Chinese Chemical Companies Cut Loose?

If speculation that China will repeal a tax rebate for its soda ash exporters is true, that could mean a profit windfall for American firm FMC , Cramer says.

FMC, formerly known as the Food Machinery Co., is already the world’s number-two producer of soda ash, and it does so at a much lower cost than its Chinese counterparts. A repeal of the subsidy could give the company the last leg up it needs to overtake the competition.

Although there’s no guarantee this is going to happen, Cramer thinks the stock is still a good investment. FMC is riding the bull market in soda ash, driven by ever-shrinking supplies, as well as one in agriculture, where it’s a hidden play.

Soda ash is used for a number of things, such as making glass and bricks, softening water for laundry, developing film, and cleaning swimming pools. According to Cramer, companies are shutting down production plants all over the world. Even in China, which is adding capacity, exports are on the decline.

FMC is helped by the American Natural Soda Ash Corp. ANSAC handles the exports of four companies – FMC, Solvay, OCI, and General Chemical – purchases exclusively from them and controls about 65% of the world’s soda ash exports. With that type of price control, it’s no wonder the Chinese enacted a subsidy.

FMC is a good play regardless of whether or not China drops the rebate, Cramer says. The company makes most of its money in agricultural chemicals anyway – 44% of its operating profit. So soda ash is a good complement, but the real money is in the ag business, especially in Latin America where FMC has exposure.

“Given the strength of the bull market in anything with agricultural exposure, I’m happy to tell you to pull the trigger,” Cramer says.

Bottom Line: FMC already spiked on the rebate rumor, but it has since pulled back to below its pre-rumor levels. This could be the right time to buy in, Cramer says.

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