More Contracts, PX's Future Bright - Analyst Blog

Leading industrial gas supplier, Praxair Inc's (PKX) Mexican subsidiary contracted to supply oxygen to Fondería, a part of Grupo Siderúrgico, via a vacuum pressure swing adsorption (VPSA) plant.

The agreement requires Praxair Mexico to supply 120 tons of oxygen daily to Fonderia, which will be primarily used for steel production. The operation is expected to commence in the third quarter of 2011.

Praxair, over the quarters, has been focusing on building its presence in emerging markets and leveraging from the increase in capital spending there. Recently Praxair Volgograd signed a long-term supply contract with Plastkard, a unit of a leading Russian chemical company, Nikochem Group. Plastkard ranks third in the production of polyvinyl chloride, a widely used plastic in Russia.

Under the terms of the contract, Praxair will construct a new air-separation plant in Volgograd to enable the supply of oxygen, nitrogen and compressed air to Plastkard. The plant with a daily capacity of 350 tons is expected to be operational by late 2011.

Moreover, Praxair Gulf Industrial Gases LLC signed agreements to supply oxygen, nitrogen and argon to Bahrain-based United Steel Company, (SULB), B.S.C. The gases will be used for iron reduction in a plant expected to be operational by the fourth quarter of 2012 and also for steel melting. In addition, Praxair will build a new air separation plant with oxygen capacity in excess of 350 tons per day.

We believe the growth prospects of industrial gas producers are very bright going forward, as industrial gases are being increasingly used by the chemical processing and petroleum refining, metal production and fabricating, and electronics and health care industries.

Praxair is now comfortably positioned to deliver encouraging quarter results yet again based on growing demand for industrial gases, strong backlog, and intense focus on expansion and cost controls.

We currently maintain our Neutral recommendation on the stock.