Shares in chemicals company Chemours (NYSE:CC) were up almost 10% as of 3 p.m. EDT today. The move marks a sectorwide shift in sentiment on chemicals companies, particularly titanium dioxide suppliers like Chemours and its peers Kronos Worldwide, Tronox, and Venator Materials. Titanium dioxide is a critical ingredient in paint, coatings, and packaging, among other industries.
In a nutshell, the sector has been beaten up over the past few months as it's become clear that supply chain difficulties are hitting the industrial sector and impacting sales volumes. For example, in early September, a major paint and coatings company, PPG Industries, warned, "The coatings commodity supply disruptions have further deteriorated since the company's earnings announcement on July 19." Management also said that "sales volumes in the third quarter 2021 will be lower by $225 million to $275 million, compared to what the company anticipated at the start of the third quarter. "
That's not good news for titanium dioxide suppliers. Thus, the market sold off stocks like Chemours in anticipation of a disappointing third quarter.
There's a sense that the sell-off went too far, leaving the sector looking like a good value. Indeed, Chemours' rival Tronox reportedly attracted an all-cash bid from a private equity firm that sent the stock soaring -- a sure sign of value in the sector.
Moreover, another paint and coatings company, Axalta Coating Systems, recently told investors that its volume levels would fall short of previous guidance due to supply chain disruptions. However, the stock has been up since the update a week ago, and continues to look a good value.
The market knows the third quarter won't be pretty for Chemours. Still, it also knows that the value of a company doesn't rest on the results of a quarter or two, mainly as the supply chain issues come down to matters likely to prove temporary. Therefore, investors should focus on what Chemours and others are saying about future demand conditions rather than what will happen in the third and fourth quarters.