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Global Chemical Production Rebounds in May as Activities Recover

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Global chemical production ticked up in May after declining in the previous two months, according to the latest American Chemistry Council (“ACC”) report. Chemical output slipped in April and March after rising for the ninth consecutive month in February 2021.

Positive May Numbers

The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (“CPRI”) went up 0.4% in May on a monthly comparison basis. This follows a 0.7% drop in April. Production rose across North America, Europe, and Africa and the Middle East and was weak in other regions in May.

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 production indices.

May readings were largely positive with respect to segments. Lower output was witnessed in consumer products, plastic resins and coatings during the reported month. Production went up 0.6% in basic chemicals and 0.7% in agricultural chemicals while remained flat in specialty chemicals. Consumer products witnessed a 0.2% decline in May.

The ACC also noted that the Global CPRI climbed 18.8% year over year on a three-month moving average basis in May. Global capacity moved up 0.2% for the reported month and also expanded 2.3% on a year-over-year basis. Capacity utilization for the global chemical industry also increased 0.1 percentage point to 87.9% in May on the back of higher production.

Demand Rebound, Manufacturing Strength Buoy Chemicals

The chemical industry has rebounded from the coronavirus-led downturn on a recovery in industrial demand. The rollout of lockdowns and restrictions by governments around the world in the wake of the pandemic brought global industrial activities to a shuddering halt through the first half of 2020, squeezing demand for chemicals in major markets.

However, with the easing of restrictions on business activities globally and an economic rebound in China — a top consumer of chemicals — demand for chemicals started to pick up from the third quarter of 2020. While chemical makers are grappling with a spike in raw material costs due to supply chain disruptions, they are seeing a strong rebound in demand in key end-use markets. Solid demand in automotive and construction, two major chemical-consuming markets, is driving their volumes.

Meanwhile, business activities in China remain strong as the country continues its recovery to pre-pandemic levels, thanks to government’s strict virus containment actions, strong domestic demand and government stimulus measures.

China’s manufacturing sector remains in the expansion territory despite headwinds from higher raw material costs and chip shortages. China’s official manufacturing purchasing managers’ index (“PMI”) eased slightly to 50.9 in June from 51 in May due to semiconductor, coal and power supply constraints as well as a resurgence of coronavirus cases in the country’s major export province of Guangdong. A reading above 50 indicates expansion in activity.

Economic activities have also picked up in the United States with the gradual reopening of the economy as the vaccination drive is in full swing. U.S. manufacturing activities continued to expand in June on a rise in new orders. However, the pace of growth slowed due to raw material shortages and labor issues. The U.S. Manufacturing PMI clocked 60.6% in June, slipping from 61.2% in May, per the Institute for Supply Management (“ISM”). Demand expanded with new orders rising for the 13th straight month in June, ISM noted. Out of the 18 manufacturing industries, 15 reported growth in new orders in June.

A sharp reduction in coronavirus cases due to the accelerated deployment of vaccines coupled with the new round of coronavirus stimulus have led to a surge in consumer spending. Businesses are struggling to keep up with strong pent-up demand amid labor and raw material shortages.

The continued strength in manufacturing bodes well for the chemical industry as manufacturing activity is a key indicator for chemical production and demand.

Chemical Stocks Worth a Look

A few stocks currently worth considering in the chemical space are Cabot Corporation CBT, LyondellBasell Industries N.V. LYB, Univar Solutions Inc. UNVR, BASF SE BASFY and Westlake Chemical Corporation WLK, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cabot has expected earnings growth rate of 137.5% for the current fiscal year. The Zacks Consensus Estimate for current fiscal year earnings has been revised 23.2% upward over the last 60 days.

LyondellBasell has expected earnings growth rate of 188.1% for the current year. The consensus estimate for the current year has also been revised 8.5% upward over the last 60 days.

Univar has an expected earnings growth rate of 35.2% for the current year. The consensus estimate for current-year earnings has been revised 27.1% upward over the last 60 days.

BASF has expected earnings growth rate of 77.2% for the current year. The Zacks Consensus Estimate for the current year has been revised 21.6% upward over the last 60 days.

Westlake Chemical has expected earnings growth rate of 383.4% for the current year. The Zacks Consensus Estimate for the current year also has been revised 25.5% upward over the last 60 days.

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Westlake Chemical Corporation (WLK) : Free Stock Analysis Report
 
BASF SE (BASFY) : Free Stock Analysis Report
 
Cabot Corporation (CBT) : Free Stock Analysis Report
 
LyondellBasell Industries N.V. (LYB) : Free Stock Analysis Report
 
Univar Solutions Inc. (UNVR) : Free Stock Analysis Report
 
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