david begleiter q1 (march quarter) 2016 earnings...

Deutsche Bank Markets Research

North America

United States

Industrials

Chemicals / Specialty

Industry

Chemicals

Date

18 April 2016

Forecast Change

Q1 (March Quarter) 2016 Earnings Preview

Positive Q1 results due to demand, price increases and costs. Outlooks positive

________________________________________________________________________________________________________________

Deutsche Bank Securities Inc.

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.

David Begleiter

Research Analyst

(+1) 212 250-5473

[email protected]

Jermaine Brown

Research Associate

(+1) 212 250-3624

[email protected]

Top picks

Dow Chemical (DOW.N),USD52.37 Buy

DuPont (DD.N),USD65.27 Buy

Source: Deutsche Bank

Chemicals sector trading above its historical multiples and the market The US Chemicals sector is trading at 16.9x forward EPS, a 13% premium to its 15-year average. The sector also currently trades at a 1% premium to the S&P 500 on forward EPS vs a historical discount of 4%. We view multiple expansion as unlikely until concerns over currency, crude oil Chinese and Latin American growth abate. Longer term, we remain positive on US Chemicals due to a number of structural tailwinds including the US ethane advantage, and solid balance sheets which are supporting aggressive shareholder remuneration. We maintain our equal weight stance on the group due to lack of clarity on global macro conditions.

We expect US chemicals to have positive March quarter results as low NGL feedstock prices, polyethylene price increases, healthy auto and housing demand, in-line China demand, better than expected FX and cost actions more than offset weak ag and Latam demand and oil price volatility. Overall, we expect companies to provide modestly positive Q2 and '16 outlooks. Our top picks are DD, DOW and EMN.

US housing continue to be relative bright spots DB’s economics team forecasts US GDP growth slowed to 0.5% in Q1 vs 2% in Q4’15). In ‘16, US GDP is forecasted to grow 1% in Q2 and 1.4% for the full year on strong housing/construction activity (housing starts up 14% YoY in ‘16E), partially offset by weaker manufacturing on lower oil and a stronger dollar. Europe is continuing to show signs of recovery with 1.5% forecasted growth in Q1 (vs 1.3% in Q4’15), 1.4% in Q2 and 1.5% in ‘16 (vs 1.5% in ’15). DB’s economics team forecasts China’s GDP growth to be 6.8% in Q1 vs 6.8% in Q4’15 and 6.9% in ’15. This marks its slowest quarterly growth since Q1’09 and slowest annual growth in 25 years.

Coatings companies stand to benefit from lower oil prices Since the start of ‘16, US Chemicals are up 6.3% vs 0.8% for the S&P. Notable outperformers during this period have been the coatings producers (VAL, 29%, Hold), PPG (13%, Buy), Sherwin-Williams (SHW, 10%, NR) and Axalta (AXTA, 10%, Buy) which are benefitting from lower raw material costs. Going forward, coating companies (PPG, Axalta and Valspar) are poised to benefit further from lower oil prices as propylene, a derivative of crude oil and a key feedstock for coating intermediate chemicals, is down 34% YoY and 58% from ’14 highs. In addition, TiO2 prices continued to weaken in Q1 falling 5%, 3% and 4% QoQ in NA, Europe and Asia, respectively. TiO2 prices are down 40-50% since ’12.

Ethylene producers hit hard on lower oil prices Notable underperformers during this period have been the ethylene producers: Westlake (WLK, -14%, Hold), Lyondell (LYB, -2%, Hold) and Dow (-1%, Buy). US ethylene producers are being adversely impacted by the decline in oil prices (down 60% from ’14 highs) and the subsequent narrowing of the natural gas-based cost advantage vs oil-based producers in Europe and Asia. While lower oil prices have and will pressure US ethylene margins, the impact is being partially offset by near record low ethane and propane prices.

Ethylene margins rise 0.3 c/lb in Q1 to 16 c/lb. Expected to rise 3.8 c/lb in Q2 US contract ethylene margins rose 0.3 c/lb to 16 c/lb in Q1. Ethylene pricing fell 0.8 c/lb or 3% QoQ in Q4 to 26.75 c/lb. Ethylene production costs fell 1 c/lb QoQ to 9.8 c/lb and fell 0.5 c/lb, or 5%, vs 10.3 c/lb a year prior and remain depressed, as ethane prices remain near all-time lows (vs 16 c/gal in Q1, a high of 39 c/gal in ’14 and a 10-yr average of 52 c/gal) due to oversupply and a shift to higher propane cracking. In ’16, we expect ethane to trade at/near fuel value, or 15-20 c/gal, equating to 10 c/lb ethane-based ethylene production costs and resulting in ethylene contract cash margins of 16 c/lb vs prior peaks of 10-15 c/lb.

March quarter: Differentiated and Specialty chemical EPS +5% YoY In Q1, we expect Specialty and Differentiated Chemical companies to post 5% YoY EPS growth. We expect commodity companies, namely ethylene producers, to post lower growth owing to lower oil prices partially offset by share repurchases and growth projects.

Ch

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Figure 1: US Chemicals Earnings Calendar: March Quarter 2016

Apr-16 All Times EasternMonday Tuesday Wednesday Thursday Friday

1

4 5 6 7 8

Monsanto (MON) - 9:30 AM

Conf Call # NA

Passcode: #NA

Street: $2.42

OMNOVA Solutions (OMN) - 11:00 AM

Conf Call # NA

Passcode: N/A

Street: $0.04

11 12 13 14 15

18 19 20 21 22

Celanese (CE) - 10:00 AM PPG Industries (PPG) - 02:00 PM LyondellBasell (LYB) - 10:00 AM

Conf Call # 866.235.9919 Conf Call # 866.777.2509 Conf Call # 888.677.1826

Passcode: N/A Passcode: NA Passcode: 6934553

Street: $1.50 Street: $1.30 Street: $2.29

25 26 27 28 29

DuPont (DD)- 9:00 AM Ashland (ASH) - 9:00 AM Dow Chemical (DOW) - 9:00 AM Eastman Chemicals (EMN) - 08:00 AM

Conf Call # N/A Conf Call # 877.303.6152 Conf Call # NA Conf Call # 913.312.1112

Passcode: N/A Passcode: 81000048 Passcode: NA Passcode: 4665956

Street: $1.04 Street: $1.73 Street: $0.83 Street: $1.53

Compass Minerals (CMP) - 9:00 AM Ferro (FOE) - Projected Air Products (APD) - 10:00 AM Praxair (PX) - 11:00 AM

Conf Call # 877.614.0009 Conf Call # NA Conf Call # 913.312.0726 Conf Call # 631.485.4849

Passcode: 9383614 Passcode: NA Passcode: 6881421 Passcode: 85141182

Street: $1.33 Street: $0.21 Street: $1.81 Street: $1.27

Potash Corp (POT) - 1:00 PM

Conf Call # 800.597.1419

Passcode: NA

Street: $0.16

Source: Deutsche Bank, Thomson One

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Figure 2: US Chemicals Earnings Calendar: March Quarter 2016

May-16 All Times EasternMonday Tuesday Wednesday Thursday Friday

2 3 4 5 6

Westlake Ch. Prtnrs (WLKP) - Projected Trinseo (TSE) - Projected

Conf Call # N/A Conf call # NA

Passcode: N/A Passcode: NA

Street: $0.41 Street: $1.34

Ecolab (ECL)- 1:00PM Axalta Coating (AXTA) - Projected

Conf Call # NA Conf call # NA

Passcode: NA Passcode: NA


Cabot (CBT) - 2:00 PM Mosaic (MOS) - 08:30 AM

Conf Call # N/A Conf Call #: NA

Passcode: N/A Passcode: NA


9 10 11 12 13

Albemarle (ALB) - 9:00 AM

Conf Call # 888.680.0892

Passcode: 61447742

Street: $0.86

16 17 18 19 20

23 24 25 26 27

Valspar (VAL) - Projected

Conf Call #: NA

Passcode: NA

Street: $1.26

30


18 April 2016


Chemicals


Figure 3: US Chemicals March 2016 quarterly earnings calendar

Company Earnings Release

Name Ticker Rating QTR DB Est. % YoY Consensus Date Date Time

Air Products (APD) APD Hold Q216 $1.80 16% $1.81 28-Apr 28-Apr 10:00 AM

Airgas (ARG) ARG Hold Q416 $1.19 3% $1.24 Projected Projected Projected

Albemarle (ALB) ALB Buy Q116 $0.88 (25%) $0.86 10-May 11-May 9:00 AM

Ashland (ASH) ASH Buy Q216 $1.75 (12%) $1.73 26-Apr 27-Apr 9:00 AM

Cabot (CBT) CBT Hold Q216 $0.80 51% $0.77 Projected Projected Projected

Celanese (CE) CE Buy Q116 $1.50 (13%) $1.50 18-Apr 19-Apr 10:00 AM

Compass Minerals (CMP) CMP Hold Q116 $1.50 (17%) $1.33 25-Apr 26-Apr 9:00 AM

Dow Chemical (DOW) DOW Buy Q116 $0.75 (11%) $0.83 28-Apr 28-Apr 9:00 AM

DuPont (DD) DD Buy Q116 $1.00 (20%) $1.04 26-Apr 26-Apr 9:00 AM

Eastman (EMN) EMN Buy Q116 $1.50 (19%) $1.53 28-Apr 29-Apr 8:00 AM

Ecolab (ECL) ECL Hold Q116 $0.77 (3%) $0.76 3-May 3-May 1:00 PM

Ferro (FOE) FOE Buy Q116 $0.20 (14%) $0.21 Projected Projected Projected

H.B. Fuller (FUL) FUL Buy Q116 $0.43 45% $0.39 23-Mar 24-Mar 10:30 AM

Lyondell Basel (LYB) LYB Hold Q116 $2.30 (11%) $2.29 22-Apr 22-Apr 10:00 AM

Monsanto (MON) MON Buy Q216 $2.42 (17%) $2.44 6-Apr 6-Apr 9:30 AM

OMNOVA (OMN) OMN Buy Q116 $0.04 NM $0.01 6-Apr 6-Apr 9:00 AM

PPG Industries (PPG) PPG Buy Q116 $1.25 5% $1.30 21-Apr 21-Apr 2:00 PM

Praxair (PX) PX Hold Q116 $1.28 (10%) $1.27 29-Apr 29-Apr 11:00 AM

Trinseo S.A. (TSE) TSE Buy Q116 $1.40 75% $1.37 Projected Projected Projected

Valspar (VAL) VAL Hold Q216 $1.25 12% $1.26 Projected Projected Projected

Westlake Chemical Partners

(WLKP)

WLKP Buy Q116 $0.41 Projected Projected Projected

March Quarter Estimates Conference Call Details


18 April 2016


Chemicals


Figure 4: US specialty and differentiated chemicals EPS % change YoY, Q4’11-Q1’16E

1%

11%

2%

0%

7%

5%

4%

7%

17%

11%

12%

10%

9% 9%

5%

14%

6%

5%

0%

2%

4%

6%

8%

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12%

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4Q

11

1Q

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2Q

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3Q

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3Q

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4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16E


18 April 2016


Chemicals


Figure 5: March quarter ’16 EPS growth by company (%YoY, estimated)

(150%)

(83%)

(25%)

(25%)

(20%)

(19%)

(17%)

(14%)

(13%)

(12%)

(11%)

(11%)

(10%)

(6%)

0%

3%

5%

5%

12%

12%

13%

16%

17%

24%

37%

45%

51%

75%

189%

32%

4%

590%

(62%)

(3%)

(125%)

39%

(3%)

(7%)

10%

(12%)

(6%)

(5%)

10%

(3%)

6%

18%

(4%)

(28%)

6%

10%

40%

81%

(95%)

7%

(34%)

0%

(200%) (100%) 0% 100% 200%

AGU

Agricultural Chems

ALB

GRA

DD

EMN

MON

FOE

CE

ASH

DOW

LYB

PX

NEU

S&P 500

ARG

Sp. & Diff Chems

PPG

AVY

VAL

SIAL

APD

SHW

OLN

CHMT

FUL

CBT

TSE

Last Quarter


18 April 2016


Chemicals


Figure 6: Chemicals 2016E EPS growth by company (%YoY, estimated)

(75%)

(35%)

(17%)

(16%)

(14%)

(14%)

(13%)

(11%)

(7%)

(5%)

(4%)

(4%)

(4%)

(2%)

(0%)

1%

3%

5%

5%

6%

6%

6%

6%

9%

10%

10%

11%

12%

13%

17%

18%

20%

23%

42%

54%

(100%) (60%) (20%) 20% 60% 100%

AXLL

GRA

MON

Agricultural Chems

AGU

HUN

CMP

OLN

DOW

ALB

LYB

EMN

PX

NEU

ARG

ASH

ECL

S&P 500

RPM

VAL

FMC

Sp. & Diff Chems

CE

AVY

PPG

DD

SHW

FOE

APD

FUL

TSE

CHMT

CBT

AXTA

OMN


18 April 2016


Chemicals


Chemicals end-markets

Global auto production expected to rise by 2.3% in Q2

Global auto production in Q2 is projected to be up 2.3% YoY driven by 2.7%

growth in North America, 5.5% growth in Europe, weak LatAm (-14%) and

slowing growth in China (2% vs 3.9% in Q1’16). For ‘16, global production

growth is expected to grow 1.4% YoY to 89.9MM units.

North America: Deutsche Bank’s Autos Research team estimates

North American light vehicle production will total 4.6MM (+2.7% YoY,

3.7% QoQ) in Q2 and 17.9MM units for ’16E, (up 2.4%).

Europe: Deutsche Bank’s Autos Research team estimates European

auto production will rise 5.5%YoY (+2.7% QoQ) to 5.0MM units in Q2,

and 3.1% to 18.9MM units for ’16E.

China: Deutsche Bank’s Global Autos team estimates that Q2

production in China will rise 2% YoY (-6.1% QoQ) to 5.9MM units. We

expect 2.5% growth in ‘16E to 24.6MM units.

Each new vehicle contains ~$2,650 of chemical processing and products

(including >330 pounds of plastics). The companies in our coverage with the

greatest exposure to the automotive end-market include: Celanese (11%), PPG

(10%), Cabot (15%), Dow (8%), and DuPont (7%).

Figure 7: North American Light Vehicle Auto Production (2013-2017E; units in ‘000’s)

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16E

3Q

16E

4Q

16E

1Q

17E

2Q

17E

3Q

17E

4Q

17E

Avg. 4,232


18 April 2016


Chemicals


Housing / Construction:

US housing and construction continues to improve and is poised to remain one

of the global bright spots in ’16. Deutsche Bank’s housing team expects new

home sales in the US to rise 13% YoY to 565k units in ’16E vs 501k units in ’15

and housing starts to rise 14% to 1,263k units from 1,112k units.

Highlights of Q1 housing and construction data points include the following:

1. U.S. building permits rose 7.2% YoY in February (Latest data available)

to 1,177k seasonally adjusted units and 13.7% YoY in January to 1,204k units.

2. Per the National Association of Realtors, existing home sales in

February (latest data available) rose 2.2% YoY (down (fell 7.1% MoM) to a

seasonally-adjusted 5.08MM units. The decline in existing home sales vs

January was more pronounced in the Northeast and Midwest due to the large

East Coast blizzard, the slump in the stock market, limited supply and

affordability issues with buyers as home prices and rents are outpacing wage

growth.

3. Distressed sales (foreclosures and short sales) in February rose to 10%

of the total (vs 9% in January and 11% in the prior year period), of which 7%

were foreclosures and 3% were short sales. Foreclosures sold for an average

discount of 17% (vs 13% in January) below market value while short sales

were sold for an average discounted of 16% (vs 12% in January).

Residential and non-residential construction are key end-markets for the

sector, driving sales of paints and coatings, synthetic fibers, insulation,

polyvinyl chloride (PVC), titanium dioxide (TiO2) and adhesives. Every 100K of

housing starts generates $1.5B in chemical and derivative sales, and every

$1,000 in non-residential construction spending generates $160-$230 worth of

chemicals and derivatives sales. Notable names most levered to

housing/construction are DuPont (DD; Buy), PPG (PPG; Buy) and Valspar (VAL;

Buy).

18 April 2016


Chemicals


Figure 8: US Architectural Billings Index (Jan 1996 – Feb 2016)

30

35

40

45

50

55

60

65

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Source: Haver Analytics

Figure 9: US construction data is improving

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

$0

$100

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$1,000

'03

'04

'05

'06

'07

'08

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'10

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'12

'13

'14

'15

'16

Total non-res constr. Feb-16 = $690 Total res-constr. Feb-16 = $454

Total res-constr. %YOY; Feb-16 = 10.5% Total non-res constr. %YOY; Feb-16 = 10.1%

Source: Haver Analytics

18 April 2016


Chemicals


Figure 10: Homebuilder sentiment has improved markedly as housing starts continue to

improve

0

20

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60

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700

1,100

1,500

1,900

2,300 '8

8'8

9'9

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6

Housing Starts, 3mo m.a. (000s, LHS): Feb-16 = 1,152

Homebuilders Sentiment (SA, All Good = 100): 15

Source Federal Reserve Board, Haver Analytics

Figure 11: Housing industry sentiment indicators trending

up strongly

Figure 12: Real resid investment contribution to real GDP

growth

Source: DB Global Economics Team, BEA, Haver Analytics, Deutsche Bank Global Market Research

Source: DB Global Economics Team, BEA, Haver Analytics, Deutsche Bank Global Market Research

18 April 2016


Chemicals


Figure 13: All components of residential investment are

adding to GDP

Figure 14: Homebuilders are seeing more interest in new

home purchases

Source DB Global Economics Team, BEA, Haver Analytics, Deutsche Bank Global Market Research

Source: : DB Global Economics Team, Census, Haver Analytics, Deutsche Bank Global Market Research

18 April 2016


Chemicals


Agriculture

U.S. corn crop acreage is expected to fall 2.9% YoY to 88MM acres for the

15/16 planting season vs 90.6MM acres in 14/15 season and a 10-year average

of 88.9MM acres. Per the USDA, 80.7MM acres are expected to be harvested

with a yield of 168.4 bu/acre (vs 171 bu/acre in the 14/15 planting season).

U.S. soybean acreage is expected to fall 0.7% YoY to 82.7MM acres for the

15/16 planting season vs 83.3MM acres in 14/15 season and a 10-year average

of 75.5MM acres. Per the USDA, 81.8MM acres are expected to be harvested

with a yield of 48 bu/acre (vs 47.5 bu/acre in the 14/15 planting season).

Ag companies continue to be negatively impacted by the weak Ag market,

which is resulting in greater-than-expected seed discounting (not atypical at

the bottom of an Ag cycle), and continuing FX headwinds, particularly in Brazil

and Argentina.

While Monsanto remains our top defensive idea, it is not immune to a

challenging ag environment. As a result, Monsanto expects ’16 EPS to decline

11-23% to $4.40-$5.10. The cautious guide is due to persistent FX headwinds

(particularly the Argentine Peso), greater-than-expected seed price discounting

(due to the weak Ag market) and the delay in the EPA approval of dicamba for

in-crop use in the Roundup Ready Xtend system. Monsanto estimates that

$0.25-$0.30 of the guidance reduction is due to FX and $0.30 stems from its

Seeds and Genomics business. The ability to offset this additional FX headwind

is limited by a challenging ag environment which is leading to more seed price

discounting this year than in the last 2-3 years.

While ’16 is proving to be a challenging year for Monsanto due to a weak Ag

market which is resulting in greater-than-expected seed price discounting and

large FX headwinds ($0.90-$1.00), the company continues to forecast mid-

teens EPS growth in '17-'19. In '17, this growth will be driven by i) strong

soybean acreage ramp for Intacta in Brazil (35MM acres in '15 to 75MM acres

in '19) and Xtend in the US (3MM acres in '16E, targeted to be on 2/3 of US

acres by '19), ii) sharply lower Xtend launch costs (vs $70-$80MM, or $0.13, in

’16), iii) lower corn COGS (~$50MM, or $0.10E) iv) incremental cost savings of

$200MM, or 0.35, v) lower Other Expense of $180MM, or $0.30, from the

absence of the Argentine peso deval in '16 and vi) and corn germplasm

price/mix uplift. On Ag consolidation, while acquiring Syngenta or Bayer

Cropsciences would have accelerated Monsanto's goal of creating an

integrated solutions platform for farmers, management stated that its strategy

is not and was not dependent on a large scale crop chemical acquisition.

Rather, it is innovation driven and highly collaborative. And with large-scale

M&A no longer "likely", Monsanto has shifted to a "collaboration" model that

enhances its existing R&D and commercial base through licensing,

partnerships, collaborations and smaller scale M&A. We believe that Monsanto

is the partner of choice owing to its broadest, deepest and most proven

pipeline in the industry.

The breadth and scope of Monsanto’s R&D pipeline remains strong. In its

annual R&D update, Monsanto announced 30 R&D projects advancing phases

in ’16, vs. 26 in ’15, 29 in ’14 and 18 in ‘13.

18 April 2016


Chemicals


In the fertilizers space, we remain Hold-rated on Mosaic and PotashCorp as the

pricing environment will likely remain weak. Per Mosaic’s investor

presentation, potash shipments are expected to increase to 61-63MM m.t. in

‘16E vs of 59.1MM m.t. in 15. Mosaic expects phosphate shipments to

increase to 66-68MM m.t. in ‘16E vs 65-66MM m.t. in 15.

Figure 15: Corn stocks-to-use ratios are low by historical standards

0%

5%

10%

15%

20%

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30%

35%

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45%

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1962

1964

1966

1968

1970

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1974

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1978

1980

1982

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1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

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Corn Rice Wheat Soybean

Source: Deutsche Bank USDA

Figure 16: US Corn and Soybean Acreage (1970-2016E; millions of acres)

35

45

55

65

75

85

95

105

70/7

1

72/7

3

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US Corn Acreage US Soy Acreage

Source: Deutsche Bank, USDA

18 April 2016


Chemicals


Figure 17: US Corn Yields (1970-2016E; bu/acre) Figure 18: US Soybean Yields (1970-2016E; bu/acre)

60

80

100

120

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70/7

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5

20

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30

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70/7

1

72/7

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7

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Source Deutsche Bank, USDA

Source: Deutsche Bank, USDA

18 April 2016


Chemicals


Figure 19: Global Corn Consumption (MM tons) Figure 20: Arable Land Per Capita

220

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970

1090

0

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600

800

1000

1200

1965 1980 2000 2020E 2030E

MM Tons

1.02

0.75

0.55

0.44 0.41

0

0.2

0.4

0.6

0.8

1

1.2

1961 1980 2000 2020E 2030E

Acres/Capita

Source: Global Insights

Source: Global Insights

Figure 21: Global Corn Yields by Country / Region

(MT/acre; 2013/14)

Figure 22: Global Corn Acreage by Region (millions of

hectares; 2013/14)

10

10

9

8

76 6 6

55

4 4

3 3 32 2 2

0

2

4

6

8

10

12

Unite

d S

tate

s

Canada

Turk

ey

Egypt

Euro

pean

Unio

n

Ukr

ain

e

South

Am

erica

Chin

a

Russia

Serb

ia

Vie

tnam

Thaila

nd

Mexic

o

Indonesia

Philippin

es

India

Sub-S

ahara

nA

fric

a

Oth

ers

51

36 35

18

11 10 97

0

10

20

30

40

50

60O

thers

Chin

a

Unite

d S

tate

s

South

Am

erica

Sub-S

ahara

n

Afr

ica

Euro

pean

Unio

n

India

Mexic

o

Source: USDA

Source USDA

Figure 23: Potash prices ($/MT) Figure 24: Phosphate prices ($/MT)

0

100

200

300

400

500

600

700

800

900

1000

Jan-0

8

Apr-

08

Jul-

08

Oct-

08

Jan-0

9

Apr-

09

Jul-

09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-

11

Oct-

11

Jan-1

2

Apr-

12

Jul-

12

Oct-

12

Jan-1

3

Apr-

13

Jul-

13

Oct-

13

Jan-1

4

Apr-

14

Jul-

14

Oct-

14

Jan-1

5

Apr-

15

Jul-

15

Oct-

15

300

350

400

450

500

550

600

650

700

Mar-

10

Jun

-10

Sep-1

0

Dec-1

0

Mar-

11

Jun

-11

Sep-1

1

Dec-1

1

Mar-

12

Jun

-12

Sep-1

2

Dec-1

2

Mar-

13

Jun

-13

Sep-1

3

Dec-1

3

Mar-

14

Jun

-14

Sep-1

4

Dec-1

4

Mar-

15

Jun

-15

Sep-1

5

Dec-1

5

Source: Argus Media

Source: Bloomberg Finance LP

18 April 2016


Chemicals


Figure 25: Corn spot prices (USD/bu) Figure 26: Soybean prices (USD/bu)

0

1

2

3

4

5

6

7

8

9

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

Jan-1

4

Jul-14

Jan-1

5

Jul-15

Jan-1

6

8

10

12

14

16

18

20

Dec-1

0

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Ma

r-15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16



18 April 2016


Chemicals


Ethylene and Raw Materials

Ethylene margins rise 0.3 c/lb to 16 c/lb in Q1

Ethylene contract margins rose 0.3 c/lb to 16 c/lb in Q1. Ethylene pricing fell

0.8 c/lb or 3% QoQ in Q4 to 26.75 c/lb. Ethylene production costs fell 1 c/lb

QoQ to 9.8 c/lb and fell 0.5 c/lb, or 5%, vs 10.3 c/lb a year prior and remain

near record lows. Lower propane and butane pricing is shifting ethylene

cracking to a higher propane and butane feedslates, which is in turn lowering

demand for ethane and boosting the supply of propylene.

Oversupply of ethane resulted in ethane prices dropping to 17 c/gal currently

from a 10-yr average of 52 c/gal, a 2012 average of 40 c/gal average, an early

’14 high of 39 c/gal, and 18.5 c/gal a year ago. We expect Q2’16E prices to

average 16.7 c/gal and remain above its fuel value of approximately 13.4 c/gal.

In ’16-’17, given the significant amount of ethane oversupply we expect US

ethane prices to trade in-line with, to slightly below their fuel value, or 15-20

c/gal based on DB’s US Natural Gas price forecasts of $2.25/MMBtu in ’16 and

$2.75/MMBtu in ’17. Starting in ’18, we believe ethane prices will move into

the 20-25 c/gal range on tightening ethane supply/demand fundamentals. Still,

even at 25 c/gal, US producers ethane-based ethylene cash costs would be an

attractive (and likely highly advantaged) 11 c/lb.

With 25-30 c/gal ethane equating to 11-13 c/lb ethylene production costs, we

expect ethane-based ethylene cash margins to be in 25 c/lb range thru at least

2017 when the first of new US ethylene crackers come on-online. While these

margins are lower than previously expected (30-40 c/lb), they are still well

above prior peaks of 10-15 c/lb.

Figure 27: North American ethylene capacity outages, 2016 (% of total North American

capacity)

0

1,000

2,000

3,000

4,000

5,000

6,000

0%

2%

4%

6%

8%

10%

12%

Jan-1

6

Feb-1

6

Mar-

16

Apr-

16

May-1

6

Jun-1

6

Jul-

16

Aug-1

6

Sep-1

6

Oct-

16

Nov-1

6

Dec-1

6

Unplanned outages % Scheduled maintenance %

2016 Cumalative Production Loss 2015 Cumulative Production Loss

Source: Deutsche Bank, IHS Chemical

18 April 2016


Chemicals


Figure 28: North American ethylene capacity outages, 2015, 2016 & 5-year

averages (% of total North American capacity)

0%

2%

4%

6%

8%

10%

12%

January

Febru

ary

Marc

h

April

May

June

July

August

Septe

mber

Octo

ber

Novem

ber

Decem

ber

2015 2016 5 yr. average


Figure 29: North American estimated ethylene capacity outages for ’16 by

quarter

(70.5%)

21.7%

67.9%

(3.4%)

(72.8%)

26.8%

37.7%

4.6%

(80.0%)

(60.0%)

(40.0%)

(20.0%)

0.0%

20.0%

40.0%

60.0%

80.0%

Q1'16 Q2'16E Q3'16E Q4'16E

Premium/Discount to 5 Year Average Premium/Discount to 3 Year Average


18 April 2016


Chemicals


Figure 30: European ethylene capacity outages, 2015, 2016 & 5 year averages (% of

total European capacity)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

January

Febru

ary

Marc

h

April

May

June

July

August

Septe

mber

Octo

ber

Novem

ber

Decem

ber

2015 2016 5 yr. average

Source: IHS Chemical

Figure 31: Quarterly European ethylene outages vs historical averages (2016E)

44%

74%71%

66%

42%

85%

70%

76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Q1 Q2 Q3 Q4

Premium/Discount 3 yr qtrly avg Premium/Discount 5 yr qtrly avg

Source: Deutsche Bank; IHS

18 April 2016


Chemicals


Figure 32: Ethane prices remain well below historical averages and are expected to

stay depressed for the foreseeable future (c/gal)

10

30

50

70

90

110

Jan-0

9A

pr-

09

Jul-09

Oct-

09

Jan-1

0A

pr-

10

Jul-

10

Oct-

10

Jan-1

1A

pr-

11

Jul-

11

Oct-

11

Jan-1

2A

pr-

12

Jul-

12

Oct-

12

Jan-1

3A

pr-

13

Jul-

13

Oct-

13

Jan-1

4A

pr-

14

Jul-

14

Oct-

14

Jan-1

5A

pr-

15

Jul-

15

Oct-

15

Jan-1

6A

pr-

16

Jul-

16

Oct-

16

Ja

n-1

7A

pr-

17

Jul-

17

Oct-

17


18 April 2016


Chemicals


Figure 33: US ethane inventory levels remain above historical averages (thousands of

barrels)

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Feb-0

3

Aug-0

3

Feb-0

4

Aug-0

4

Feb-0

5

Aug-0

5

Feb-0

6

Aug-0

6

Feb-0

7

Aug-0

7

Feb-0

8

Aug-0

8

Feb-0

9

Aug-0

9

Feb-1

0

Aug-1

0

Feb-1

1

Aug-1

1

Feb-1

2

Aug-1

2

Feb-1

3

Aug-1

3

Feb-1

4

Aug-1

4

Feb-1

5

Aug-1

5

Source: EIA

Figure 34: US ethane and propane inventory levels (000’s of barrels)

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

Jan

-07

Jul-07

Jan

-08

Jul-08

Jan

-09

Jul-09

Jan

-10

Jul-10

Jan

-11

Jul-11

Jan

-12

Jul-12

Jan

-13

Jul-13

Jan

-14

Jul-14

Jan-1

5

Jul-15

Propane/Propylene (LHS) Ethane/Ethylene (RHS)

Source: EIA

18 April 2016


Chemicals


Figure 35: North America ethylene avg margins (c/lb)

$0.27 $0.27

$0.19

$0.13 $0.13

$0.20

$0.17 $0.17

$0.38 $0.38

$0.29

$0.24 $0.24

$0.31

$0.28$0.30

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

Q115

Q215

Q315

Q415

Q116

Q216E

Q316E

Q416E

Avg acq. margins Contract prices


New US ethylene capacity at risk due to lower margins

With the US ethylene industry in the longest and strongest cycle in its history,

over a dozen greenfield ethylene projects have been announced in the US to

take advantage of low cost NGL feedstocks. Of these, 6 are under construction

with 5 of them world-scale (>1MM m.t.) (CP Chem, Dow, Exxon, Formosa,

Sasol). Total capacity of the 6 projects is 8MM m.t., 5% of global capacity,

23% of NA capacity and 29% of US capacity. With all of these projects

experiencing 12-24 months delays due to prolonged permitting processes,

start-up for all 6 crackers under construction is ’17-’18.

With 6 world-scale ethylene projects under construction, cost increases,

bottlenecks and delays are occurring. On the labor front, craftsmen (welders,

pipe fitters) are the limiting (and cost inflating) factor. During the last two

turnaround seasons there was evidence of labor market tightness (high costs,

personnel shortages) on the US Gulf Coast. Of note, Lyondell has cited

meaningful cost inflation for its new projects (20%). We believe the greatest

impact from this construction up-cycle will be on producers building capacity

at the end of the decade.

Beyond the 6 crackers under construction, with oil prices down 50%-plus from

their ’14 highs (resulting in a similar 50%-plus decline in the US ethylene cost

advantage), projects not yet under construction are being delayed and are risk

for cancellation. We believe these delays/cancellations, coupled with a reduced

incentive to import ethane into Europe and Asia (due to lower oil prices), will

prolong the US ethylene cycle past ’20.

In recent US ethylene supply news: i) Our recent visit with Sasol’s

management in Houston was focused on their world-scale petrochemical

project in Lake Charles, LA. Currently Sasol has spent $3.7B of the targeted

18 April 2016


Chemicals


$8.9B capital cost for the project and is on track for the late’18 startup of the

ethylene/polyethylene plant. ii) Following a final investment decision (FID),

Axiall and Lotte Chemical have begun building a 1MM m.t./year ethane-based

cracker and 600k m.t./year monoethylene glycol (MEG) plant in Lake Charles,

LA. The facility is scheduled to start-up in 2019. iii) Dow Chemical has begun

commercial operation of its new world-scale PDH unit at the company’s Oyster

Creek site in Freeport, TX. The new facility’s capacity is 750k m.t. iv) Total has

begun a front-end engineering and design (FEED) for building its $2B steam

ethane cracker at Port Arthur, TX. CB&I has been given a contract to provide

FEED services. This cracker is expected to be 1MM m.t. of capacity and

startup in 2019. v) In October, privately held Badlands NGLs licensed Univation

Technologies’ Unipol PE process for four 600kmt production lines, two at a site

in North Dakota and two at an unnamed site. The facilities will produce both

HDPE and LLDPE. Badlands is in the process of developing a $4B-plus

integrated ethylene complex in North Dakota to take advantage of low-cost

ethane from the Bakkan shale formation. The project will consist of a 1.5MM

m.t. ethylene cracker and downstream PE plants. In September, Badlands

announced it had secured a second site in the US for an integrated ethylene

complex.

We believe the risks to an extended period of strong US ethylene profitability

are i) new ethylene capacity and ii) a further narrowing of the oil-to-gas ratio.

While North America is in the midst of a major ethylene capacity expansion

with announced projects totaling nearly 21MM m.t., or a 60% increase versus

2012, 50% of this capacity will come on-stream in 2018 or after. On the oil-to-

gas ratio, DB’s Oil and Gas team expects this ratio to remain in the high teens

to low 20s (vs 6-10x historically) through 2016.

Propylene prices fell 6% in Q4 vs Q3

Chemical grade propylene prices fell 0.4 c/lb or 1% QoQ in Q1 and fell 18.7 c/lb

or 39% YoY to 29.5 c/lb (contract prices). Prices are poised to increase by 2.3

c/lb or 8% in Q2 to 31.8 c/lb but remain near lows not seen since early ‘09. For

’16, IHS expects contract prices for US chemical grade propylene to decline

from 30.5 c/lb at year-end ’15 to 29.5 c/lb by year-end ’16 and the full year ’16

to average 29.5 c/lb vs 37.5 c/lb in ’15. With propylene and propylene

derivative pricing expected to remain depressed for ‘16, buyers of propylene

derivatives such as Ecolab and coatings companies (PPG, Valspar and

Sherwin) stand to benefit.

Propane-to-Propylene spread expanded in Q1 and will likely expand further

in Q2 on lower propane costs. The propane-to-propylene spread rose to 16.5

c/lb in Q1 from 15.9 c/lb in Q4’15 on lower propane costs (11.1 c/lb in Q1 vs

12.1 c/lb in Q4 {spot prices}). Looking ahead, the propane-to-propylene spread

is expected to expand 2.7 c/lb in Q2 to 19.2 c/lb on higher propylene prices and

then fall 3.7 c/lb in Q3 to 15.5 c/lb. The propane-to-propylene spread is most

relevant for Eastman as it generates ~13% of its earnings from commodities

with the propane-to-propylene spread comprising a significant portion of these

earnings.

Propane pricing is expected to remain depressed amid elevated inventories

partially offset by higher seasonal demand. To this point, propane inventories

ended Q1’16 at 64.9MM bbls, 55% and 66% above the 3-year and 5-year

averages.

18 April 2016


Chemicals


On the propane export front, Phillips 66 is expected to bring on a new LPG

export terminal with an initial capacity of 4.4MM bbl/month (to export propane

and butane). This is expected to come on-line in mid-’16. Enterprise has

completed the expansion (in Q4 2015) of its Houston export capacity by

6.6MM/bbl month, or 73%, to 16MM bbls/month. This follows an expansion in

April 2015 which increased its propane export capacity by 1.5MM bbls/month

to 9MM bbls/month and an expansion in ’13 which increased its propane

export capacity to 7.5MM bbls/month from 4MM bbls/month. Targa also

expanded its propane export capacity in ’13 with its Galena Park, TX export

terminal increasing capacity to 3.25MM bbls/month from ~1MM bbls/month in

’12. Targa further expanded this facility to 5.25MM bbls/month in 2014. In

total, these projects have increased US propane export capacity from ~5MM

bbls/month at year-end ’12 to 11MM bbls/month at year-end ‘13, 13MM

bbls/month at year-end ‘14 and 21MM bbls/month at year-end ‘15.

Figure 36: Propane and propylene prices Figure 37: After compressing ~50% in 2015 on lower

propylene pricing, the US propane-to-propylene spread

(c/lb) is expected to remain range-bound through ‘17

0

10

20

30

40

50

60

70

80

90

100

0

20

40

60

80

100

120

140

160

180

Oct-

2010

Jan-2

011

Ap

r-2011

Jul-2011

Oct-

2011

Jan-2

012

Apr-

2012

Jul-2012

Oct-

2012

Jan-2

013

Apr-

2013

Jul-2013

Oct-

2013

Jan-2

014

Apr-

2014

Jul-2014

Oct-

2014

Jan-2

015

Apr-

2015

Jul-2015

Oct-

2015

Jan-2

016

Ap

r-2016

Jul-2016

Oct-

2016

Jan-2

017

Apr-

2017

Jul-2017

Oct-

2017

c/ poundc/ gallon

Propane (LHS) Propylene (RHS)

0

5

10

15

20

25

30

35

40

45

Q104

Q3

04

Q1

05

Q3

05

Q1

06

Q3

06

Q1

07

Q3

07

Q1

08

Q3

08

Q1

09

Q3

09

Q1

10

Q3

10

Q1

11

Q3

11

Q1

12

Q312

Q1

13

Q3

13

Q1

14

Q3

14

Q1

15

Q3

15

Q1

16

Q3

16

E

Q1

17

E

Q3

17

E


Source: IHS Chemical, Deutsche Bank estimates

TiO2 pricing backdrop remains lackluster

Global TiO2 prices were down in Q1. Prices (midpoint) fell 5% to $1.24/lb in

North America, 3% to €1.96 in Europe and 4% to $2,008/m.t in Asia. Global

TiO2 pricing remains depressed due to i) excess global capacity, ii) tepid

European demand, iii) a stronger US dollar which is driving greater exports

from Europe to North America, iv) coatings customers utilizing greater

percentages of less expensive Chinese TiO2 in their formulations and v)

balanced-to-loose supply/demand with material readily available due in part to

increased exports from China.

While long-term TiO2 demand tends to closely track global GDP (R2> 0.94),

demand is currently below trend owing to: i) weak global demand and ii)

reduced usage of TiO2 at paint customers where industry consultant TZMI

estimates that 3-5% of demand has been substituted. In ‘16, TZMI expects

TiO2 global demand trends to normalize along with improving global GDP as

the construction end market has historically made up 60-65% of TiO2 demand

18 April 2016


Chemicals


In the near-to-medium term, TZMI expects global TiO2 demand to return to

trend-line growth (or in-line with global GDP) in ’16.

Given a tepid pricing back drop and our belief that there is low likelihood for

meaningful near-term price improvement in the TiO2 chain, we remain Hold

rated on Kronos (KRO), a pure play on global TiO2.

Figure 38: North American TiO2 pricing is well off of peak levels and have shown near-

term weakness amid tepid demand ($/lb)

$0.70

$0.90

$1.10

$1.30

$1.50

$1.70

$1.90

$2.10

$2.30

1990

1991

1993

1994

1996

1997

1998

2000

2001

2003

2004

2006

2007

2009

2010

2012

2013

2015

Source: Deutsche Bank; ICIS

Note: ICIS made a $0.12 one-time, non-market adjustment in Decembers

Figure 39: Asian TiO2 prices are off ~50% from their peak

($/m.t.)

Figure 40: European TiO2 prices have also exhibited

considerable weakness (Euros/kg)

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

€1.70

€1.90

€2.10

€2.30

€2.50

€2.70

€2.90

€3.10

€3.30

€3.50

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Deutsche Bank, ICIS

Source: Deutsche Bank, ICIS

18 April 2016


Chemicals


Figure 41: Rutile and Synthetic Rutile (high grade titanium ore) pricing ($/ton; 2007-

2020E)

$0

$500

$1,000

$1,500

$2,000

$2,500

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

E

20

17

E

20

18

E

20

19

E

20

20

E

Rutile Synthetic Rutile


Group II base oil prices to remain depressed owing to supply growth and crude oil weakness

Base oil prices have fallen substantially as a result of i) capacity increases and

ii) a collapse in crude oil prices. Prices for Group II 200 grade base oil fell 15%

QoQ and 31% YoY to $1.80/gal in Q1. The bearish pricing environment is

driven by increased supply and competitive pricing following the 1H14 start-up

of Chevron’s new 25,000 bbl/day Group II base oil plant in Pascagoula, MS.

This plant increased US Group II base oil capacity by 19%. This was then

exacerbated by a sharp drop in crude oil (Brent oil down 60% from ’14 highs).

Going forward, we expect Group II prices to remain under pressure owing to

the increased supply and weakness crude oil prices. This base oil price

weakness is providing a boon to the longer-term profitability of Ashland’s

Consumer (Valvoline) segment (39% of ‘16E EBITDA) as the majority of the

base oil Valvoline buys is Group II, followed by Group III.

For Valvoline, which purchases 170MM gallons/yr of mostly Group II base oil

(it also purchases Group III and some Group I), a $0.25/gal change in base oil

prices impacts EBITDA by $57MM. Longer-term we expect Group II/III base oil

pricing to be subdued owing to added supply. Not only did the Chevron plant

increase US Group II capacity by 19%, but globally combined Group II/III

capacity is forecasted to increase 23% over the next 5 years. As a result, we

believe Valvoline could retain a larger portion of this price decrease for a longer

period of time than it has with prior price decreases.

18 April 2016


Chemicals


Figure 42: Group II base oil prices are falling due to crude oil weakness and supply

growth (cents/gal)

75

125

175

225

275

325

375

425

475

525

575

Se

p 0

1

Ma

y 0

2

Jan

03

Se

p 0

3

Ma

y 0

4

Jan

05

Se

p 0

5

Ma

y 0

6

Jan

07

Se

p 0

7

Ma

y 0

8

Jan

09

Se

p 0

9

Ma

y 1

0

Jan

11

Se

p 1

1

Ma

y 1

2

Jan

13

Se

p 1

3

Ma

y 1

4

Jan

15

Se

p 1

5

Source: Deutsche Bank, Lube Report

18 April 2016


Chemicals


FX

DB forecasts USD strength on less dovish US monetary policy and Europe’s significant current account surplus

With Europe a key region for US chemical companies (the median US chemicals

producer has 26% of sales in Europe), we have found the EUR/USD relationship to be a

strong indicator of FX impacts across US chemicals.

We believe that a driver of the EUR/USD is the relative monetary policy. We believe

monetary policy is still poised to become less dovish over time and will thus lead to a

stronger USD.

In Q1, the EUR/USD rose 0.8% QoQ to $1.09 (down 2% YoY). DB’s FX team believes

USD will be entering a multi-year uptrend owing to resurgence in US growth and US

Federal Reserve normalization.

Deutsche Bank’s FX strategists expect the euro to reach parity versus the US dollar by

Q3 2016, decline to $0.95 by year-end 2016 and trough at $0.85 by year-end 2017.

There are a number of factors underpinning this view including Europe’s significant

current account surplus (excess savings) which will impact global asset prices through

the rest of this decade. Combined with the upcoming Fed rate hikes, ECB quantitative

easing and negative real rates, Deutsche Bank expects continued large-scale capital

flight from Europe as portfolios search for yield overseas. As this occurs, the euro will

come under additional pressure. The appreciation of the US dollar has negative

implications for most US chemical companies. While some are naturally hedged which

counteracts the sales headwind from adverse currency effects, the vast majority of US

chemical companies are not or only partially hedged (naturally or via derivatives).

Figure 43: The USD strengthened vs the EUR in ’15 and is

poised to strengthen further thru ‘16E

Figure 44: DB’s longer-term EUR/USD forecast

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

Q1'1

3

Q2'1

3

Q3'1

3

Q4'1

3

Q1'1

4

Q2'1

4

Q3'1

4

Q4'1

4

Q1'1

5

Q2'1

5

Q3'1

5

Q4'1

5

Q1'1

6

Q2'1

6E

Q3'1

6E

Q4'1

6E

$0.80

$0.85

$0.90

$0.95

$1.00

$1.05

$1.10

$1.15

$1.20

Latest

(spot)

Q1'16 Q2'16E 2016E 2017E 2018E 2019E 2020E

Source: Deutsche Bank FX Strategy Thomson One,

Source: Deutsche Bank,

18 April 2016


Chemicals


Figure 45: Estimated ’15 EPS impact of a 10% appreciation in the USD

Company Ticker % Sales

ex US '16

2016E

EPS

'16E impact of

10% stronger

USD

% of '16E EPS

Albemarle ALB 64% 3.75$ ($0.24) -6%

Air Products APD 57% 7.40$ ($0.42) -6%

Ashland ASH 47% 7.10$ ($0.33) -5%

Axalta AXTA 70% 1.30$ ($0.09) -7%

Cabot CBT 77% 3.30$ ($0.25) -8%

Celanese CE 72% 6.40$ ($0.46) -7%

Compass Minerals CMP 24% 4.10$ ($0.10) -2%

Dupont DD 60% 3.00$ ($0.18) -6%

Dow DOW 67% 3.30$ ($0.22) -7%

Ecolab ECL 49% 4.50$ ($0.22) -5%

Eastman EMN 54% 7.00$ ($0.38) -5%

Ferro FOE 77% 0.95$ ($0.07) -8%

H.B. Fuller FUL 58% 2.60$ ($0.15) -6%

Kronos Worldwide KRO 67% 0.20$ ($0.01) -7%

LyondellBasell LYB 48% 10.00$ ($0.48) -5%

3M MMM 63% 8.25$ ($0.52) -6%

Monsanto MON 46% 4.75$ ($0.22) -5%

Omnova OMN 41% 0.61$ ($0.03) -4%

PPG Industries PPG 59% 6.25$ ($0.37) -6%

Praxair PX 58% 5.60$ ($0.32) -6%

Valspar VAL 45% 4.90$ ($0.22) -5%

Trinseo TSE 87% 5.40$ ($0.47) -9%

Average 59% ($0.25) -6% Source: Deutsche Bank estimates

Figure 46: Estimated ’15 EPS impact of a 10% appreciation in the USD/EUR

Company Ticker % Sales

Europe

2016E

EPS

'16E impact of

10% stronger

USD

% of '16E EPS

Air Products APD 25% 7.40$ ($0.06) -1%

Ashland ASH 25% 7.10$ ($0.09) -1%

Celanese CE 39% 6.40$ ($0.20) -3%

Dupont DD 25% 3.00$ ($0.13) -4%

Dow DOW 34% 3.30$ ($0.06) -2%

Ecolab ECL 24% 4.50$ ($0.07) -2%

Eastman EMN 22% 7.00$ ($0.06) -1%

Ferro FOE 45% 0.95$ ($0.02) -2%

Kronos Worldwide KRO 59% 0.20$ ($0.04) -21%

LyondellBasell LYB 19% 10.00$ ($0.08) -1%

3M MMM 23% 8.25$ ($0.03) 0%

Monsanto MON 15% 4.75$ ($0.06) -1%

Omnova OMN 21% 0.61$ $0.00 0%

PPG Industries PPG 31% 6.25$ ($0.11) -2%

Praxair PX 13% 5.60$ ($0.07) -1%

Trinseo TSE 60% 5.40$ ($0.27) -5%

Average 30% ($0.08) -3% Source: Deutsche Bank estimates

18 April 2016


Chemicals


Figure 47: US Chemicals exposure to geographical markets (2015)

Company US Canada Europe Asia-Pacific (inc.

China)

Latin America ROW China*

3M 40% 3% 21% 30% 7% 0% 0%

Air Products 43% 2% 23% 26% 5% 0% 11%

Airgas* 98% 0% 0% 0% 0% 2% 0%

Albemarle 31% 0% 0% 0% 0% 69% 0%

Ashland 53% 0% 24% 16% 7% 0% 10%

Axalta 34% 0% 35% 18% 13% 0% 10%

Cabot 25% 0% 0% 19% 0% 56% 19%

Celanese 26% 3% 39% 26% 4% 3% 14%

Compass Minerals 76% 18% 5% 0% 0% 1% 0%

Cytec* 48% 0% 31% 12% 8% 0% 0%

Dow 34% 0% 31% 0% 0% 34% 8%

Dupont 43% 0% 24% 22% 11% 0% 8%

Eastman 45% 0% 25% 24% 6% 0% 11%

Ecolab 52% 5% 18% 12% 8% 5% 0%

Ferro 25% 0% 44% 15% 15% 0% 0%

H.B. Fuller 43% 0% 0% 0% 0% 57% 0%

Huntsman Corp* 53% 0% 12% 14% 8% 12% 14%

Kronos* 33% 0% 51% 0% 0% 15% 0%

LyondellBasell 49% 0% 19% 0% 3% 29% 0%

Monsanto 57% 4% 12% 5% 0% 22% 0%

Mosaic 29% 8% 0% 0% 0% 63% 2%

Omnova Solutions 59% 0% 20% 21% 0% 0% 0%

Potash 59% 5% 0% 0% 0% 36% 10%

PPG* 41% 0% 31% 16% 11% 0% 0%

Praxair 44% 10% 12% 14% 13% 6% 7%

Trinseo* 13% 0% 60% 23% 0% 4% 0%

Valspar* 55% 0% 18% 22% 5% 0% 12%

WR Grace* 33% 0% 34% 22% 11% 0% 6%

Source: Deutsche Bank, company data; * represents 2014 data; ND = Not Disclosed

Figure 48: Ranking by 3-month performance (Jan’16- Mar’16)

42.9

%

30.5

%

29.4

%

18.8

%

18.1

%

16.8

%

14.7

%

13.2

%

12.5

%

11.4

%

11.4

%

10.0

%

9.6

%

7.7

%

7.4

%

6.7

%

6.1

%

3.6

%

2.8

%

1.8

%

0.8

%

(0.3

%)

(0.6

%)

(1.1

%)

(2.2

%)

(2.3

%)

(4.4

%)

(4.9

%)

(9.3

%)

(9.8

%)

(60%)

(40%)

(20%)

(0%)

20%

40%

60%

AX

LL

TS

E

VA

L

CB

T

HU

N

FU

L

ALB

PP

G

PX

AP

D

MM

M

SH

W

AX

TA

EM

N

AS

H

FO

E

Che

mic

als

FM

C

AR

G

OLN

S&

P 5

00

DO

W

LY

B

MO

S

EC

L

CE

DD

CM

P

OM

N

WLK

P

Source: Deutsche Bank, Thomson Reuters; include dividends

18 April 2016


Chemicals


Valuation

Valuation looks largely fair for US Chemical stocks. The US Chemicals sector is trading

at 16.9x forward EPS, 13% above its 10-year average. The sector also currently trades

at a 1% premium to the S&P 500 on forward EPS vs a historical discount of 4%. We

view multiple expansion as unlikely until Eurozone headwinds and worries over the

impact of lower oil subside. Longer term, we remain positive on US Chemicals due to a

number of structural tailwinds including the US ethane advantage, and solid balance

sheets which are supporting aggressive shareholder remuneration. We maintain our

equal weight stance on the group due to lack of clarity on global macro conditions.

With the greatest opportunity for investors, in our view, in the highest quality

companies in the sector, our top picks are Dow Chemical (a diversified way to gain

exposure with visible growth projects out through 2018), DuPont (substantial value to

be unlocked from Dow/DD merger; $1B targeted cost synergies and $3B targeted cost

savings), and Eastman (portfolio transformation).

Figure 49: While absolute valuations for US Chemicals are below historical averages, relative valuations are not cheap

0%

50%

100%

150%

200%

250%

300%

4

6

8

10

12

14

16

18

20

22

24

Jan-9

0

Jan-9

1

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3

Jan-1

4

Jan-1

5

Jan-1

6

15yr avg. vs. S&P = 90%

15yr avg. = 15.0

Mar-16 = 91%

Mar-16 = 15.3

Chemicals NTM P/E vs. S&P 500 Chemicals NTM P/E

15-year average NTM P/E 15-year average NTM P/E vs. S&P 500

Source: Source: FirstCall Consensus, Thomson One Note: NTM EPS based on FirstCall consensus

18 April 2016


Chemicals


US Chemicals Top Picks

Dow Chemical

We view the merger of Dow and DuPont as largely positive for Dow Chemical given 1)

the $3B of targeted cost synergies and 2) more importantly than cost synergies, both

companies will benefit as they transition from two unfocused, large companies to three

focused, smaller and more nimble and properly resourced, capitalized and incentivized

companies. Our experience shows that as companies transition into more focused

entities (e.g. Axalta, Lyondell, PPG), they can generate 3-5 years of above peer sales,

EBITDA, and EPS growth.

Valuation

Our 12-month price target of $56 for Dow is based on DowDuPont trading at 8.0x ’17

EBITDA, roughly in-line with the combined entity’s current multiple. Supporting our

target price is a detailed Sum-of-the-Parts analysis (see pp. 34).

Figure 50: Dow Chemical next 12-month P/E and relative P/E

0%

100%

200%

300%

400%

500%

0

10

20

30

40

50

60

70

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan-0

7

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

NTM P/E Vs. S&P 500 (RHS) NTM P/E (LHS)

Source: Thomson One

Risks

Key downside risks: narrowing of the oil-gas ratio, a stronger US dollar, heightened

import competition from lower-cost Middle East petrochemical producers, slower

economic growth in either developed or emerging markets.

18 April 2016


Chemicals


Figure 51: SOTP Based on 2017 EBITDA and 2016 EBITDA Multiples

SOTP Based on 2017 EBITDA and 2016 EBITDA Multiples

Segment 2017E EBITDA Multiple Enterprise Value Comment

Agriculture 2,967

Pioneer 2,265 10.9x $24,666 10% discount to Monsanto

Crop Protection 702 12.9x $9,046 10% discount to Syngenta

Electronics & Communications 557 11.8x $6,574 Air Products, Albemarle

Industrial Biosciences 323 13.0x $4,193 High growth multiple

Nutrition & Health 738 13.8x $10,167 10% Discount to Givaudan, Symrise

Performance Materials 1,309 10.0x $13,093 High end diversified chemicals

Safety & Protection 1,005 12.5x $12,545 3M Multiple

Other (259) 10.0x ($2,590)

Corporate (340) 9.0x ($3,060)

2017 Cost Savings 500 9.0x $4,500 Assume 50% of $1B in cost savings

Present Value of Remaining Cost Savings & Sales Synergies 1,125 9.0x $10,125 Assume 50% of $3B in cost savings and sales synergies

Present Value of Add'l Operational Improvement / Restructuring 1,000 9.0x $9,000 Assume 50% of an additional $3B of

DuPont Enterprise Value 8,926 11.0x $98,258

Agricultural Sciences 800 14.3x $11,449 Syngenta multiple

Consumer Solutions 1,182 9.5x $11,229 Premium Specialty Chemical multiple

Infrastructure Solutions 1,950 8.0x $15,604 Differentiated chemical multiple

Performance Materials & Chemicals 1,868 8.0x $14,947 Differentiated chemical multiple

Performance Plastics 5,068 6.0x $30,407 Commodity Chemical multiple

Corporate (375) 9.0x ($3,375)


Present Value of Remaining $2B Cost Savings & $1B in Sales Synergies 1,125 9.0x $10,125 Assume 50% of $3B in cost savings

Present Value of Add'l Operational Improvement / Restructuring 1,000 9.0x $9,000

Dow Enterprise Value 13,119 7.9x $103,885

DuPont + Dow Enterprise Value $202,144

DuPont Equity Value

DuPont Enterprise Value $98,258

Less: Net Debt $3,714 Year-End '16

Plus: Options Proceeds from In-the-Money Options $913

Less: Imprelis Liability $0

Less: Underfunded Pension & OPEB Plans $12,112

Less: Environmental Remediation $478

DuPont Equity Value $82,868

Dow Equity Value

Dow Enterprise Value $103,885

Less: Net Debt $12,398

Plus: Options Proceeds from In-the-Money Options $1,934



Dow Equity Value $82,659

DuPont + Dow Equity Value $165,527

DuPont shareholder ownership of DowDuPont 48%

Dow shareholder ownership of DowDuPont 52%

DuPont portion of equity value $80,017

DuPont Per Share Equity Value $89.26

Current Share Price $64.31

DuPont Upside / (Downside) 39%

Dow portion of equity value $85,509

Dow Per Share Equity Value $74.07


Dow Upside / (Downside) 43% Source: Deutsche Bank

18 April 2016


Chemicals


DuPont

We view the merger of Dow and DuPont as largely positive for DuPont given 1) the $3B

of targeted cost synergies and 2) more importantly than cost synergies, both companies

will benefit as they transition from two unfocused, large companies to three focused,

smaller and more nimble and properly resourced, capitalized and incentivized

companies. Our experience shows that as companies transition into more focused

entities (e.g. Axalta, Lyondell, PPG), they can generate 3-5 years of above peer sales,

EBITDA, and EPS growth.

Valuation

Our 12-month price targets of $64 for DuPont is based on DowDuPont trading at 8.0x

’17 EBITDA, roughly in-line with the combined entity’s current multiple. Supporting our

target price is a detailed Sum-of-the-Parts analysis (see pp. 83).

Figure 153: DuPont next 12-month P/E and relative P/E

40%

60%

80%

100%

120%

140%

160%

5

10

15

20

25

30

35

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan-1

2

Jan

-13

Jan

-14

Jan

-15

Jan

-16

NTM P/E Vs. S&P 500 (RHS) NTM P/E (LHS)

Source: Thomson One

Risks

Key risks include: i) A failure to complete the potential merger of Dow and DuPont, ii) A

failure to complete the potential three way breakup of the combined Dow/DuPont

entity, iii) lower oil prices, iv) reduced US ethane/propane production and v) lower corn

and soybean prices.

18 April 2016


Chemicals


Figure 52: SOTP Based on 2017 EBITDA and 2016 EBITDA Multiples

SOTP Based on 2017 EBITDA and 2016 EBITDA Multiples

Segment 2017E EBITDA Multiple Enterprise Value Comment

Agriculture 2,963

Pioneer 2,261 10.9x $24,627 10% discount to Monsanto

Crop Protection 701 12.9x $9,032 10% discount to Syngenta

Electronics & Communications 557 11.5x $6,415 Air Products, Albemarle

Industrial Biosciences 323 13.0x $4,193 High growth multiple

Nutrition & Health 738 13.8x $10,167 10% Discount to Givaudan, Symrise

Performance Materials 1,309 10.0x $13,093 High end diversified chemicals

Safety & Protection 1,005 12.5x $12,545 3M Multiple

Other (259) 10.0x ($2,590)

Corporate (340) 9.0x ($3,060)


Present Value of Remaining Cost Savings & Sales Synergies 1,125 9.0x $10,125 Assume 50% of $3B in cost savings and sales synergies

Present Value of Add'l Operational Improvement / Restructuring 1,000 9.0x $9,000 Assume 50% of an additional $3B of

DuPont Enterprise Value 8,921 11.0x $98,047

Agricultural Sciences 795 14.3x $11,382 Syngenta multiple

Consumer Solutions 1,182 9.5x $11,229 Premium Specialty Chemical multiple

Infrastructure Solutions 1,950 8.0x $15,604 Differentiated chemical multiple

Performance Materials & Chemicals 1,868 8.0x $14,947 Differentiated chemical multiple

Performance Plastics 5,068 6.0x $30,407 Commodity Chemical multiple

Corporate (375) 9.0x ($3,375)


Present Value of Remaining $2B Cost Savings & $1B in Sales Synergies 1,125 9.0x $10,125 Assume 50% of $3B in cost savings

Present Value of Add'l Operational Improvement / Restructuring 1,000 9.0x $9,000

Dow Enterprise Value 13,114 7.9x $103,819

DuPont + Dow Enterprise Value $201,865

DuPont Equity Value

DuPont Enterprise Value $98,047

Less: Net Debt $3,714 Year-End '16

Plus: Options Proceeds from In-the-Money Options $913

Less: Imprelis Liability $0



DuPont Equity Value $82,656

Dow Equity Value

Dow Enterprise Value $103,819

Less: Net Debt $12,494

Plus: Options Proceeds from In-the-Money Options $1,934



Dow Equity Value $82,496

DuPont + Dow Equity Value $165,152

DuPont shareholder ownership of DowDuPont 48%

Dow shareholder ownership of DowDuPont 52%

DuPont portion of equity value $79,836

DuPont Per Share Equity Value $91.62


DuPont Upside / (Downside) 42%

Dow portion of equity value $85,316

Dow Per Share Equity Value $76.04


Dow Upside / (Downside) 47% Source: Deutsche Bank

18 April 2016


Chemicals


Appendix A: US chemicals sales by region

Figure 53: Ranking by 2015 Sales to the US

98.0

%

76.0

%

59.2

%

58.5

%

57.4

%

55.0

%

53.0

%

52.8

%

52.2

%

49.2

%

48.3

%

45.0

%

44.3

%

43.3

%

43.0

%

42.8

%

41.2

%

39.8

%

34.5

%

34.0

%

33.5

%

33.0

%

30.6

%

29.3

%

25.8

%

25.2

%

24.6

%

13.0

%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

110.0%

AR

G

CM

P

PO

T

OM

N

MO

N

VA

L

AS

H

HU

N

EC

L

LY

B

CY

T

EM

N

PX

AP

D

DD

FU

L

PP

G

MM

M

DO

W

AX

TA

KR

O

GR

A

ALB

MO

S

CE

FO

E

CB

T

TS

E

Source: Deutsche Bank, Thomson One, Company data

Figure 54: Ranking by 2015 Sales to Europe

60%

51%

44%

39%

35% 34%31% 31% 31%

25% 24% 24% 23%21% 20% 19% 18% 18%

12% 12% 12%

5%

0%

10%

20%

30%

40%

50%

60%

70%

TS

E

KR

O

FO

E

CE

AX

TA

GR

A

CY

T

DO

W

PP

G

EM

N

AS

H

DD

AP

D

MM

M

OM

N

LY

B

EC

L

VA

L

HU

N

PX

MO

N

CM

P


18 April 2016


Chemicals


Figure 55: Ranking by 2015 Sales to Asia- Pacific

30%

26%26%

24%23% 22% 22% 22% 21%

19%18%

16% 16% 15%14% 14%

12% 12%

5%

0%

5%

10%

15%

20%

25%

30%

35%

MM

M

CE

AP

D

EM

N

TS

E

DD

VA

L

GR

A

OM

N

CB

T

AX

TA

PP

G

AS

H

FO

E

PX

HU

N

EC

L

CY

T

MO

N


Figure 56: Ranking by 2015 Sales to China

19%

14% 14%

12% 11% 11%10% 10% 10%

8% 8%7%

6%

2%

0%

5%

10%

15%

20%

25%

CB

T

CE

HU

N

VA

L

AP

D

EM

N

AS

H

AX

TA

PO

T

DO

W

DD

PX

GR

A

MO

S


Ch

em

icals

Ch

em

icals / S

pecia

lty

18

Ap

ril 20

16

Deu

tsch

e B

an

k S

ecu

rities In

c.

Pag

e 3

9

Figure 57: Chemicals valuation ratios

Market Segment/ Price 52-Week Mkt Cap Div. Net Debt/

Company Symbol Rating 4/13/16 Range ($MM) 2015 2016E 2015 2016E 2015 2016E 2015 2016E 2015 2016E Yield '15E EBITDA

Specialty Chemicals

Albemarle ALB Buy 65$ 67$ 41$ 7,293$ 17.3 16.2 0.99 0.94 11.6 11.4 2.6% 5.6% 37.8 18.0 - 3.8

Ashland ASH Buy 112$ 132$ 88$ 7,462$ 16.0 15.2 0.92 0.88 8.8 8.8 (2.3%) 4.8% -43.7 21.0 1.3% 2.2

Cabot CBT Hold 48$ 50$ 31$ 3,111$ 13.6 11.4 0.78 0.66 7.3 6.6 5.2% 7.3% 19.4 13.8 1.8% 1.7

Chemtura CHMT - 27$ 32$ 24$ 1,765$ 19.0 15.5 1.09 0.90 8.0 6.9 5.3% 6.6% 19.0 15.1 - 0.2

Ecolab ECL Hold 114$ 122$ 99$ 33,703$ 25.9 23.3 1.49 1.35 14.3 13.4 4.4% 3.8% 22.5 26.4 1.2% 2.3

Ferro FOE Buy 12$ 17$ 8$ 1,044$ 14.4 10.5 0.82 0.61 11.3 8.7 3.4% 8.1% 29.8 12.3 - 2.3

H.B. Fuller FUL Buy 45$ 45$ 31$ 2,253$ 20.0 16.8 1.15 0.98 10.7 9.6 7.5% 5.9% 13.3 17.0 1.1% 2.4

W.R. Grace GRA - 76$ 84$ 63$ 5,355$ 16.1 24.5 0.93 1.42 9.6 14.2 5.9% 5.9% 16.9 16.8 - 1.4

3M MMM Hold 169$ 169$ 134$ 105,326$ 21.5 19.4 1.23 1.13 12.8 11.9 4.4% 4.9% 22.6 20.4 2.4% 0.6

Minerals Technologies MTX - 60$ 73$ 36$ 2,101$ 14.1 13.6 0.81 0.79 8.8 8.6 5.5% 8.4% 18.2 11.9 0.3% 1.5

NewMarket Corp. NEU - 401$ 483$ 323$ 4,747$ 20.7 20.8 1.19 1.21 13.5 14.1 2.6% 2.4% 39.2 42.3 1.4% 0.0

Orion Engineered Carbons S.A. OEC 14$ 21$ 10$ 829$ 10.8 10.8 0.62 0.63 6.5 6.1 14.0% 11.4% 7.1 8.8 5.2% 2.9

Polyone POL - 32$ 41$ 22$ 2,707$ 15.9 15.0 0.92 0.87 8.3 8.1 9.1% 6.0% 11.0 16.7 1.3% 2.4

RPM RPM - 51$ 51$ 37$ 6,717$ 20.9 19.1 1.20 1.11 13.5 12.3 3.9% 5.0% 25.7 19.9 2.0% 1.5

A. Schulman SHLM - 27$ 48$ 21$ 783$ 11.1 10.4 0.64 0.60 9.9 8.0 14.1% 15.2% 7.1 6.6 3.1% 5.5

Specialty Chemical Average 17.2 16.2 0.99 0.94 10.3 9.9 5.7% 6.7% 16.4 17.8 1.9% 2.0

Coatings

Axalta Coating Systems AXTA Buy 30$ 37$ 21$ 7,155$ 28.5 23.5 1.63 1.37 11.8 11.1 5.3% 6.8% 18.9 14.6 - 3.6

PPG PPG Buy 114$ 119$ 83$ 30,925$ 20.1 18.0 1.16 1.05 12.7 11.9 3.5% 5.5% 28.6 18.3 1.2% 1.2

Sherwin Williams SHW - 297$ 300$ 218$ 27,392$ 27.2 23.9 1.56 1.39 16.4 14.7 2.9% 3.3% 34.0 30.4 0.9% 0.8

Valspar VAL Buy 107$ 108$ 71$ 8,775$ 23.5 20.6 1.35 1.20 14.1 13.1 4.3% 4.5% 23.3 22.3 1.1% 2.0

RPM RPM - 51$ 51$ 37$ 6,717$ 20.9 19.1 1.20 1.11 13.5 12.3 3.9% 5.0% 25.7 19.9 2.0% 1.5

Coatings Average 24.0 21.0 1.4 1.2 13.7 12.6 4.0% 5.0% 26.1 21.1 1.3% 1.5

P/E Ratio P/E Rel. to S&P 500 EV/EBITDA FCF Yield P/FCF


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Figure 58: Chemicals valuation ratios (Cont´d)

Market Segment/ Price 52-Week Mkt Cap Div. Net Debt/

Company Symbol Rating 4/13/16 Range ($MM) 2015 2016E 2015 2016E 2015 2016E 2015 2016E 2015 2016E Yield '15E EBITDA

Industrial Gases

Airgas ARG Hold 142$ 142$ 86$ 10,561$ 29.2 28.3 1.68 1.65 13.6 13.3 2.3% 2.4% 43.1 41.4 1.6% 2.8

Air Products APD Buy 144$ 154$ 115$ 31,043$ 22.0 19.5 1.26 1.13 12.4 11.3 2.6% 2.4% 38.3 40.9 2.2% 1.8

Praxair PX Buy 116$ 125$ 96$ 34,020$ 19.9 18.9 1.14 1.10 12.0 11.7 3.7% 3.8% 26.8 26.0 2.5% 2.0

Industrial Gases Average 23.7 22.3 1.36 1.29 12.7 12.1 2.9% 2.9% 36.1 36.1 2.1% 2.2

Differentiated Chemicals ,

Celanese CE Buy 69$ 74$ 54$ 10,152$ 11.4 10.6 0.66 0.62 8.4 8.2 7.6% 8.9% 13.1 11.2 1.7% 1.3

Dow Chemical DOW Buy 52$ 57$ 35$ 60,465$ 16.1 16.1 0.92 0.93 8.1 8.5 3.7% 3.6% 27.3 27.9 3.3% 1.3

Dupont DD Buy 65$ 76$ 47$ 56,785$ 23.6 19.9 1.35 1.16 12.1 11.8 3.6% 4.5% 27.4 22.3 2.7% 1.3

FMC FMC - 40$ 61$ 32$ 5,299$ 16.7 15.1 0.96 0.88 11.5 10.7 4.6% NA 21.6 15.2 1.7% 2.5

Eastman Chemical EMN Buy 74$ 84$ 56$ 11,051$ 10.3 10.0 0.59 0.58 7.9 7.7 8.3% 8.8% 12.0 11.4 2.2% 3.1

Kraton KRA - 19$ 25$ 13$ 595$ 10.9 7.6 0.62 0.44 6.8 2.7 - 559.3% - 0.2 - 11.3

OMNOVA Solutions OMN Buy 7$ 8$ 4$ 311$ 13.2 8.3 0.76 0.48 6.6 5.5 11.9% 12.4% 8.4 8.0 - 3.4

Trinseo TSE Buy 40$ 40$ 21$ 1,874$ 8.7 8.1 0.50 0.47 5.7 5.6 4.2% 8.3% 23.9 12.1 - 1.8

Huntsman HUN - 14$ 24$ 7$ 3,332$ 8.1 8.1 0.46 0.47 6.6 6.8 (0.5%) 0.3% -186.5 297.7 3.6% 3.6

Differentiated Chemical Average 13.2 11.5 0.8 0.7 8.2 7.5 5.4% 75.8% -6.6 45.1 2.5% 3.3

Commodity Chemicals

Chemours CC - 8$ 22$ 3$ 1,389$ 8.5 11.0 0.49 0.64 8.5 8.0 13.3% 6.4% 7.5 15.6 7.6% 6.0

Kronos KRO Hold 6$ 14$ 4$ 742$ 34.8 34.2 2.00 1.99 10.7 9.8 10.0% 1.4% 10.0 73.9 9.4% 1.9

Kraton KRA - 19$ 25$ 13$ 595$ 10.9 7.6 0.62 0.44 6.8 2.7 - 559.3% - 0.2 - 11.3

LyondellBasell LYB Hold 88$ 107$ 69$ 38,052$ 8.6 8.8 0.50 0.51 5.4 5.8 10.1% 7.8% 9.9 12.8 3.4% 0.6

Methanex MEOH - 34$ 61$ 23$ 3,031$ 22.8 88.0 1.31 5.11 10.9 13.3 3.1% 8.6% 32.7 11.7 3.2% 3.1

Olin OLN - 18$ 32$ 12$ 2,951$ 17.1 14.4 0.98 0.84 15.0 7.0 30.4% 5.9% 3.3 17.0 4.5% 7.7

Tronox TROX - 7$ 23$ 3$ 437$ -3.9 -12.6 -0.22 -0.73 1.4 1.4 (6.4%) 34.3% (15.7) 2.9 14.9% 8.3

Westlake Chemical WLK Hold 47$ 79$ 40$ 3,108$ 9.3 11.9 0.54 0.69 2.4 2.7 8.3% 3.1% 12.0 32.7 1.5% -0.3

Commodity Chemical Average 14.2 21.8 0.8 1.3 7.5 6.1 7.3% 81.2% 8.7 21.6 6.1% 4.7

Ag Biotech

Monsanto MON Buy 90$ 124$ 81$ 42,050$ 15.7 17.3 0.90 1.00 9.4 10.7 5.0% 3.5% 20.2 28.2 2.2% 1.0

Syngenta SYNN-CH - 406$ 435$ 289$ 37,699$ 23.0 23.4 1.32 1.36 14.4 15.2 3.3% 3.0% 30.2 33.7 2.7% 0.8

Dupont DD Buy 65$ 76$ 47$ 56,785$ 23.6 19.9 1.35 1.16 12.1 11.8 3.6% 4.5% 27.4 22.3 2.7% 1.3

Ag Biotech Average 20.8 20.2 1.2 1.2 12.0 12.6 4.0% 3.7% 26.0 28.1 2.5% 1.0

Agchems/Fertilizers TSX:agu

CF Industries CF - 31$ 70$ 26$ 7,277$ 8.3 12.1 - - 6.7 7.2 (32.0%) (1.2%) -3.1 -80.5 3.8% 2.0

Compass Minerals CMP Hold 72$ 93$ 66$ 2,434$ 13.2 12.6 0.76 0.73 8.2 7.9 3.0% 2.3% 32.9 42.8 3.7% 1.4

Intrepid Potash IPI - 1$ 13$ 1$ 84$ -6.9 -2.2 - - 2.6 7.8 6.8% 4.5% 14.7 22.0 - 0.6

Mosaic MOS Hold 27$ 48$ 22$ 9,464$ 8.1 6.4 0.47 0.37 4.7 4.2 5.4% 13.6% 18.7 7.4 4.1% 0.7

Potash Corp. POT Hold 16.66$ 34$ 15$ 13,823$ 10.6 17.4 0.61 1.01 5.6 5.2 10.5% 12.2% 9.6 8.2 9.1% 1.3

Ag/Fertilizer Average 12.0 13.4 0.6 0.7 5.6 6.4 -1.3% 6.3% 14.5 0.0 5.2% 1.2

Chemical Average (ex-Ag.) 17.0 17.3 1.0 1.0 10.0 9.2 6.0% 37.6% 18.6 19.6 2.8% 2.7

S&P 500 SPX 2,082.42$ 2,135$ 1,810$ 18,160,000$ 17.4 17.2

P/FCFP/E Ratio P/E Rel. to S&P 500 EV/EBITDA FCF Yield


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Figure 59: Chemicals valuation metrics

Market Segment/ Price 52-Week Mkt Cap EV

Company Symbol Rating 4/13/16 Range ($MM) ($MM) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E

Specialty Chemicals

Albemarle ALB Buy 65.00$ 67$ 41$ 7,293$ 11,038$ $3.75 $4.00 (10%) 7% $8.52 $8.66 1.72$ 3.61$

Ashland ASH Buy 112.21$ 132$ 88$ 7,462$ 9,934$ $7.02 $7.40 16% 5% $16.41 $18.12 (2.57)$ 5.35$

Cabot CBT Hold 48.32$ 50$ 31$ 3,111$ 4,221$ $3.55 $4.25 2% 20% $8.91 $9.88 2.49$ 3.50$

Chemtura CHMT - 27.31$ 32$ 24$ 1,765$ 1,960$ $1.44 $1.76 98% 22% $3.66 $4.37 1.44$ 1.81$

Ecolab ECL Hold 114.13$ 122$ 99$ 33,703$ 40,348$ $4.40 $4.90 5% 11% $9.64 $10.41 5.08$ 4.32$

Ferro FOE Buy 12.04$ 17$ 8$ 1,044$ 1,409$ $0.84 $1.15 34% 37% $1.75 $2.33 0.40$ 0.98$

H.B. Fuller FUL Buy 44.57$ 45$ 31$ 2,253$ 2,896$ $2.23 $2.65 (4%) 19% $6.75 $6.38 3.35$ 2.61$

W.R. Grace GRA - 75.81$ 84$ 63$ 5,355$ 7,259$ $4.70 $3.10 9% (34%) $10.68 $7.22 4.47$ 4.50$

3M MMM Hold 168.59$ 169$ 134$ 105,326$ 110,899$ $7.85 $8.70 5% 11% $13.49 $14.85 7.46$ 8.27$

Minerals Technologies MTX - 60.32$ 73$ 36$ 2,101$ 3,161$ $4.27 $4.43 - 4% $10.37 $10.54 3.31$ 5.09$

NewMarket Corp. NEU - 400.57$ 483$ 323$ 4,747$ 5,148$ $19.34 $19.23 6% (1%) $31.93 $30.72 10.22$ 9.48$

Orion Engineered Carbons S.A. OEC 13.96$ 21$ 10$ 829$ 1,466$ $1.29 $1.29 85% 0% $3.78 $4.03 1.95$ 1.59$

Polyone POL - 31.65$ 41$ 22$ 2,707$ 3,575$ $1.99 $2.11 12% 6% $5.02 $5.18 2.87$ 1.89$

RPM RPM - 50.56$ 51$ 37$ 6,717$ 8,200$ $2.42 $2.65 8% 9% $4.57 $5.03 1.97$ 2.54$

A. Schulman SHLM - 26.62$ 48$ 21$ 783$ 1,761$ $2.39 $2.57 - 7% $6.05 $7.44 3.75$ 4.05$

Specialty Chemical Average 20% 8%

Coatings

Axalta Coating Systems AXTA 30.00$ 37$ 21$ 7,155$ 10,364$ $1.05 $1.28 (2%) 21% $3.65 $3.90 1.58$ 2.05$

PPG PPG Buy 114.23$ 119$ 83$ 30,925$ 34,152$ $5.68 $6.35 16% 12% $9.80 $10.80 3.99$ 6.23$

Sherwin-Williams SHW - 297.08$ 300$ 218$ 27,392$ 29,149$ $10.93 $12.42 24% 14% $19.10 NM 8.73$ 9.77$

Valspar VAL Buy 107.01$ 108$ 71$ 8,775$ 10,203$ $4.55 $5.20 5% 14% $8.78 $9.84 4.60$ 4.80$

RPM RPM - 50.56$ 51$ 37$ 6,717$ 8,200$ $2.42 $2.65 8% 9% $4.57 NM 1.97$ 2.54$

10% 14%

FCF Per ShareEarnings Per Share EPS Change EBITDA Per Share


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Figure 60: Chemicals valuation metrics (Cont´d).

Market Segment/ Price 52-Week Mkt Cap EV

Company Symbol Rating 4/13/16 Range ($MM) ($MM) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E

Industrial Gases

Airgas ARG Hold 141.62$ 142$ 86$ 10,561$ 13,267$ $4.85 $5.00 3% 3% $12.86 $13.53 3.29$ 3.42$

Air Products APD Buy 144.40$ 154$ 115$ 31,043$ 36,408$ $6.57 $7.40 14% 13% $13.51 $14.76 3.77$ 3.53$

Praxair PX Buy 115.57$ 125$ 96$ 34,020$ 43,050$ $5.82 $6.10 (7%) 5% $14.83 $12.90 4.32$ 4.45$

Industrial Gases Average 3% 7%

Differentiated Chemicals

Celanese CE Buy 69.20$ 74$ 54$ 10,152$ 12,635$ $6.05 $6.50 7% 7% $10.28 $11.18 5.27$ 6.17$

Dow Chemical DOW Buy 52.21$ 57$ 35$ 60,465$ 73,511$ $3.25 $3.25 4% 0% $7.98 $8.11 1.91$ 1.87$

Dupont DD Buy 64.80$ 76$ 47$ 56,785$ 63,462$ $2.75 $3.25 (32%) 18% $5.81 $6.19 2.36$ 2.90$

FMC FMC - 39.62$ 61$ 32$ 5,299$ 7,412$ $2.37 $2.62 43% 10% $4.83 $5.20 1.84$ 2.61$

Eastman Chemical EMN Buy 74.36$ 84$ 56$ 11,051$ 18,186$ $7.25 $7.45 3% 3% $15.40 $15.81 6.20$ 6.53$

Kraton KRA - 19.31$ 25$ 13$ 595$ 989$ $1.78 $2.55 55% 43% $4.78 $12.09 - 108.00$

OMNOVA Solutions OMN Buy 6.65$ 8$ 4$ 311$ 639$ $0.50 $0.80 82% 60% $2.07 $2.49 0.79$ 0.83$

Trinseo TSE Buy 39.65$ 40$ 21$ 1,874$ 2,774$ $4.55 $4.90 3838% 8% $7.97 $10.07 1.66$ 3.29$

Huntsman HUN - 13.99$ 24$ 7$ 3,332$ 8,058$ $1.73 $1.72 (13%) (1%) $4.96 $5.01 (0.08)$ 0.05$

Differentiated Chemical Average 443% 17%

Commodity Chemicals

Chemours CC - 7.66$ 22$ 3$ 1,389$ 4,981$ $0.90 $0.69 - (23%) $3.23 $3.45 1.02$ 0.49$

Kronos KRO Hold 6.40$ 14$ 4$ 742$ 906$ $0.18 $0.19 (77%) 2% $0.73 $0.80 0.64$ 0.09$

Kraton KRA - 19.31$ 25$ 13$ 595$ 989$ $1.78 $2.55 55% 43% $4.78 $12.09 ... 108.00$

LyondellBasell LYB Hold 88.40$ 107$ 69$ 38,052$ 43,321$ $10.25 $10.05 16% (2%) $17.31 $17.19 8.94$ 6.91$

Methanex MEOH - 33.62$ 61$ 23$ 3,031$ 4,561$ $1.47 $0.38 (65%) (74%) $4.67 $3.81 1.03$ 2.88$

Olin OLN - 17.87$ 32$ 12$ 2,951$ 6,439$ $1.05 $1.24 (28%) 18% $2.60 $5.60 5.44$ 1.05$

Tronox TROX - 6.73$ 23$ 3$ 437$ 486$ -$1.74 -$0.53 74% (69%) $5.19 $5.24 (0.43)$ 2.31$

Westlake Chemical WLK Hold 46.74$ 79$ 40$ 3,108$ 2,986$ $5.01 $3.92 (8%) (22%) $9.56 $8.42 3.90$ 1.43$

Commodity Chemical Average (5%) (15%)

Ag Biotech

Monsanto MON Buy 89.74$ 124$ 81$ 42,050$ 47,368$ $5.72 $5.20 9% (9%) $10.52 $9.87 4.45$ 3.18$

Syngenta SYNN-CH - 405.60$ 435$ 289$ 37,699$ 40,309$ $17.60 $17.35 2% (1%) $29.02 NM 13.41$ 12.02$

Dupont DD Buy 64.80$ 76$ 47$ 56,785$ 63,462$ $2.75 $3.25 (32%) 18% $5.81 $6.19 2.36$ 2.90$

Ag Biotech Average (7%) 3%

Fertilizers

CF Industries CF - 31.22$ 70$ 26$ 7,277$ 12,936$ $3.75 $2.57 (1%) (31%) $8.32 NM (9.99)$ (0.39)$

Compass Minerals CMP Hold 72.23$ 93$ 66$ 2,434$ 2,938$ $5.45 $5.75 13% 5% $10.58 $11.07 2.19$ 1.69$

Intrepid Potash IPI - 1.10$ 13$ 1$ 84$ 174$ -$0.16 -$0.50 (311%) 213% $0.9 NM 0.08$ 0.05$

Mosaic MOS Hold 26.52$ 48$ 22$ 9,464$ 11,060$ $3.26 $4.17 21% 28% $6.46 $7.77 1.42$ 3.59$

Potash Corp. POT Hold 16.66$ 34$ 15$ 13,823$ 17,863$ $1.58 $0.96 (13%) (39%) $3.85 $4.15 1.74$ 2.04$

Ag/Fertilizer Average (1%) 5%

Chemical Average (ex-Ag.) 8% 8%

S&P 500 SPX 2,082 2,135 1,810 $119.53 $120.99 2% 1%

FCF Per ShareEarnings Per Share EPS Change EBITDA Per Share

Source: Deutsche Bank, Thomson One consensus estimates for NR stocks

18 April 2016


Chemicals


Sector valuation & risks

We value the sector based on the strong correlation (R2>75%) we have found

between chemical sector valuations and returns on capital. Key risks for the

sector include an economic recession and a surge in natural gas prices.

18 April 2016


Chemicals


The author of this report wishes to acknowledge the contribution made by

Manish Agrawal and Aneesh Agarwal, employee of Evalueserve, a third-party

provider to Deutsche Bank of offshore research support services.

18 April 2016


Chemicals


Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist

Company Ticker Recent price* Disclosure

LyondellBasell LYB.N 88.15 (USD) 15 Apr 16 6,7,8,9,14,15

Dow Chemical DOW.N 52.37 (USD) 15 Apr 16 7,8,14,15,17 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.

Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months.

14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.

15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services.

Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

9. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by India law.

17. Deutsche Bank and or/its affiliate(s) has a significant Non-Equity financial interest (this can include Bonds, Convertible Bonds, Credit Derivatives and Traded Loans) where the aggregate net exposure to the following issuer(s), or issuer(s) group, is more than 25m Euros.

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

18 April 2016


Chemicals


Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. David Begleiter

Historical recommendations and target price: LyondellBasell (LYB.N) (as of 4/15/2016)

1

23

4

5

6

7

89

10

1112

13

1415

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16

Secu

rity

Pri

ce

Date

Previous Recommendations

Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating

Current Recommendations

Buy Hold Sell Not Rated Suspended Rating

*New Recommendation Structure as of September 9,2002

1. 07/29/2013: Buy, Target Price Change USD80.00 9. 02/13/2015: Downgrade to Hold, USD96.00

2. 10/30/2013: Buy, Target Price Change USD90.00 10. 04/27/2015: Hold, Target Price Change USD105.00






8. 02/04/2015: Buy, Target Price Change USD96.00

18 April 2016


Chemicals


Historical recommendations and target price: Dow Chemical (DOW.N) (as of 4/15/2016)

1

2

3

4 5

6

78

9

10

11

12

13

14

15

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16

Secu

rity

Pri

ce

Date

Previous Recommendations

Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating

Current Recommendations

Buy Hold Sell Not Rated Suspended Rating

*New Recommendation Structure as of September 9,2002

1. 04/26/2013: Hold, Target Price Change USD37.00 9. 01/30/2015: Buy, Target Price Change USD55.00






7. 10/23/2014: Upgrade to Buy, Target Price Change USD58.00 15. 02/03/2016: Buy, Target Price Change USD56.00

8. 11/14/2014: Buy, Target Price Change USD60.00

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.

Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock

Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.

Newly issued research recommendations and target prices supersede previously published research.

48 % 50 %

3 %

51 % 43 %

25 %0

50100150200250300350400450500

Buy Hold Sell

North American Universe

Companies Covered Cos. w/ Banking Relationship

18 April 2016


Chemicals


Regulatory Disclosures

1.Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2.Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are

consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the

SOLAR link at http://gm.db.com.

18 April 2016


Chemicals


Additional Information

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively

"Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources

believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness.

If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this

report, or is included or discussed in another communication (oral or written) from a Deutsche Bank analyst, Deutsche

Bank may act as principal for its own account or as agent for another person.

Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own

account or with customers, in a manner inconsistent with the views taken in this research report. Others within

Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those

taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis,

equity-linked analysis, quantitative analysis and trade ideas. Recommendations contained in one type of communication

may differ from recommendations contained in others, whether as a result of differing time horizons, methodologies or

otherwise. Deutsche Bank and/or its affiliates may also be holding debt securities of the issuers it writes on.

Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment

banking revenues.

Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do

not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no

obligation to update, modify or amend this report or to otherwise notify a recipient thereof if any opinion, forecast or

estimate contained herein changes or subsequently becomes inaccurate. This report is provided for informational

purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any

particular trading strategy. Target prices are inherently imprecise and a product of the analyst’s judgment. The financial

instruments discussed in this report may not be suitable for all investors and investors must make their own informed

investment decisions. Prices and availability of financial instruments are subject to change without notice and

investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is

denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the

investment. Past performance is not necessarily indicative of future results. Unless otherwise indicated, prices are

current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and

other vendors. Data is sourced from Deutsche Bank, subject companies, and in some cases, other parties.

Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise

to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash

flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a

loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the

loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse

macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation

(including changes in assets holding limits for different types of investors), changes in tax policies, currency

convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and

settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed

income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to

FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the

index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended

to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon

rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is

also important to acknowledge that funding in a currency that differs from the currency in which coupons are

denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to

the risks related to rates movements.

18 April 2016


Chemicals


Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk.

The appropriateness or otherwise of these products for use by investors is dependent on the investors' own

circumstances including their tax position, their regulatory environment and the nature of their other assets and

liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar

to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can

be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be

incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable

for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized

Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the

website please contact your Deutsche Bank representative for a copy of this important document.

Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i)

exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by

numerous market factors, including world and national economic, political and regulatory events, events in equity and

debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed

exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are

affected by the currency of an underlying security, effectively assume currency risk.

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18 April 2016


Chemicals


Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are

not disclosed according to the Financial Instruments and Exchange Law of Japan.

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Copyright © 2016 Deutsche Bank AG

David Folkerts-Landau Chief Economist and Global Head of Research

Raj Hindocha Global Chief Operating Officer

Research

Marcel Cassard Global Head

FICC Research & Global Macro Economics

Steve Pollard Global Head

Equity Research

Michael Spencer Regional Head

Asia Pacific Research

Ralf Hoffmann Regional Head

Deutsche Bank Research, Germany

Andreas Neubauer Regional Head

Equity Research, Germany

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