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On Tuesday, RBC Capital Markets expressed concerns about the potential negative effects of the newly proposed Trump 2.0 tariffs on the Chemicals and Packaging (NYSE:PKG) sector. In his analysis, RBC Capital analyst Arun Viswanathan highlighted that U.S. petrochemical companies, which export a significant portion of their production, could face challenges due to expected retaliatory tariffs from countries such as China, Mexico, and Canada. These measures are anticipated to increase prices and reduce demand for U.S. exports.For investors seeking deeper insights into how these tariffs might affect specific companies, InvestingPro offers comprehensive analysis of over 1,400 U.S. stocks, including detailed financial health scores and expert-curated ProTips.
Viswanathan’s report detailed several areas within the sector that could be impacted. U.S. companies producing polyethylene (PE) and polyvinyl chloride (PVC), including Dow Inc. (NYSE:DOW), Westlake Chemical Corporation (NYSE:WLK), and LyondellBasell Industries NV (NYSE:LYB), are particularly vulnerable, as they export over 40% of their high-density and low-density PE production. The potential redirection of exports to non-tariff regions may lead to a global oversupply, further straining the industry that has been reliant on export demand.
In the Agricultural Chemicals segment, Viswanathan predicts that U.S. tariffs on soybeans and corn could have a slight negative impact. FMC Corporation (NYSE:FMC) and Corteva Inc. (NYSE:CTVA) might incur additional costs on crop protection chemical inputs due to tariffs. However, FMC has reduced its reliance on Chinese sourcing from 60% in 2018-19 to 30% presently, which may mitigate some of the tariff impact.
The analyst also noted that tariffs on autos could adversely affect lithium demand, which is crucial for electric vehicle (EV) batteries. Despite the delay in tariffs on Mexican automotive production, which may lessen the impact, the growth of battery electric vehicles (BEVs) in Europe is expected to continue due to stringent CO2 regulations.
The Coatings industry is not immune to the potential tariff implications, with U.S. architectural coatings sales possibly suffering from tariffs on imported building products. Sherwin-Williams Co. (NYSE:SHW), which has a significant presence in the U.S. market, could face earnings risks in light of these developments.
Lastly, the Packaging sector may see negative effects, particularly for Ball Corporation (NYSE:BALL) and Owens-Illinois Inc . (NYSE:OI), which supply beverage cans and glass bottles for Mexican beer. Owens-Illinois, with its $1.81 billion market cap and $6.64 billion in revenue, currently operates with a significant debt burden, reflected in its debt-to-equity ratio of 3.54. While the company isn’t currently profitable, InvestingPro analysis indicates expected profitability this year, with management actively buying back shares. According to InvestingPro’s Fair Value model, the stock appears undervalued, and analysts maintain a bullish consensus with upside potential. Companies like Graphic Packaging Holding Company (NYSE:GPK) and Silgan Holdings Inc. (NASDAQ:NYSE:SLGN), with a larger proportion of U.S. sales, could be relatively better positioned to weather the tariff storm.Discover more insights and 6 additional ProTips for Owens-Illinois, along with detailed Pro Research Reports, by subscribing to InvestingPro.
In other recent news, O-I Glass, Inc. announced a significant restructuring effort in Europe, which includes the closure of two furnaces. This move, part of the company’s "Fit to Win" initiative, is expected to affect around 100 employees. The associated costs, as outlined in the company’s recent 8-K filing, are estimated to be approximately $72 million, with charges for plant-related asset impairments and employee separation expenses.
Simultaneously, the company has approved a severance program to reduce costs within its European operations, with an anticipated charge of about $18 million. This initiative and the plant closures are strategic moves aimed at streamlining operations and improving cost efficiencies amidst challenging global business conditions.
In another development, O-I Glass declared a temporary suspension of trading under its employee benefit plans due to a change in the investment fund-trading platform. This blackout period, affecting the company’s 401(k) Plans, is in accordance with the Sarbanes-Oxley Act and Securities Exchange Act of 1934. The company has communicated these developments to its directors, executive officers, and plan participants. These are the latest developments in the company’s operations.
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