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PX-Jinlong Copper Contract Expands

Zacks Equity Research

In order to further strengthen its foothold in China, industrial gas producer and supplier, Praxair Inc’s (PX) subsidiary, Praxair China signed a contract to increase gas supply to Jinlong Copper Co, Ltd.

Investments will be made with a view to doubling the company’s oxygen production capacity to roughly 700 tons per day at Praxair’s existing air separation unit in Tongling. Also, some of Jinlong Copper’s plants will be acquired and integrated with Praxair’s plant, which would satisfy gas demands for the former’s flash furnace-smelting process.

Jinlong Copper is the largest copper smelting joint venture in China and is located in Tongling, Anhui in Eastern China. Praxair’s association with Jinlong Copper dates back to 2006, when the former was awarded a 15-year contract to supply pipeline oxygen to the latter. Three non-cryogenic oxygen systems were constructed, with a daily production capacity of 500 tons.

The association between the two parties was further solidified in 2007 with a 15-year oxygen and nitrogen supply contract being awarded to Praxair China by Jinlong Copper.

We find long-term growth prospects quite bright for Praxair, with its strategic acquisitions, dividends and share buyback policy, and contract wins/joint ventures all holding out promises for a brighter future ahead. These will help the company in achieving its long-term target of annual organic sales growth of 8%-12% by 2015.

The current Zacks Consensus Estimate for the fourth quarter 2012 is $1.38, representing a year-over-year increase of 1.2%. Estimates for 2012 and 2013 are $5.57 and $6.16, reflecting annual increase of 2.5% and 10.7%, respectively.

Praxair carries a Neutral long-term recommendation while for the short-term (1-3 months) it has a Zacks Rank #4 (Sell). The company’s prime competitor Air Products & Chemicals Inc. (APD) has a Zacks Rank #2 (Buy) short-term rating. Estimate for the December ending quarter currently stands at $1.29 per share.

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