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US Chemical Output Spikes As Recovery Continues Post Winter Storm

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U.S. chemical production expanded in May after slipping in the previous three months on gains in all chemical producing regions, according to the latest monthly report from the American Chemistry Council (“ACC”).

The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") rose 4.6% in May on a monthly comparison basis, following a 1.2% drop a month ago and a 3.4% decline in March. The U.S. CPRI, which is measured using a three-month moving average, was created to track chemical production in seven regions nationwide.

Per the ACC, activities for the U.S. manufacturing sector rose in May with output increasing 1% on a three-month moving average basis. Gains in output were witnessed in food and beverages, aerospace, machinery, appliances, semiconductors, fabricated metal products, computers and electronics, oil & gas extraction, refining, iron and steel products, foundries, rubber products, paper, printing and furniture.

The manufacturing sector serves as a barometer to gauge the overall health of the U.S. economy and has a major influence on the chemical industry. 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 and demand.

Broad-Based Rise in Regional Production

The May reading showed higher production on a monthly comparison basis across all regions, reflecting restoration of capacity following the devastating winter storm in the U.S. Gulf Coast.

Notably, after a positive start to 2021, the winter storm squeezed capacity and hurt U.S. chemical production starting February. The storm curbed chemical production in the U.S. Gulf Coast and other parts of the country due to raw material and supply chain disruptions.

Extreme weather across Texas and Louisiana and power outages disrupted the supply of feedstocks. Shutdown of ethylene plants across the United States affected the availability of ethylene. The deep freeze across the U.S. Gulf Coast took roughly three-fourth of the U.S. ethylene capacity offline.

Meanwhile, Gulf Coast — the epicenter of the U.S. specialty chemicals and petrochemicals industry — witnessed the biggest gain in output in May, per the ACC. Production in the Gulf Coast spiked 7.1% in the reported month. Notably, output for the Gulf Coast saw the biggest monthly drop in February 2021 since September 2008 due to the impacts of the winter storm.

Output across Midwest and Southeast rose 4.7% and 4.1%, respectively, in May. Production also went up 3.9% in Ohio Valley. Output also rose 3.3% in Mid-Atlantic while Northeast recorded a 2.6% gain. West Coast saw a 3.5% rise in output in May.

Chemical production was mixed across segments in May. Improving trends were witnessed in organic chemicals, plastic resins, chlor-alkali, adhesives, coatings, fertilizers, crop protection chemicals, other specialty chemicals, and miscellaneous inorganic chemicals. However, softness continued in synthetic rubber, synthetic dyes and pigments, manufactured fibers and consumer products.

U.S. Chemicals Recuperate From Pandemic Shocks

A strong rebound in demand across major end-use industries such as automotive, construction and electronics has put the wind back in the sails of the American chemical industry. The U.S. chemical industry faced the heat from a significant downturn in demand during the first half of 2020 as the coronavirus pandemic put a brake on industrial and manufacturing activities.

However, demand for chemicals started to recover from the September quarter last year with a rebound in business activities from the coronavirus-induced slowdown as major parts of the United States reopened following the loosening of restrictions.

A recovery in construction and automotive markets has spruced up demand for chemicals. The U.S. automotive industry has gotten back into gear following the pandemic-driven slump. The sector has witnessed a speedy recovery on the back of a strong rebound in customer demand for new vehicles. U.S. vehicle sales have witnessed a year-over-year rise this year despite the semiconductor crunch, thanks to strong pent-up demand, low auto loan interest rates and increasing preference for private transportation amid the pandemic.

The construction sector has also recovered on the restart of projects that were stalled earlier partly due to supply chain disruptions. Residential construction is picking up, supported by lower interest rates. An upturn in these major markets is likely to drive demand for chemicals through the balance of 2021.

The ACC recently said that it expects U.S. chemical production volumes to rise this year on a recovery in end-use markets and export customers from the pandemic-led slowdown. The trade group envisions domestic chemical production volumes to bounce back to a 1.4% growth this year after slipping 3.6% in 2020. Basic chemicals volumes are also forecast to rise 0.5% in 2021. Moreover, specialty chemicals volumes are projected to expand 3.8% this year.

Chemical Stocks Worth a Look

A few stocks currently worth considering in the chemical space are Cabot Corporation CBT, Univar Solutions Inc. UNVR, Trinseo S.A. TSE, Tronox Holdings plc TROX and Quaker Chemical Corporation KWR, 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. Moreover, the Zacks Consensus Estimate for current fiscal year earnings has been revised 23.2% upward over the past 60 days.

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

Trinseo has expected earnings growth rate of 378.1% for the current year. The consensus estimate for the current year has also been revised 31.4% upward over the past 60 days.

Tronox has expected earnings growth rate of 242.9% for the current year. Moreover, the Zacks Consensus Estimate for the current year has been revised 20% upward over the past 60 days.

Quaker Chemical has expected earnings growth rate of 52.7% for the current year. The Zacks Consensus Estimate for the current year also has been revised 3.8% upward over the past 60 days.

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Cabot Corporation (CBT) : Free Stock Analysis Report
 
Quaker Chemical Corporation (KWR) : Free Stock Analysis Report
 
Tronox Holdings PLC (TROX) : Free Stock Analysis Report
 
Trinseo S.A. (TSE) : Free Stock Analysis Report
 
Univar Solutions Inc. (UNVR) : Free Stock Analysis Report
 
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