U.S. chemical production continues to leap, with July seeing a rise in production on gains in output across all chemical producing regions amid an increase in manufacturing activity, according to the recent monthly report from the American Chemistry Council ("ACC").
July Readings Show Broad-based Regional Gains
The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") rose 0.4% in July on a monthly comparison basis, following a 0.8% increase a month ago and a 1.1% rise in May. 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. Output from the Gulf Coast region — the epicenter of the U.S. specialty chemicals and petrochemicals industry — edged up 0.1%. Production from Midwest and Northeast rose 0.6% in the reported month. Output rose 0.2% in Ohio Valley while Mid-Atlantic and Southeast saw 0.5% and 0.3% increase, respectively. West Coast racked up the highest gain of 0.7% in July.
By products, chemical production was mixed in July. Gains across organic chemicals, coatings, adhesives, other specialties, pesticides, fertilizers, industrial gases, consumer products, and synthetic dyes and pigments were neutralized by lower production of plastic resins, synthetic rubber, chlor-alkali and other inorganic chemicals.
According to the ACC, activity for the U.S. manufacturing sector – the largest consumer of chemical products – was up 0.4% in July. 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 July including aerospace, construction supplies, machinery, computers & electronics, semiconductors, petroleum refining, plastic products and textile mill products.
Overall chemical production also went up 2.6% on a year over year comparison basis in July with all regions scoring gains.
U.S. Chemical Industry Set to Ride High
The ACC expects an upswing in the global economy, healthy demand across automotive and housing markets, an upturn in U.S. manufacturing, improving export markets and favorable shale gas economics to contribute to the growth of the U.S. chemical industry this year.
The trade group sees U.S. chemical production (excluding pharmaceuticals) to rise 3.4% in 2018. It expects production to continue to expand across all regions of the United States this year, with the Gulf Coast region seeing the strongest gains. The growth in output is expected to be spurred by higher demand across light vehicles and housing markets, capital investments and strengthening export markets. While the automotive sector is expected to remain at high levels, steady recovery in housing is expected to continue in 2018.
The ACC also envisions strong gains in production in agricultural chemicals, consumer products, coatings and bulk petrochemicals and organics this year. Moreover, output of plastic resins is forecast to rise at the fastest clip since 2012 on the back of new capacity and firming demand for both domestic and overseas customers. Improving industrial activities are also expected to contribute to the growth of the specialty chemicals segment.
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.
5 Chemical Stocks Worth a Wager
The U.S. chemical industry’s upturn is expected to continue on continued demand strength across major end-markets, gains in exports and an upswing in U.S. manufacturing. Amid such a backdrop, it would be prudent to invest in chemical stocks with compelling growth prospects.
We highlight the following five stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) that are good options for investment right now. You can see the complete list of today’s Zacks #1 Rank stocks here.
Celanese Corporation CE
Irving, TX-based Celanese sports a Zacks Rank #1 and has long-term expected EPS growth of 10%. The company also has expected earnings growth of 40.8% for 2018. Moreover, it delivered positive earnings surprise in each of the trailing four quarters, with an average positive surprise of 11.5%. The stock has also gained around 19% over a year.
Huntsman Corporation HUN
Our next pick in the space is Texas-based Huntsman, armed with a Zacks Rank #1. The company has expected earnings growth of 41.9% for 2018. It delivered positive earnings surprise in each of the trailing four quarters, with an average positive surprise of 22.5%. Moreover, the stock has gained around 14% over a year.
Ingevity Corporation NGVT
South Carolina-based Ingevity is another attractive choice. It carries a Zacks Rank #1 and has an expected earnings growth of 44.2% for 2018. It delivered positive earnings surprise in each of the trailing four quarters, with an average positive surprise of 20.6%. The stock has also rallied roughly 59% in a year’s time.
Trinseo S.A. TSE
Pennsylvania-based Trinseo carries a Zacks Rank #2 and has an expected earnings growth of 14.5% for 2018. The company also has an expected long-term EPS growth of 12%. The stock has also returned around 11% over a year.
Air Products and Chemicals, Inc. APD
Based in Pennsylvania, Air Products carries a Zacks Rank #2. The company has expected earnings growth of 18.1% for fiscal 2018. It also has an expected long-term EPS growth of 16.2%. Moreover, Air Products has topped the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive surprise of 4.9%. The stock has also gained roughly 14% in a year’s time.
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