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Specialty chemical company Air Products & Chemicals Inc. (APD - Analyst Report) announced that it has entered into a long-term deal with Shanxi Lu'An Mining (Group) Co., Ltd. wherein the former will build, own and operate four air separation units (ASUs) producing oxygen, nitrogen, compressed instrument air and steam. The units will supply Lu'An's multiple process trains at its coal gasification facility to be built in Changzhi City, Shanxi Province, China.

The coals supplied to the liquid projects at Lu'An's Changzhi City facility will produce diesel fuel and derivatives. The aim of the ASU trains is to minimize operating costs through energy efficiency. The facility, which is ranked eighth in the Chinese coal industry, will include a number of ASU trains and produce 12,000 tons per day (TPD) of oxygen as well as significant tonnage volumes of nitrogen and compressed dry air for a coal chemical plant. The facility is expected to come online in 2014.

It is the second-largest ASU onsite order ever awarded to Air Products for a single project. All the combined four units will produce over 10,000 TPD of oxygen, more than 6,000 TPD of nitrogen, and over 700 TPD of instrument air. The first ASU is expected to become operational by Jul 2015 with the final one scheduled in Oct 2015.

The contract is consistent with Air Products’ strategy to win large ASU projects in the high growth China coal gasification market as China has significant coal reserves to produce syngas from the coal and then convert the syngas into fuel, chemicals, and fertilizers.

Air Products benefits from a diverse customer base, sustained pricing power and cost-reduction measure. Few days ago, Air Product came out with its first-quarter fiscal 2013 (ended Dec 31, 2012) results. The results were impressive as both revenues and adjusted earnings outpaced the Zacks Consensus Estimates. The company’s adjusted earnings from continued operations of $1.30 a share beat the Zacks Consensus Estimate by a penny. Consolidated net income from continuing operation increased 22.6% year over year to $276.9 million.

Revenues rose 10.4% year over year to $2,562.4 million, beating the Zacks Consensus Estimate of $2,471 million. Sales were aided by higher volumes in the Tonnage Gases, Equipment and Energy divisions and acquisitions.

For fiscal 2013, Air Products plans to take a number of steps including cost control measures, restructuring actions, price improvements and volume growth. The company expects that its recent strategic moves will position it for future growth and profitability despite the modest economic backdrop.

Air Products retains a short-term (1 to 3 months) Zacks Rank #2 (Buy). Other companies in the chemical industry worth considering are Akzo Nobel NV (AKZOY), Arkema S.A. (ARKAY), and PertoLogistics LP (PDH - Snapshot Report). All these companies retain a Zacks Rank #1 (Strong Buy).

 

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