Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0777
    -0.0016 (-0.15%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2624
    +0.0001 (+0.01%)
     
  • USD/JPY

    151.3500
    -0.0220 (-0.01%)
     
  • Bitcoin USD

    69,916.19
    -476.41 (-0.68%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

US Chemicals Set for a Slump in 2020 on Coronavirus-Led Slowdown

The American chemical industry will witness a steep decline in 2020 amid disruptions wrought by the coronavirus pandemic, according to the newly released “Mid-Year 2020 Chemical Industry Situation and Outlook” by the American Chemistry Council (“ACC”).

The Washington, DC-based chemical industry trade group noted that it expects major U.S. chemical industry metrics such as production volumes, shipments and capital spending to decline this year due to economic and business disruptions as a result of the pandemic. While significant uncertainties remain, a rebound is expected next year.

Sluggish End-Use and Export Markets to Hurt Chemical Volumes

Lockdown restrictions to stem the spread the outbreak has led to a collapse in economic activities, pushing the global economy into recession. The ACC expects global GDP to shrink 4.6% in 2020 before rebounding to a 5.3% growth in 2021. It also sees global industrial production to slip in 3.8% this year as the industry sector is hurt by coronavirus-induced demand destruction and logistical challenges.

In the United States, several industrial sectors are showing signs of recovery following the sharpest pullback in April, the trade group noted. The ACC envisions U.S. industrial production to drop 10.5% in 2020 and recover in 2021 with a 3.1% growth.

On the chemical end-use market front, softness is expected across major markets such as automotive and building & construction. Per the ACC, vehicle sales will fall to 13.1 million in 2020 from 16.9 million in 2019 before improving to 14.9 million in 2021. Moreover, housing starts are projected to decline to 1.19 million in 2020 from 1.3 in 2019, and then will rise to 1.24 million in 2021.

The trade group also expects a sharp decline in U.S. chemical exports this year as import demand from partner economies has collapsed amid the pandemic. U.S. chemical exports are predicted to slump 14.5% in 2020. While exports are projected to rebound to a 10.9% growth in 2021, a full recovery to pre-pandemic levels is not expected before 2022.  The ACC also expects total U.S. chemicals trade to contract 16.4% to $199 billion in 2020. Notably, the U.S. chemical industry saw a slowdown in chemical exports in 2019 amid trade tensions.

Amid softness across major end-use and export markets, the ACC envisions domestic chemical production volumes to tumble 9.3% in 2020 with shipments falling 13.5%. Although demand for certain chemical products such as synthetic materials for personal protective equipment (“PPE”), ingredients for cleaners and disinfectants and plastics used in ventilators has increased thanks to coronavirus, the industry is seeing weakness across most demand channels. Chemical volumes are, however, predicted to bounce back to a 12.3% growth next year. Shipments are also forecast to rebound to a 14.5% growth in 2021.

By segments, basic chemicals production is projected to fall 8.9% in 2020 before increasing 14.2% in 2021. The ACC also sees a 13.6% contraction in specialty chemicals production in 2020 on weak end-use market demand. Specialty chemicals volumes are projected to recover to a 10.6% growth in 2021. Meanwhile, agricultural chemicals production is forecast to drop 9.3% this year. The ACC also sees production of consumer products to dip at a relatively moderate pace of 6.8% in 2020, aided by demand for cleaning and disinfecting products.

Moreover, the trade group expects chemical capital spending to decline this year amid the pandemic. It expects capital spending to contract 17.6% year over year to $29 billion in 2020. However, the same is forecast to rise 15.7% to $33.5 billion next year.

U.S. Chemicals Roiled by Virus Crisis

U.S. chemical makers are hamstrung by demand slowdown across certain major end-use markets and supply chain disruptions due to the pandemic. Coronavirus-led shutdowns and restrictions have paralyzed industrial and economic activities globally, hurting demand for chemicals.

The construction sector bore the brunt as certain projects were postponed or disrupted amid the outbreak. Disruptions in the supply chain and manpower shortages have also put a brake on automotive production. Moreover, a sharp decline in crude oil prices has hurt demand for chemicals in the energy space.

U.S. chemical producers are also grappling with short supply of raw materials as a result of coronavirus. American chemical makers procure several chemicals critical to their production processes from China that are not available elsewhere.

The closure of a large swath of factories in China to blunt the spread of coronavirus disrupted the global supply chain. This has affected the availability of key raw materials for the chemical industry and pushed up prices of these inputs. Some of the companies are also facing challenges arising from elevated logistics costs.

On a positive note, U.S. chemical companies are benefiting from higher demand for chemicals and materials across industries like healthcare and packaging. With a surge in the number of coronavirus cases globally, demand for health, hygiene and safety products including PPE and disinfectants has skyrocketed. A number of companies are taking steps to crank up production to address the surging demand for these products. Some of them are even repurposing their production lines to make finished products including hand sanitizers.  

In a challenging environment, chemical makers also remain focused on self-help measures, including cost-cutting and productivity improvement, expansion into high-growth markets, operational efficiency improvement and actions to strengthen balance sheet and boost cash flows. These actions are likely to help these companies to sail through these tough times.

Chemical Stocks Worth a Look

A few stocks currently worth considering in the chemical space are AdvanSix Inc. ASIX, Celanese Corporation CE, Rayonier Advanced Materials Inc. RYAM, Air Products and Chemicals, Inc. APD, and Koppers Holdings Inc. KOP, each currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AdvanSix has delivered an average positive earnings surprise of 20.7% for the trailing four quarters. The Zacks Consensus Estimate for the current year also has been revised 4.8% upward over the last 60 days.

Celanese has delivered an average positive earnings surprise of 0.5% for the trailing four quarters. The consensus estimate for the current year also has been revised 0.7% upward over the last 60 days.

Rayonier Advanced Materials has expected earnings growth of 51.9% for the current year. The consensus estimate for the current year has been revised 21.8% upward over the last 60 days.

Air Products has expected earnings growth of 3% for the current fiscal year. It also has an expected long-term earnings per share growth rate of 8.9%, above the industry average of 7.7%.

Koppers Holdings has delivered an average positive earnings surprise of 10.9% for the trailing four quarters. The consensus estimate for the current year has been revised 31.6% upward over the last 60 days.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Air Products and Chemicals, Inc. (APD) : Free Stock Analysis Report
 
Koppers Holdings Inc. (KOP) : Free Stock Analysis Report
 
Celanese Corporation (CE) : Free Stock Analysis Report
 
Rayonier Advanced Materials Inc. (RYAM) : Free Stock Analysis Report
 
AdvanSix Inc. (ASIX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Advertisement