Chem Rxns: 2H Tone over 2Q

Research evidence excerpt

Chem Rxns: 2H Tone over 2Q

5/ Cost-outs durable, but less a swing factor. Self-help should bolster 2H earnings regardless

of Iran, with DOW, LYB and EMN carrying meaningful backhalf-weighted flow-through (see Fig

1). But little incremental was announced at 1Q and the market already knows the bridge.

6/ Coatings screen historically cheap. We understand the March sell-off on resin cost

pressure, but RPM / PPG / SHW now trade at just the 2nd / 18th / 10th percentile of 3-year

EV/EBITDA history. With lagged pricing, self-help, cost pressure easing when Hormuz re-opens,

and less punitive 2H auto refinish dynamics, coatings modest relative strength on the 1Q prints

may be an early sign.

7/ Risk: consumer cracks under $100 Brent. If June US / Europe consumer prints deteriorate

as higher crude flows through gasoline and food, 2H benefit could deteriorate. Packaging,

durables and DIY are the most obvious pressure points.

8/ Risk: demand was pulled forward. CE acknowledged a less comfortable explanation for

recent tightness: pre-buying ahead of price, vs true consumption. China acetyls is another market

that may have peaked in April. No other names flagging pre-buying or peaking dynamics, leaving

the read-through incomplete, but a clear risk to the view that 2H demand strength is durable.

Where we stand

A/ Coatings increasingly attractive as cheap 2H recovery plays. Price-cost should catch up

into 2H, refinish destock appears to easing, and the group avoids the commodity unwind risk

embedded in the war trade. We expect PPG margin recovery visibility to come before RPM (given

FIFO timing), with Aero and LatAm still supportive against lingering China auto / EU architectural

uncertainty. Recall PPG was a ~$130 stock in Feb. At ~10x, a full std deviation below avg, even