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Fuel-Tech (FTEK) provides air pollution and treatment controls, advanced engineering services, and combustion optimization services, which allow its customers to produce energy and processed materials in both a cost-effective and environmentally conscious manner. In addition, the company offers FUEL CHEM technologies, which control slagging, fouling, corrosion, opacity, and other sulfur trioxide-related issues. Such products and technologies that focus on improving air-quality are gaining momentum in the eyes of regulatory bodies looking to protect the interests of the general public. The company operates in both domestic and international markets. As of December 31, 2011, U.S. sales accounted for roughly 81% of FTEK’s total, with the remaining 19% contributed from foreign operations. The latter figure grew nearly 4% year over year, and is expected to trend higher over the long haul. Indeed, we anticipate international sales to hold a greater weight moving forward, in terms of total revenue, as the company continues to strengthen its presence on a global scale.

Most notably, China has become an increasingly important aspect of FTEK’s business. The markets for fuel maintenance and air pollution control (APC) technologies are poised to grow at a steady clip in response to elevated industrial production, related to a progressively rising resident head count. China’s population growth should continue to be robust and directly correlate to a greater demand for energy and power in the years to come. Coal, a metamorphic rock, primarily burned for the production of heat and electricity, is the largest source of power for worldwide electricity generation and should sufficiently support the country’s power needs. Although one of the cheaper sources of energy, it came at a high non-monetary expense.  Environmental and health effects include lung cancer, sludge build up, acid rain, and CO2 emissions. Yet, these may be overlooked considering the mineral’s cost-efficient properties and ability to help lower NOx emissions. Furthermore, as a result of China’s economic growth, the vast expansion in the usage of coal as a viable resource is expected.

Fuel-Tech is positioned, through its proprietary APC technology products, to benefit from increased demand for coal. Inevitably, industrial and utility companies will find it necessary to handle and contain harmful side effects stemming from the increased fossil fuel usage, in order to fully comply with environmental regulation standards. Moreover, China’s five-year plan calls for specific pollution reduction goals. Fuel-Tech’s NOx reduction capabilities, through advanced selective catalytic reduction (SCR) systems and combustion modification techniques, line up well with the country’s initiatives to deal with various emission challenges.

What’s more, alongside China’s longer-term strategy for emission reduction and control, regulatory clarity out of the United States is still on the horizon. The Cross State Air Pollution Rule (CSAPR) has hit a bump in the road.  Slated to begin January 1, 2012, minor technical adjustments and revisions have delayed the rule’s implementation. Ultimately, the setback should only present a miniscule impact in the near-term, while still providing ample upside potential for the company’s top line.  

Although Fuel-Tech’s apparent success hinges on sustained regulatory policy and environmental protection laws, we project governing bodies will likely remain active on the regulatory front, as general health concerns are always a popular issue in the eyes of the public. Thus, its products and services should situate the company nicely for further opportunities, both domestically and internationally, in the growing air pollution control and treatment space. 

For a more detailed evaluation of Fuel-Tech’s prospects and the investment merits of the stock, subscribers should take a look at our full report in The Value Line Investment Survey.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.