Specialty Chemicals Celanese (CE) and Olin (OLN) Continue to Raise Selling Prices
There is inherent strength in selected specialty chemicals, if one is paying close attention. At JaguarAnalytics, we thrive to bring the highest quality research using 3 pronged approach: fundamentals, technicals and option activity. Here is a glimpse:
Celanese (CE) – Back on April 17, we recommended getting long calls in CE as earnings play and subsequently closed for 150%+ gain. The bull case here was observed after watching management commentary at 2016 IHS Petrochemical Conference in Houston in March. The big takeway: multiple price hikes announced in Q1 in resin, polyethylene, chlorine and PVC, all resulting in huge EPS beat of $1.83 vs. $1.49 estimate. Click HERE for our note from April 17. Now the chart is setting up for breakout again, coming out of tight Bollinger Bands after consolidating in bull flag post earnings. Note, CE is also shopping to acquire Nylon assets and Honeywell is looking to divest its Nylon assets. We see a match here and potential major catalyst in the future.
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Olin Corp (OLN) – Now Olin is following the same path. Here is a note that was presented to clients in chat room today at 1:59 pm ET:
Beautiful technical breakout set up here with one bull rolling calls out and doubling position size in terms of contracts:
– 1,350 August 21 calls sold to close for $2.40 credit
– 2,700 August 23 calls bought to open for $1.35 offer
Nomura in a note this morning:
“Caustic soda outlook continues to improve. Caustic price increase nominations suggest upside in 3Q Olin (OLN, Buy) and Occidental Chemical (OXY, Not rated), the no. 1 and no. 2 U.S. chlor-alkali producers, both announced $40/ton price increase nominations for caustic soda this week. We believe this signals that capacity cuts, maintenance outages, and robust export demand continue to tighten the caustic soda market. If successful, we expect the nominations to affect July price indices, meaning they represent the first lines of sight into 3Q price discussions. Talk of potential price increases in 3Q diminishes the bear thesis that caustic prices will decline once seasonal industry outages are over in June-July. OLN remains a top pick in chemicals, along with HUN. Outages have already begun to reverse, but prices are holding firm. We believe this underscores underlying structural improvement in chlor-alkali following capacity reductions by industry leader Olin and others, as well as lower production within Oxy’s system (down 15% q-q in 2Q and remaining low in 2H16 due to lower demand from chlorine customers). Looking ahead, we continue to expect limited capacity additions, and indeed see prospects for further capacity cuts. We also expect relatively steady chlorine prices given robust demand, with normal seasonal pullback after the construction season ends. Overall, we think continued improvement in chlor-alkali likely puts OLN on a path of beat-and-raise vs. expectations in 2H.”
