateness or otherwise of these products for use by investors is dependent on the investors' own
circumstances including their tax position, their regulatory environment and the nature of their other assets and
liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar
to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can
be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be
incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable
for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized
Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the
website please contact your Deutsche Bank representative for a copy of this important document.
Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i)
exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by
numerous market factors, including world and national economic, political and regulatory events, events in equity and
debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed
exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are
affected by the currency of an underlying security, effectively assume currency risk.
Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the
investor's home jurisdiction.
United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and
SIPC. Analysts employed by non-US affiliates may not be associated persons of Deutsche Bank Securities Incorporated
and therefore not subject to FINRA regulations concerning communications with subject companies, public appearances
and securities held by analysts.
Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated
in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under
German Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal
Financial Supervisory Authority.
United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at Winchester
House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the
Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial
Conduct Authority. Details about the extent of our authorisation and regulation are available on request.
Hong Kong: Distributed by Deutsche Bank AG, Hong Kong Branch.
India: Prepared by Deutsche Equities India Pvt Ltd, which is registered by the Securities and Exchange Board of India
(SEBI) as a stock broker. Research Analyst SEBI Registration Number is INH000001741. DEIPL may have received
administrative warnings from the SEBI for breaches of Indian regulations.
Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financial
instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA,
Type II Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks
involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by
multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to
losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional
losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories
of investment advice, products and services. Recommended investment strategies, products and services carry the risk
of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in
market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the
relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in
this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the
name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank
18 April 2016
Chemicals / Specialty
Chemicals
Deutsche Bank Securities Inc. Page 51
Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are
not disclosed according to the Financial Instruments and Exchange Law of Japan.
Korea: Distributed by Deutsche Securities Korea Co.
South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register
Number in South Africa: 1998/003298/10).
Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles
Quay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters
arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who
is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and
regulations), they accept legal responsibility to such person for its contents.
Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers should
independently evaluate investment risks and are solely responsible for their investment decisions. Deutsche Bank
research may not be distributed to the Taiwan public media or quoted or used by the Taiwan public media without
written consent. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and
is not to be construed as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited,
Taipei Branch may not execute transactions for clients in these securities/instruments.
Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre
Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall
within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower,
West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related
financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre
Regulatory Authority.
Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute,
any appraisal or evaluation activity requiring a license in the Russian Federation.
Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the
Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall
within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya
District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.
United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated
by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services
activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai
International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been
distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as
defined by the Dubai Financial Services Authority.
Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product
referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please
refer to Australian specific research disclosures and related information at
https://australia.db.com/australia/content/research-information.html
Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the
meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.
Additional information relative to securities, other financial products or issuers discussed in this report is available upon
request. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent.
Copyright © 2016 Deutsche Bank AG
David Folkerts-Landau Chief Economist and Global Head of Research
Raj Hindocha Global Chief Operating Officer
Research
Marcel Cassard Global Head
FICC Research & Global Macro Economics
Steve Pollard Global Head
Equity Research
Michael Spencer Regional Head
Asia Pacific Research
Ralf Hoffmann Regional Head
Deutsche Bank Research, Germany
Andreas Neubauer Regional Head
Equity Research, Germany
International locations
Deutsche Bank AG
Deutsche Bank Place
Level 16
Corner of Hunter & Phillip Streets
Sydney, NSW 2000
Australia
Tel: (61) 2 8258 1234
Deutsche Bank AG
Große Gallusstraße 10-14
60272 Frankfurt am Main
Germany
Tel: (49) 69 910 00
Deutsche Bank AG
Filiale Hongkong
International Commerce Centre,
1 Austin Road West,Kowloon,
Hong Kong
Tel: (852) 2203 8888
Deutsche Securities Inc.
2-11-1 Nagatacho
Sanno Park Tower
Chiyoda-ku, Tokyo 100-6171
Japan
Tel: (81) 3 5156 6770
Deutsche Bank AG London
1 Great Winchester Street
London EC2N 2EQ
United Kingdom
Tel: (44) 20 7545 8000
Deutsche Bank Securities Inc.
60 Wall Street
New York, NY 10005
United States of America
Tel: (1) 212 250 2500