Petrochemicals are rapidly becoming the major contributor to global oil demand, according to a recent report by the International Energy Agency (IEA). In fact, these key components of the energy system will drive demand for oil more than what trucks, aviation and shipping could.
Petrochemical products will account for more than a third of the rise in oil demand worldwide by 2030 and almost half of it by 2050, accounting for almost 7 million oil barrels a day.
The IEA expects developing economies to primarily drive demand for petrochemicals, as levels of consumption and disposal by these economies are pretty high. Particularly, countries like India and China should significantly contribute to the rising demand because of their high population.
The notion that the auto industry is the key driver of oil demand is changing fast with the emergence of electric cars and vehicles. But the world is yet to get solid alternatives for petrochemicals, and this could keep driving their demand.
Therefore, it would be prudent to add a few petrochemical stocks to your watch list.
Major Drivers of Petrochemicals Demand
Petrochemicals have widespread use in the form of plastics, beauty products, fertilizers, digital devices, clothes, packaging, medical equipment, tires, and detergents among many others. Petrochemicals are also used in modern energy system products such as wind turbines, solar panels, thermal insulation, batteries etc.
The importance of petrochemicals is reflected in how profoundly our daily lives are reliant on these products. According to Dr Fatih Birol, IEA’s Executive Director, “Our economies are heavily dependent on petrochemicals, but the sector receives far less attention than it deserves. Petrochemicals are one of the key blind spots in the global energy debate, especially given the influence they will exert on future energy trends.”
Demand for plastics has almost doubled in the last 18 years. This petrochemical product has moved ahead of all other bulk materials such as cement, steel and aluminium in terms of demand.
Corporate Investments in Petrochemicals
According to a recent CNBC report, major oil companies, Royal Dutch Shell RDS.A and Exxon Mobil XOM, have big plans to invest in new petrochemical plants in the years ahead.
Exxon Mobil has signed a preliminary deal to construct a petrochemical complex and fund a liquefied natural gas (“LNG”) terminal in China. Exxon is monitoring other chemical manufacturing projects in Asia to capitalize on the growing demand in the continent.
Royal Dutch Shell, which already has significant exposure to petrochemicals, is expected to invest a significant amount in these spaces as part of its capital expenditure in oil and gas value chain.
Petrochemical Stocks to Watch
AptarGroup, Inc. ATR is a leading supplier of beauty, home and personal care products worldwide among its many other innovative items. The company carries a Zacks Rank #2 (Buy) and its earnings are expected to grow 13.4% in 2018. AptarGroup’s shares have gained 22.5% year to date.
Advanced Drainage Systems, Inc. WMS manufactures thermoplastic corrugated pipes, water management products and drainage solutions for use in the construction and infrastructure marketplace. Advanced Drainage Systems bears a Zacks Rank #2 and its shares have gained 22.1% since the beginning of 2018. The company’s earnings are expected to grow 29.4% for the current year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Trinseo S.A. TSE is a major manufacturer of latex, rubber and plastics. The company’s technology is used by many industries such as consumer goods, medical, electrical and lighting, paper and paperboard, home appliances, automotive etc. Trinseo carries a Zacks Rank #3 (Hold) and its earnings are expected to grow 14.5% for 2018. Its shares have gained 4.9% year to date.
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