NewMarket's Rocket Fuel Play: A Bold Bet on Defense and Space Growth

The U.S. defense and space industries are on an upward trajectory, fueled by geopolitical tensions, modernization programs, and a booming commercial space sector. Now, NewMarket Corporation (NYSE: NEU) is doubling down on this trend by expanding its ammonium perchlorate production—a critical component for solid rocket motors. The move, led by its subsidiary American Pacific Corporation (AMPAC), represents a strategic pivot into high-margin, defense-critical sectors.

The Strategic Move: From Petroleum Additives to National Security

NewMarket, historically a leader in petroleum refining additives, acquired AMPAC in 2024 for $400 million, marking its entry into the aerospace and defense space. The $100 million expansion of AMPAC’s ammonium perchlorate capacity—projected to boost production by over 50% by 2026—aligns with a broader shift toward sectors less exposed to cyclical oil demand.

Ammonium perchlorate is a key oxidizer in solid rocket propellants, used in everything from intercontinental ballistic missiles (ICBMs) to NASA’s Space Launch System (SLS). AMPAC’s position as the sole U.S. manufacturer of this material gives it a near-monopoly in a supply chain deemed “strategic” by the Pentagon.

Market Drivers: Defense Spending and the Space Race

The expansion is timed perfectly. U.S. defense spending is projected to grow by 5.6% annually through 2030, with a focus on modernizing missile systems amid competition from China and Russia. Meanwhile, the global space economy is expected to hit $1.4 trillion by 2040, driven by private firms like SpaceX and government initiatives like NASA’s Artemis program.

AMPAC’s 50% capacity boost is designed to meet these dual demands. The company’s existing contracts include supplying NASA’s SLS, the DoD’s Minuteman III ICBM, and international allies like South Korea, which recently signed a $2.4 billion deal for U.S.-made missiles.

Risks and Challenges: A High-Wire Act

The project is not without risks. NewMarket’s SEC filings outline concerns about raw material shortages (e.g., potassium hydroxide), environmental liabilities, and geopolitical disruptions. The company’s ability to secure permits and skilled labor in rural Utah could also test execution.

Financial Implications: A Manageable Gamble with High Upside

At $100 million, the investment represents just 1.9% of NewMarket’s $5.35 billion market cap as of 2025, minimizing balance sheet strain. However, the returns could be outsized. AMPAC’s ammonium perchlorate business operates at ~40% gross margins, far above NewMarket’s core additives segment (mid-20s).

Analysts estimate the expanded capacity could add $30–50 million annually to EBITDA by 2027, assuming full utilization. This would offset potential headwinds in its traditional refining business, which faces pressure from slowing oil demand growth and alternative fuels.

Conclusion: A Niche Play with Long-Term Legs

NewMarket’s bet on ammonium perchlorate is a calculated move into a sector with structural tailwinds. With AMPAC’s decades-long relationships with the DoD and NASA, and the absence of meaningful competition, the company is positioned to capitalize on a supply chain bottleneck.

The $100 million investment, while small relative to its market cap, offers a leveraged play on two unstoppable trends: U.S. military modernization and the commercial space boom. While risks like supply chain hiccups or geopolitical shifts linger, the project’s alignment with government priorities—combined with AMPAC’s unmatched expertise—makes it a compelling long-term investment.

For investors, this isn’t just a play on rocket fuel; it’s a bet on NewMarket’s ability to diversify into high-margin, recession-resistant markets. With AMPAC’s niche role in national security, the sky—and the stars—might indeed be the limit.