KEY THEMES
The supply of chlorine and caustic soda is currently very tight inside the U.S. amid robust demand and logistics bottlenecks. The situation of disrupted supply got amplified by the fallout of hurricane Ida, which added to the woes of the recent flooding in Germany, causing a number of capacity outages. Furthermore, the limit of industrial usage of electricity in China further keeps the Asian output subdued. Prices of both of the Electrochemical Unit (ECU) components (i.e. chlorine and caustic soda) are now soaring, with some reports pointing to the possible continuation of the current supply tightness into 2022.
Solid caustic soda prices are very good news for chloralkali manufacturers here in Egypt. This should bode well for Misr Chemical Industries [MICH] and promises a strong Q1 2021/22 results. Just this morning, MICH announced its 2M 2021/22 indicators, showing a bottom line of EGP32mn (+15% y/y). We believe the current market conditions should strongly boost MICH’s performance throughout 2021/22, where the bottom line is expected to remain in the triple-digit territory. MICH is currently traded at 2020/21 P/E of only 6x, where our 12M PT for the name is EGP13.9/share (+23%).