Praxair 4Q15 Earnings Call Notes

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Praxair (PX) CFO Matt White on Q4 2015 Results

I don’t see many things getting better, a few are getting worse

“When I look around at the current industrial state of the world, I don’t see many things getting better, and a few are getting a little worse. The combination of excess supply and reduced demand, continues to put strain on several industrial end markets.”

We continue to see good demand in consumer oriented sectors

“we continue to see good demand in consumer oriented sectors, like food, beverage, automotive, healthcare, refining and chemicals. ”

South America has worsened

“South America has not improved, but rather worsened, which is consistent with our expectations. The combination of political turmoil in Brazil and the seasonal outages, significantly curtail the volumes, which will likely continue into Q1 for the carnival holiday, and possibly beyond. I believe the election result in countries like Venezuela and Argentina, will bode well for future business opportunities, but it will take some time to see any impact on the ground.”

Europe is stable and slightly growing

“Europe is stable and slightly growing in several regions. Commodity consuming nations like Germany, Spain, Benelux and Italy have benefited from the lower cost of oil and weaker Euro.”

Clearly there is an excess capacity situation in China

“China is the country getting the most press these days. Clearly, you have a situation of excess capacity across most infrastructure supporting industries, like steel, glass and cement. We have been seeing softness in those areas for few quarters now, and that will likely continue for 2016.”

Consumer related industries still performing well in China

“Consumer related industries are still performing well in China, as we continue to see good demand for things like transportation fuels, food, healthcare, environmental solutions and plastics.”

China breaks down into infrastructure which is overcapacity and consumer, where there are still opportunities

in my mind in China investments, I would sort of break it in two categories. There is investing in assets that relate to infrastructure, whether that’s steel, cement, glass. I think right now, that entire sector is just too much capacity. So there needs to be some rationalization and I would see future investments in those areas being extremely limited. The other sector of the Chinese economy in the consumer side, there still are good investment opportunities. They tend to be smaller plans, they tend to be less capital intensive. It could be, things in environmental, in food, in that we continue to see good opportunities.

China is looking to take out 100m tons of capacity of steel, that’s the entire capacity of the US

But when I look at the steel capacity in China right now, our steel customers are what I call tier-I. So these are the Bao steel type customers there. And they are very competitive globally. They are very well integrated, and they can withstand these cycles. There are tier-II and tier-III steel mills that have been popped up all over the country, and those are the ones I think from a liquidity standpoint and a competitive standpoint are struggling. Now just the Premier recently here announced their goal to take out about 100 million to 150 million tonnes a year capacity. And just to put that in perspective, that’s like the entire capacity of the United States. ”

The rationalization should ultimately be great

“But they are looking to rationalize and take that out, which I think would be great. I don’t know when it will happen, but if that could be accelerated, that should be very beneficial on a couple of fronts, it should reduce some of the steel production and some of the imports to other countries like the U.S. But it also should help on the liquid merchant front.”