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Pulling Profits Out of Thin Air

Krzysztof Smalec, CFA (krzysztof.smalec@morningstar.com)

Industrial gas producers' strong records highlight the importance of economic moats: All three industrial gas companies we cover-- Air Liquide,  Air Products, and  Linde--have consistently earned excess economic profits despite selling what are essentially commodities. The industrial gas sector benefits from high switching costs and long-term customer agreements, which often include take-or-pay clauses and indexed electricity costs. Industrial gases typically account for a relatively small fraction of customers' costs but are a vital input to ensure uninterrupted production.