China Petroleum & Chemical Corporation or Sinopec (SNP - Free Report) recently signed a memorandum of understanding with LyondellBasell Industries N.V. (LYB - Free Report) to create a new 50-50 joint venture (JV) for developing a new propylene oxide and styrene monomer unit. This is a second such joint venture between the two companies.
The new unit will likely have an annual production capacity of 300 kilo tons of propylene oxide and 600 kilo tons of styrene monomer. The JV is expected to start the new facility’s construction early next year, which will bring the unit online by 2022.
Notably, China’s domestic market with a huge appetite for refined products will be the primary target for both companies. The unit will be built in Zhenhai, Ningbo in China and complement the existing Sinopec LyondellBasell joint venture in the same area, currently operating as Ningbo ZRCC Lyondell Chemical Company Limited.
The non-binding contract can enable the involved entities to address the market, where demand for packaging, furnishing and construction materials is growing. Markedly, more than 60% of chemicals’ demand in the Asian markets is created by China. Also, 40% of the global chemicals’ growth is expected to be generated from the second largest economy in the world over the period of next 10 years.
This move can benefit Sinopec’s downstream businesses, which will boost its profit levels in the coming years. Strikingly enough, the company’s Chemical segment has significantly underperformed in the first nine months of 2019 compared with the comparable period a year ago. The risk to China’s long-term economic growth could persistently dent demand for the company’s Chemical business. As such, targeting a hugely expanding market with higher supply can help this Chinese energy giant to improve margins.
Sinopec has gained 9.7% in the past year against 23.3% decline of the industry it belongs to.
Zacks Rank and Stocks to Consider
Currently, Sinopec has a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy sector are Antero Midstream Corporation (AM - Free Report) and Frank's International N.V. (FI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Antero Midstream’s bottom line for the current quarter is expected to skyrocket 130% year over year.
Frank's International’s bottom line for 2019 is expected to rise 23.8% year over year.
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