Although I did see upside in Braskem (BAK) shares back in mid-March, I absolutely didn’t expect the magnitude of “stronger for longer” resin prices that we’ve seen since. With record resin prices fueling the business, Braskem’s ADRs have risen roughly 80% since that last article, blowing away other chemical companies I follow like Olin (OLN), PPG (PPG), and even the mighty Sika (OTCPK:SXYAY), not to mention other industry peers like ALPEK (OTC:ALPKF) and LyondellBasell (LYB).
While it hasn’t been an absolutely perfect storm for Braskem – some operational challenges have kept various units from running at full (or near-full) capacity – Braskem is nevertheless seeing cash flow roll in, easing concerns about the Alagoas liability and giving the company much more flexibility on debt repayment and capital returns, not to mention reinvesting in green/ESG projects.
I don’t believe today’s prices are sustainable (I don’t think anybody does…), but it’s plausible that 2022 prices could still be well above long-term averages before settling down in 2023 and 2024. There could still be upside here on a continuation of the “stronger for longer” trade, and Braskem is likely to reap the benefits from this windfall for a long time to come, but this will be a tough stock to hold once resin prices start to correct.
Read the full article at Seeking Alpha:
No comments:
Post a Comment