Global chemical production continued its uptrend in the second quarter with May seeing a rise in production on broad-based regional gains in output and increased capacity utilization, according to the recent monthly report from the American Chemistry Council (ACC).
Growth Accelerates in May
The chemical industry trade group said that the Global Chemical Production Regional Index (CPRI) rose 0.9% in May on a monthly comparison basis, an improvement from a 0.4% gain in April. The gains in chemical production in the second quarter also marks a turnaround from a decline in output through the first quarter.
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.
The ACC also noted that the Global CPRI went up 1.8% year over year on a three-month moving average basis. Capacity utilization for the global chemical industry moved up 0.4 percentage points to 84.9% in May.
The results were favorable on a product basis in May. Growth was witnessed in agricultural chemicals, basic chemicals, specialty chemicals and consumer products.
By regions, gains in production were seen across North America (up 0.6%), Europe (up 0.5%), Latin America (up 0.2%), Africa & the Middle East (up 0.3%) and the Asia-Pacific (up 1.1%) in the reported month.
Per the ACC, chemical production in the United States went up 0.7% in May. The trade group expects higher demand across light vehicles and housing markets, an upturn in U.S. manufacturing, improving export markets and favorable shale gas economics to contribute to the growth of the U.S. chemical industry this year.
The ACC sees U.S. chemical production (excluding pharmaceuticals) to rise 3.4% in 2018. It expects production to continue to expand across all regions of the United States this year, with the Gulf Coast region — the epicenter of the U.S. specialty chemicals and petrochemicals industry — seeing the strongest gains. While the automotive sector is expected to remain at high levels, steady recovery in housing is expected to continue in 2018.
Chemical Industry in Fine Shape
The chemical industry continues its positive run this year, sustaining the momentum witnessed in 2017. The industry's upswing is backed by a resurgent global economy and strength across major end-markets, such as construction and automotive.
Improving fundamentals in the energy space — another key market for chemicals — has been a significant tailwind for the chemical industry. A rebound in crude oil prices has led to a recovery in demand for chemicals in the energy market and a favorable pricing environment for chemical products as chemical prices essentially move in tandem with oil prices.
The favorable Zacks Industry Rank of 53 carried by the Zacks Chemicals Diversified industry is a testimony to the fact that the chemical industry is in fine fettle. The favorable rank places the industry in the top 21% of the 250+ groups enlisted. Our back testing shows that the top 50% of the Zacks ranked industries outperforms the bottom half by a factor of more than two to one.
Despite some headwinds including a spike in raw materials costs as a result of short supply, softness in agricultural commodity prices due to persistent grain glut and trade war risks, the industry's upturn is expected to continue through the remainder of 2018 as the fundamental driving factors remain firmly in place. Sustained demand strength across automotive and construction markets, a rebound in energy and investment on capacity expansion are expected to keep the industry on a positive growth trajectory.
5 Stocks to Ride the Industry’s Upturn
The chemical industry has gotten its mojo back after being stuck in a rut for a spell, making it an attractive investment proposition. As the industry’s momentum is expected to continue in the back half of the year it would be prudent to invest in stocks in the space with compelling growth prospects.
Growth investors look for stocks with aggressive earnings or revenue growth potential, which should lead to higher stock prices. Here we put a spotlight on chemical stocks that are poised for strong growth. With the help of our Style Score System, we have picked five stand-out stocks that have excellent prospects and might offer solid investment returns.
Our research shows that stocks with Growth Style Score of A or B when combined with Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best investment opportunities in the growth investing space. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Chemours Company CC
Delaware-based Chemours sports a Zacks Rank #1 and a Growth Score of B. The Zacks Consensus Estimate for earnings for 2018 is currently pegged at $5.69, reflecting an expected year-over-year growth of 48.9%. Chemours also has a long-term expected earnings per share (EPS) growth rate of 15.5%.
Annual estimates for Chemours have also moved north over the past 60 days, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2018 and 2019 for the company have increased by around 4.6% and 5.2%, respectively.
Methanex Corporation MEOH
Methanex, based in Canada, is another attractive choice with a Zacks Rank #1 and a Growth Score of B. The company has expected earnings growth of 36.5% for 2018. It also has a long-term expected EPS growth rate of 15%.
The estimates for both 2018 and 2019 for the company have also increased by around 7% and 3.6%, respectively, over the last 60 days.
KMG Chemicals, Inc. KMG
Our next pick in the space is Texas-based KMG sporting a Zacks Rank #1 and a Growth Score of B. It has expected earnings growth of 76.1% for fiscal 2018. The company delivered positive earnings surprise in each of the trailing four quarters with an average beat of 33.2%. The stock also has a long-term expected EPS growth rate of 28.5%.
W. R. Grace & Co. GRA
Maryland-based W. R. Grace has a Zacks Rank #2 and a Growth Score of A. The company delivered positive earnings surprise in each of the trailing four quarters with an average beat of 8.4%. It has expected earnings growth of 14.4% for 2018. The company also has a long-term expected EPS growth rate of 12%.
LyondellBasell Industries N.V. LYB
Based in Netherlands, LyondellBasell has a Zacks Rank #2 and a Growth Score of B. The company has expected earnings growth of 10% for 2018. LyondellBasell also delivered positive earnings surprise in three of the trailing four quarters with an average beat of 5.7%.
The estimates for both 2018 and 2019 for the company have also increased by around 1.1% and 2%, respectively, over the last 60 days. The company also has a long-term expected EPS growth rate of 9%.
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