U.S. chemical production expanded in November on gains in output across most chemical producing regions, according to the recent monthly report from the American Chemistry Council (“ACC”). This marks a rebound from declines witnessed in the previous two months.
November Readings Show Broad-based Regional Gains
The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") ticked up 0.2% in November on a monthly comparison basis, following a 0.5% drop a month ago and a 0.2% decline in September. The U.S. CPRI, which is measured using a three-month moving average, was created by Moore Economics to track chemical production in seven regions nationwide.
Per the ACC, production went up across all regions in the reported month barring the Gulf Coast – the epicenter of the U.S. specialty chemicals and petrochemicals industry. Production from Midwest went up 0.3% in November. Output rose 0.4% across Ohio Valley, Northeast, Mid-Atlantic, Southeast and West Coast. However, output from the Gulf Coast edged down 0.1% in the reported month.
By products, chemical production was mixed in November. Gains across plastic resins, adhesives, pesticides, coatings, fertilizers, consumer products, and synthetic dyes and pigments were neutralized by lower production of organic chemicals, synthetic rubber, manufactured fibers, chlor-alkali, other inorganic chemicals, and other specialty chemicals.
According to the ACC, activity for the U.S. manufacturing sector – the largest consumer of chemical products – was flat in November after a 0.2% growth a month ago. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods. Manufacturing activity is also a key indicator for chemical production.
Within the manufacturing sector, production rose in several chemistry end-user markets in November including appliances, aerospace, machinery, fabricated metal products, semiconductors, petroleum refining, iron and steel products, foundries, plastic products, rubber products, tires and furniture.
Overall chemical production also shot up 4.2% on a year over year comparison basis in November. All regions scored gains on a year-over-year basis with the Gulf Coast racking up the strongest growth.
US Chemicals Set For Solid Upside in 2019
The American chemical industry is poised for an upswing in 2019. The ACC expects U.S. chemical production (excluding pharmaceuticals) to rise 3.6% in 2019, following a 3.1% growth in 2018. The expansion is expected to be partly driven by growth in manufacturing and export, demand strength across major end-markets and gains in business investment. However, trade tensions pose a risk to the outlook.
The trade group also expects basic chemicals production to expand 4.8% in 2019. The specialty chemicals segment is also expected to see production growth of 2.2% in 2019. Growth in manufacturing and exports markets this year will continue to boost demand for basic chemicals. These factors coupled with growth in construction markets are also expected to drive the specialty chemicals segments.
Per the ACC, strength in export markets and higher business investment have boosted demand in major chemical end-use markets such as light vehicles and housing.
The United States also remains an attractive investment destination for chemical investment and domestic chemical industry continue to enjoy the competitive advantage of access to abundant supplies of shale gas and natural gas liquids (NGLs). Economics of shale gas is driving strong capital investment in new chemical projects, leading to growth in the domestic chemical industry.
Chemical Stocks Worth a Look
A few stocks currently worth considering in the chemical space are Celanese Corporation CE, Albemarle Corporation ALB, Innospec Inc. IOSP and W. R. Grace & Co. GRA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Celanese has an expected earnings growth of 47.7% for 2018. Earnings estimates for the current year have been revised 3.3% upward over the last 60 days.
Albemarle has an expected earnings growth of 18.3% for 2018. Earnings estimates for the current year have been revised 0.9% upward over the last 60 days.
Innospec delivered an average positive earnings surprise of 10.5% in the trailing four quarters. Earnings estimates for the current year have been revised 4.6% upward over the last 60 days.
W. R. Grace has an expected earnings growth of 17.9% for the current year. Earnings estimates for the current year have been revised 1.5% upward over the last 60 days.
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