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The Zacks Analyst Blog Highlights: Celanese, Eastman, PPG, Element Solutions and Northern Technologies

Zacks Equity Research

For Immediate Release

Chicago, IL –December 16, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Celanese Corp. CE, Eastman Chemical Co. EMN, PPG Industries, Inc. PPG, Element Solutions Inc. ESI and Northern Technologies International Corp. NTIC.

Here are highlights from Friday’s Analyst Blog:

U.S. Chemicals Growth to Cool in 2020 Amid Trade Headwinds

The American chemical industry is poised for slower growth in 2020 amid uncertainties surrounding trade and a downturn in manufacturing, according to the newly released “Year-End 2019 Chemical Industry Situation and Outlook” by the American Chemistry Council (“ACC”).

Trade Uncertainties, Manufacturing Slowdown to Hurt Growth

The industry faces headwinds from slowing global growth, impacts of trade tensions and a slowdown in manufacturing globally, the Washington, DC-based chemical industry trade group noted. However, production from shale gas-linked new capacity will be a positive.   

Trade issues and slower growth in several major chemical end-use markets led to sluggish growth in U.S. chemical production in 2019. Amid the prevailing challenges, the ACC envisions domestic chemical production volumes (barring pharmaceuticals) to grow just 0.4% in 2020 after a meagre 0.6% rise in 2019. Production is, however, expected to gain steam with a 2.3% growth in 2021.

Basic chemicals production is projected to rise 0.7% in 2020 and 3.1% in 2021. Downturn in several specialty chemicals market segments started toward the end of 2019. The ACC sees a 0.4% contraction in specialty chemicals production in 2020 on easing end-use market demand and lower energy investment. Growth in specialties is forecast to resume in 2021 with an expected recovery in the industrial sector.

The U.S. chemical industry saw a slowdown in chemical exports in 2019. Chemical exports declined in 2019 due to slowing global growth and trade tensions, the ACC noted. U.S. chemical exports are forecast to drop 2.5% to $137 billion this year.  However, exports are projected to recover in 2020, rising 1.1% to $138 billion in 2020.

Per the ACC, disruptions in the supply chains due to trade issues, softened energy investment and weaker growth in major trading-partner economies hurt demand for U.S. exports this year. Industrial output decelerated to a 0.9% gain in 2019 and is projected to further slow in 2020 with a growth of 0.5%, before recovering in 2021 with a 1.4% rise.   

On the chemical end-use market front, the ACC envisions growth to be mixed in 2020. The trade group expects biggest gains across construction materials, oil & gas extraction, refining, semiconductors and aerospace.

Automotive, a major end-use market, is projected to weaken further in 2020. Per the ACC, U.S. light vehicles production slowed from the strong pace witnessed over the 2015-18 period. Sales are expected to slow to 16.9 million units in 2019 and further retreat to 16.5 million units in 2020. For building and construction, another key market, housing starts are forecast to tick up to 1.26 million units in 2019 and remain steady next year.
 
Meanwhile, the American chemical industry continues to enjoy the advantage of access to abundant and cheap feedstock extracted from shale gas. According to the ACC, 340 projects have been already announced by the chemical industry since 2010 worth $204 billion. New capacity is expected to provide a boost to chemical production as these investments come on stream.

U.S. Chemicals Roiled by Trade War

The U.S. chemical industry is bearing the brunt of the protracted trade conflict. Washington and Beijing levied billions of dollars in punitive tariffs on each others’ products last year. China’s tariffs on American products include a vast range of petrochemicals, specialty chemicals and plastics. Beijing’s retaliatory tariffs are hurting demand for U.S. chemical exports.

The trade tiff has also led to a slowdown in industrial activities globally, hurting demand for chemicals. In particular, chemical makers are seeing demand weakness in China associated with the trade war amid a slowing Chinese economy. Notably, the trade friction has led to a slowdown in demand in the automotive market (a major chemical end-use market) in China.

The impact of demand weakness resulting from a slowdown in industrial activities, especially in Asia and Europe, due to trade issues was well visible in the third-quarter performance of U.S chemical makers.

Leading U.S. chemical companies like Celanese Corp., Eastman Chemical Co. and PPG Industries, Inc. faced the heat from a downturn in demand across Asia (particularly in China) and Europe in the third quarter, hurting their sales volumes and revenues. The difficult environment is expected to continue through the December quarter amid global slowdown and lingering trade uncertainties.

Chemical Stocks Worth a Look

A couple of stocks currently worth considering in the chemical space are Element Solutions Inc. and Northern Technologies International Corp., both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Element Solutions has an expected earnings growth of 9.7% for 2020. Earnings estimates for 2020 have been revised 3.3% upward over the last 60 days.

Northern Technologies has expected earnings growth of 18.2% for fiscal 2020. Earnings estimates for the fiscal have been revised 8.3% upward over the last 60 days.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.


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Celanese Corporation (CE) : Free Stock Analysis Report
 
Eastman Chemical Company (EMN) : Free Stock Analysis Report
 
PPG Industries, Inc. (PPG) : Free Stock Analysis Report
 
Northern Technologies International Corporation (NTIC) : Free Stock Analysis Report
 
Element Solutions Inc (ESI) : Free Stock Analysis Report
 
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