Chemical Industry Off To A Good Start In Q3, July Output Up

The global chemical industry has gotten off to a positive start in the third quarter with July seeing a rise in chemical production, according to the latest monthly report from the American Chemistry Council (ACC).

Positive July Readings

The chemical industry trade group said that the Global Chemical Production Regional Index (CPRI) rose 0.6% in July on a monthly comparison basis. This follows a 0.5% gain in June. The Global CPRI, which is measured using a three-month moving average, measures chemical production volumes for 33 major nations, sub-regions and regions. It is comparable to the Federal Reserve Board (FRB) production indices.

Gains in production were witnessed across North America, Western Europe, Central & Eastern Europe and Asia-Pacific in the reported month.

The results were also favorable on a product basis in July. Gains were witnessed in pharmaceuticals, agricultural chemicals, consumer products, synthetic rubber, manufactured fibers, coatings and other specialty chemicals.

The ACC also noted that the Global CPRI went up 2.6% year over year on a three-month moving average basis. Capacity utilization for the global chemical industry moved up 0.4 percentage points to 80.6% in July.

The U.S. chemical industry has also started the third quarter on a positive note with output rising in July on gains across all chemical producing regions. The ACC said that the U.S. CPRI increased 1.1% in July on a monthly comparison basis. Overall chemical production also went up 2.4% year over year in July with all regions scoring gains.

Chemical Industry in Fine Shape

The chemical industry is back on track after bearing the brunt of the global economic crisis. The favorable Zacks Industry Rank of 41 carried by the Zacks Chemicals Diversified industry is a testimony to the fact that the chemical industry is in good health. The favorable rank places the industry in the top 16% of the 250+ groups enlisted.

The Zacks Chemicals Diversified industry has also outperformed the broader market over the past year. The industry has gained around 21.9% over this period, higher than S&P 500’s corresponding return of 15.4%.

Notwithstanding some lingering headwinds, the chemical industry’s momentum is expected to continue through the remainder of 2017, supported by continued strength across key end-use markets (such as automotive and construction), an upswing in the world economy and significant shale-linked capital investment.

In particular, the prospects for the U.S. chemical industry looks bright. The American chemical industry is on course for strong growth this year and the next.

The ACC envisions accelerated growth for the domestic chemical industry on the back of an improving global economy and a surge in shale-linked capital investment. The trade group, in its year-end 2016 outlook, said that it expects national chemical production to rise 3.6% in 2017, further accelerating to 4.8% growth in 2018.

The shale gas bounty is expected to drive investment on plants and equipment in the United States. Chemical makers are ramping up investment on shale gas-linked projects to take advantage of ample natural gas supplies.

Per an ACC report, 310 new chemical projects have been already announced by chemical makers worth around $185 billion that are under construction or planned. Such investments are expected to boost capacity and export over the next several years.

The European chemical industry has also swung back to life after remaining in a rut for a while. The business environment for the European chemical industry has improved on the back of improving global economic sentiment and a resurgent Eurozone economy.

Stocks to Consider

A few stocks that are worth considering in the chemicals space are The Chemours Company (NYSE:CC) , Kronos Worldwide, Inc. (NYSE:KRO) , Kraton Corp. (NYSE:KRA) , Koppers Holdings Inc. (NYSE:KOP) and Ferro Corp. (NYSE:FOE) . While Chemours, Kronos and Kraton sport a Zacks Rank #1 (Strong Buy), both Koppers and Ferro carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chemours, Kronos and Kraton have expected earnings growth of 255.4%, 354.8% and 7.2%, respectively, for 2017. Koppers and Ferro have expected earnings growth of 13.5% and 16.5%, respectively, for the current year.

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