Commodity versus Specialty Chemical Companies

A question I have had is what distinguishes a “commodity” chemical company from a “specialty” chemical company.  Commodity and specialty are descriptions that I have seen in distinguishing chemical companies, and I have had a long-time curiosity on how the two groups of companies might be distinguished.  

One way of distinguishing the two groups might be on the basis of financial data representing the groups, and whether the financial data might indicate differences that imply company characteristics.  Therefore in this blog I am providing the tables below that show financial data associated with ten companies that are considered commodity chemical companies and ten that are considered specialty chemical companies.  I used a major investment management/brokerage company to screen their list of chemical companies based on whether the investment management/brokerage company categorizes the chemical company as commodity or specialty. And I chose ten companies from each group (commodity and specialty) and then found financial data, shown in the tables, for each company. 

 

Commodity Chemical Companies
company	p/e	% div	roe	gpm	npm	ltd/eq
AdvanSix	7.29	1.42	26.75	16.27	8.3	22.46
Dow	7.15	4.67	41.04	19.61	11.65	78.91
Hawkins	18.42	1.28	18.24	19.87	7	36.31
Koppers	7.73	0	24.08	21.03	4.88	202.47
Lyondellbasell	5.73	4.59	60.11	19.63	13.93	109.7
Methanex	7.5	1.05	34.06	24.35	12.59	164.25
Tredegar	8.9	4.21	19.77	19.81	5.35	86.82
Trinseo	7.4	2.45	34.88	14.48	5.79	227.58
Tronox	11.34	2.45	15.49	24.72	8.48	128.29
Westlake	6.82	1.12	5.46	13.63	4.4	61.74
averages	8.8	2.3	28.0	19.3	8.2	111.9
Specialty Chemical Companies
company	p/e	% div	roe	gpm	npm	ltd/eq
Ashland	39.46	1.29	4.93	31.56	7	57.19
Celanese	8.1	1.96	49.57	31.42	22.47	75.82
Chase	19.21	1.13	13.39	39.46	14.55	0
Dupont	23.42	1.76	5.41	35.13	10.83	40.22
Eastman	18.93	2.55	14.23	23.86	8.28	87.48
Element Solutions	25.55	1.37	9.62	41.35	9.62	76.52
H.B. Fuller	23.14	0.98	10.84	25.78	4.69	99.67
New Market	17.57	2.72	25.03	23.25	8.1	103.64
Quaker	23.19	0.85	11.58	35.16	8.25	60.68
Stepan	17.57	1.29	13.37	16.87	5.88	30.06
averages	21.6	1.6	15.8	30.4	10.0	63.1

 

Some of the averages for the six sets of financial data shown in the tables above differ significantly for the commodity companies compared to the specialty companies.   (The six financial data are: p/e – price to earnings ratio; % div – dividend % yield; roe – return on equity; gpm – gross profit margin; npm – net profit margin; and ltd/eq – long term debt as a percentage of total equity.) 

The average p/e for the specialty companies is significantly higher than for the commodity companies.  This probably reflects a higher expected return for the specialty companies by owners of specialty companies (e.g., the stockholders).  This is consistent with my understanding that specialty companies seek out unique products that can be protected on intellectual protection grounds, e.g. patents, which hopefully provide higher returns to the owners, and therefore a higher price to become an owner (a higher p/e). 

Significant differences also exist in the % div and the roe averages for the two categories, with commodity companies having the higher averages.  My understanding for this is that the commodity companies need to provide evidence of returns in a way other than the expected returns based on protected products, associated with specialty companies (see above paragraph for more on protected product returns).  And therefore commodity companies seek to manage their companies to show the higher % div and roes. 

The large difference in gpm between the two groups follow from the protection provided the specialty company products that allow the specialty companies to ask higher prices (less product competition) at a cost of sales that allows for a higher gpm.  The higher average gpm for the specialty companies lead to the higher average npm for these companies.

The higher ltd/eq ratio for the commodity companies indicate to me that these companies have higher capital expenses and therefore they need to borrow higher amounts of capital (leading to higher long-term debt - ltd) to pay for the higher capital expenses.   This higher borrowing amount is consistent with viewing these companies (the commodity companies) as companies needing more production assets (plants), compared to specialty companies, in order to provide products (commodity products) that usually are in greater use than specialty products.   Also these companies need a lot of production assets, because in order to gain sufficient profits on the products, the companies need to achieve economies of scales.  Such economies of scales give better profits than competitors, with less economies of scales; better profits that are needed to attract more investors. 

The tables above seem to indicate that differences between commodity and specialty chemical companies show up in financial data associated with the companies. 

Companies Offering Chemicals Derived from Wood

Several paper and pulp producers are pursuing the production of chemicals as a supplement to their main businesses of paper and pulp products.   A driving force behind this seems to be societal sustainability concerns and reducing the reliance on fossil fuels as a source of chemicals.  Paper and pulp companies that show chemicals for sale on their websites are: 

Mercer International sells tall oil, turpentine, and sandalwood, an essential oil.  Click here for more information. 

Norske Skog (in partnership with the CIRCA Group) uses wood wastes to produce levoglucosenone, a ketone.  Click here for more information. 

Sappi derives from wood specialty chemicals such as furfural, nanocellulose, lignin, oil, and xylose.  Click here for more information. 

Stora Enso sells wood-based tall oil, turpentine, and xylose sugars that can be used in fragrances, flavors, lubricants, resins, and industrial and household cleaners and solvents.  Click here for more information. 

Suzano offers micro fibrillated, nanocrystalline, and water-soluble cellulose.  The company also sells bio-composites and bio-oil.  Click here for more information.

 UPM offers bio-composites based on wood fibers.  Click here for more information. 

West Fraser offers two chemical products with the trade names propel and amallin.  Propel is a bio-composite incorporating cellulose fibers.  Amallin is a biopolymer that can replace fossil-fuel based polyols.   Click here for more information. 

Due to the sustainability of biomass, such as wood from trees, much chemical research and development activities have been going on for a long time with the goal of relying less on fossil fuels as a source of chemicals and more on biomass. 

That the seven paper and pulp companies listed above are ratcheting up their websites with chemicals for sale from biomass seems to me to be a good omen for possible success in less reliance on fossil fuels for chemicals.

 

 

 

  

Companies Providing Packaging Products and Some Chemical Technologies They Rely On

The websites of ten large (revenues in the billions of US dollars), publicly-listed companies, which provide packaging products, were examined for how chemical technologies might be vital to their operations.  Here are the results of what were found: 

Amcor – global provider of packaging for food & beverage, health, home, and personal care products.  Vital chemical technologies include improved polymers for a variety of technical applications. 

AptarGroup – innovative packaging for pharmaceutical and personal care products.  Vital chemical technologies include polymer science and aerosol chemistry. 

Ball Corporation – a leader in providing aluminum packaging.  Vital chemical technologies include chemical processing. 

Berry Global Group – manufacturer of plastic packaging products.  Vital chemical technologies include polymer science and adhesive chemistry. 

DS Smith – paper and board for packaging.  Vital chemical technologies include papermaking technologies and polymer recycling technologies. 

Greif – specializes in packaging for chemical industry.  Vital chemical technologies include properties of chemicals. 

International Paper – leading producer of fiber-based packaging and pulp.  Vital chemical technologies include cellulose technologies. 

Pactiv Evergreen – fresh food and beverage packaging.   Vital chemical technologies include recycling technologies and non-petroleum based packaging materials. 

Smurfit Kappa – a leading corrugated packaging company.  Vital chemical technologies include relationships between paper and printing inks and paper properties. 

Westrock – producer of corrugated packaging.  Vital chemical technologies include improving fiber reactions to grease and water. 

The above information provides some insights into how the chemical enterprise supports a critically-important industry – packaging.   It also suggests how this industry depends on chemical technologies and individuals skilled in those technologies.

 

 

 

 

 

Chemical and Metal Shortage Alert – January 2022

The purpose of this blog is to identify chemical and metal shortages reported on the Internet.  The sources of the information reported here are primarily news releases issued on the Internet.  The issue period of the news releases is January 2022. 

Section I below lists those chemicals and metals that were on the previous month’s Chemical and Metal Shortage Alert list and continue to have news releases indicating they are in short supply.  Click here to read the December 2021 Chemical and Metal Shortage Alert list. 

Section II lists the new chemicals and metals (not on the December alert).  Also provided is some explanation for the shortage and geographical information.  This blog attempts to list only actual shortage situations – those shortages that are being experienced during the period covered by the news releases.  Chemicals and metals identified in news releases as only being in danger of being in shortage status are not listed. 

Section I. 

• Cardboard boxes: United Kingdom, United States; production not keeping up with demand
• Construction materials:  United States, Germany, and the United Kingdom; production not keeping up with demand
• Magnesium: global; supply not keeping up with demand 

Section II.   Shortages Reported in January not found on the Previous Month’s Lists 

• Aluminum: Europe; production not keeping up with demand
• Brown glass: United States; supply not keeping up with demand 

Reasons for Section II shortages can be broadly categorized as:  

• Mining not keeping up with demand: none
• Production not keeping up with demand: aluminum
• Sources no longer available: none
• Insufficient imports:  none
• Supply not keeping up with demand: brown glass