There are obvious losers from the seemingly never-ending plunge of natural gas prices. Natural gas, which traded around $14 per million cubic feet before the commodities bubble burst in 2008, is struggling to stay around $2 today. That has been terrible to news for natural gas stocks such as Chesapeake Energy (CHK). The second-largest U.S. natural gas producer has tumbled 43% in the past year.
Then there is coal. Coal stocks have been hammered because lower natural gas prices give electric utilities reason to use cheaper, cleaner natural gas over coal. Not surprisingly, the Market Vectors Coal ETF (KOL) has lost 34% in the past year. Who can forget the U.S. Natural Gas Fund (UNG)? UNG would be a real winner if natural gas prices ever bounce higher, but that's just not the case right now. Earlier this week, UNG turned five years old. It's doubtful anyone was happy about that. In those five years, UNG has lost over 96% of its value.
There are winners in the low natural gas scenario and they're actually pretty easy to find. Look no further than the chemicals space. Chemicals makers depend on natural gas for the production of an array of products, so it's fair to say these companies are smiling ear-to-ear since natural gas is so abundant and so cheap. It's almost as if short natural gas/long chemicals companies has been the best pairs trade on the market over the past few years.
Look at the chart of Pennsylvania-based PPG Industries (PPG). The company makes protective and decorative coatings and is a high-beta, cyclical play. Indeed, all chemicals companies. They simply need the economy to be in good shape for their stocks to be in good shape. However, it does not hurt when one of your biggest input costs, that being natural gas, is cheap.
In the past six months, PPG is up almost 27% while UNG is down over 59%. How's that for a negative correlation? Then there is Texas-based Celanese (CE), which makes chemicals, thermoplastic polymers, and other chemical-based products. In other words, Celanese is also a big natural gas consumer. There might be more upside here because even though Celanese is up 22.5% in the past six months, it still only trades for nine times forward earnings. On Thursday, Lazard initiated its coverage on the stock with a Buy.
Dow component DuPont (DD) has also benefited from cheap natural gas. The company's first-quarter profit beat Wall Street's expectations and Delaware-based DuPont reiterated its 2012 earnings forecast of $4.20 to $4.40 per share. Conservative investors might prefer DuPont over more volatile, lesser-known chemicals producers.