TOTAL S.A. (TOT - Free Report) has decided to exit from the polystyrene business in China, and thereby sell its two facilities with a production capacity of 200,000 tons per year each, located in Ningbo, Zhejiang Province, and in Foshan, Guangdong Province. Both these units will be sold to INEOS Styrolution.
TOTAL entered the Chinese polystyrene market in 2003, as economic development of the country resulted in massive growth in polystyrene demand in the past decade. However, the polystyrene business in China was highly competitive and the company failed to reach critical mass in China, and hence decided to exit the same to focus on the U.S. and European polystyrene business.
Rising Importance of Polystyrene
Polystyrene is a plastic that is utilized to produce different consumer products. The demand for polystyrene is rising globally due to urbanization and development in global economy, which is resulting in increasing usage of consumer electronics, appliances and various IT equipment.
The Asia-Pacific region is among the most prolific regions that contributed to global growth of Polystyrene demand. TOTAL’s decision to exit China’s polystyrene business will have a temporary impact on the company. It will now concentrate on European and North American markets, wherein it has a formidable market standing unlike China.
TOTAL’s share in Hanwha Total Petrochemical in South Korea will allow it to benefit from the rising demand of Polystyrene among other Asian countries.
TOTAL’s Position in Polystyrene Space
TOTAL is among the top global producers of Polystyrene. Per a report from Technavio Research, TOTAL is among the top five global producers of Expanded Polystyrene Market. Per a study report from Ceresana, polystyrene global demand will touch nearly $26 billion by 2020.
We expect TOTAL to benefit from its wide presence in European and North American markets.
Strategy of TOTAL
The company continues to work on its strategy to divest non-core assets and utilize the proceeds to focus on its core operations. In the first half of 2018, TOTAL disposed assets amounting to $2,862 million.
Apart from selling non-core assets, the company also makes strategic acquisitions to further strengthen its position in the industry, and compete with super majors like Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) . Last month, TOTAL acquired Engie’s portfolio of upstream liquefied natural gas (“LNG”) assets for an overall enterprise value of $1.5 billion and further strengthened its operation in the LNG space.
Zacks Rank & A Key Pick
TOTAL currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Premier Oil PLC (PMOIY - Free Report) , having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Earnings estimates of Premier Oil have moved up 47.6% to 31 cents in the past 30 days.
Shares of both Premier Oil and TOTAL have outperformed the broader industry’s growth in a year’s time.
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