Downgrading Air Products' Capital Allocation Rating to Standard

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.