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Sherwin-Williams Company (SHW), LyondellBasell Industries NV (LYB), PPG Industries, Inc. (PPG) – Pick Your Poison: Which Chemical Companies Should You Buy?

Sherwin-Williams CompanyChemicals are used in almost every industry, making the chemical industry highly sensitive to economic slowdown. In the last year the Eurozone financial crisis and concerns about the U.S. fiscal cliff caused underperformance in this industry. However, as these concerns decrease, the industry is expected to grow by 4.3% this year. Three chemical companies are trying to tap the growing market. Sherwin-Williams Company (NYSE:SHW) and LyondellBasell Industries NV (NYSE:LYB) are trying to gain a larger market with acquisition and new product introduction. On the other hand, PPG Industries, Inc. (NYSE:PPG) is implementing share repurchase to offset margin concerns. Will their strategies be what they need to thrive?

Continuous growth through expansions

Sherwin-Williams Company (NYSE:SHW)’ growth is driven by rising sales volume from its paint stores group. The demand for architectural paint is growing at pace with the housing market, which is its primary customer. Looking at this growth potential, the company will add around 75 new stores in the current year. Furthermore, it will add around 75-100 new stores annually, on average, in the coming couple of years. It is expected that the demand for architectural paint will rise to around 740 million gallons in 2015 from around 636 million gallons in 2012. The company will benefit from this rising demand of paint, as it generates around 70% of its sales from paint store and consumer paint groups.

Moreover, Sherwin-Williams Company (NYSE:SHW)’s acquisition of Comex for $2.34 billion will expand its paint store group. This deal is expected to close this year. Through this acquisition, Sherwin-Williams Company (NYSE:SHW) will add 318 stores in Canada and the U.S. to its paint store group. Although Comex has lower margins in comparison to Sherwin-Williams Company (NYSE:SHW), this addition will improve its footprint in the Mexican market. Comex has around 3300 points of sale in Mexico, similar to Sherwin’s U.S. store numbers. Sherwin currently has a profit margin of around 10% in the Latin American market and the acquisition will improve that number. It is expected that Comex will generate revenue of around $1.4 billion this year, making this an excellent investment for Sherwin-Williams Company (NYSE:SHW).

New products providing competitive edge

PPG Industries, Inc. (NYSE:PPG) has the second largest global market share in packaging coatings, mainly of metal cans used in the packaging of food and beverages. In this metal can coating industry, the top three players have more than 90% of the beverage market and 75% of the food cans market. Valspar is the leading player and Akzo is the third. PPG Industries, Inc. (NYSE:PPG) has around 20% global market share in the packaging coating industry.

However, the recent concern for the company was the banning of Bisphenol A, or BPA, as content for inside coating. This chemical is considered a health risk for fetuses, infants and young children, as it contains a toxic substance. Hence, the company has started using BPA-NI instead. This material is safer in comparison to BPA and will open new opportunity for the company. As there is technical expertise required to shift towards BPA-NI, market share will further be consolidated among these top three players. It is expected that PPG Industries, Inc. (NYSE:PPG) will capture around 40% of the market for BPA-NI as inside can coating. This will result in around 67% of sales increment, amounting to more than $400 million annually.

In other news, PPG Industries, Inc. (NYSE:PPG) closed the acquisition deal of North American architectural coatings business, AkzoNobel, in April 2013. It is the second largest acquisition for PPG Industries, Inc. (NYSE:PPG) in its history. This acquisition added around 1000 stores in North America and will help PPG Industries to expand its coating business in Canada. With this acquisition, its U.S. architectural addressable market has grown by 100%. This deal is expected to generate total synergy of $200 million through 2015.

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