Considering that Research and Markets’ latest report projects the global MDI market to grow at a compounded rate of 6% through 2016, Huntsman looks to be doing the right thing by expanding its polyurethanes business. After acquiring 20% stake in Japan-based foam-insulation company Nippo Aqua in March, Huntsman will soon take over Texas-based insulation-component maker Oxid.
But the real deal that could change Huntsman’s fortunes is the joint venture it entered into with China-based Sinopec Jinling last year. The two companies are jointly building a propylene oxide facility in China, targeting completion by the end of 2014. Propylene is a key input for polyurethanes.
The Sinopec deal should help Huntsman deepen its foothold in the critical Asia-Pacific market, especially at a time when rival The Dow Chemical Company (NYSE:DOW) is also eying a share of the pie. The Dow Chemical Company (NYSE:DOW) is setting up one of the world’s largest petrochemical facilities in Saudi Arabia in collaboration with Saudi Aramco. The plant will primarily deal in polyurethanes, and will aim to sell half of the production to customers in the Asia-Pacific region. Projected to be fully operational by 2016, the facility will target annual revenue of $10 billion. To give you an idea of how big that would be, Huntsman’s total revenue from its polyurethanes business in 2012 was $4.9 billion.
Undoubtedly, Huntsman faces a daunting task of tackling the cutthroat competition. The good news is that Huntsman currently boasts 18% of the global MDI capacity, which is way ahead of The Dow Chemical Company (NYSE:DOW)’s 12% capacity share. The Sinopec deal should help Huntsman remain on the forefront.
The Foolish bottom line
The second quarter also proved that Huntsman Corporation (NYSE:HUN)’s long-drawn efforts to restructure two of its ailing units – textile effects and advance materials – are starting to pay off. Operating earnings for both businesses improved year over year, with textile effects even reporting an 11% jump in revenue. Together, the two units contribute about 19% to Huntsman’s revenue.
With growth plans in place, Huntsman looks well poised to overcome near-term challenges and head higher in the future. Investors will also be happy to know that Huntsman recently increased its dividend by 25% to $0.125 per share after sticking to a payout of $0.10 per share for several years. That yields a sweet 2.7 % dividend yield at current prices.
The article 3 Reasons This Chemical Giant Is Poised to Head Higher originally appeared on Fool.com is written by Neha Chamaria.
Fool contributor Neha Chamaria has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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