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U.S. chemical output nudged down on a monthly basis in October as gain in the Gulf Coast region was offset by declines in other areas, according to the latest monthly report from the American Chemistry Council (ACC). The Washington-based chemical industry trade group said that the U.S. Chemical Production Regional Index (CPRI) fell 0.2% in October, following a revised 0.3% fall a month ago, with pace of decline moderating across all seven regions.

The U.S. CPRI, which was created by Moore Economics to track chemical production in seven regions nationwide, is comparable to Federal Reserve’s industrial production index for chemicals. The CPRI is measured using a three-month moving average.

Output from the U.S. manufacturing sector, the biggest consumer of chemical products, edged up 0.4% in October. Within this sector, output rose in several key chemistry end-user markets including appliances, motor vehicles, construction materials, machinery, fabricated metal products, computers, semiconductors, plastic products, apparel and furniture.

The manufacturing sector serves as a barometer to gauge the overall health of the U.S. economy and is a major driver for the chemical industry which touches around 96% of manufactured goods. Notwithstanding the partial U.S. government shutdown, manufacturing output increased at its fastest clip during the reported month since Feb 2013.

The ACC noted that chemical output was mixed across the segments in October. Production gains across fertilizers, organic chemicals, chlor-alkali and synthetic rubber were neutralized by declines in inorganic chemicals, pharmaceuticals, manmade fibers, industrial gases, coatings, acids, consumer products and plastic resins.

On a monthly comparison basis, October reading showed that chemical production in the Gulf Coast region, where key building block materials are produced, inched up 0.4%. Output fell 0.1% across Midwest and Ohio Valley while Southeast logged a 0.2% decline. Production edged down 0.3% across Mid-Atlantic, Northeast and West Coast regions.  

Overall chemical production moved up 1.5% in the reported month when compared on a year over year basis, following a 1.7% gain a month ago. On a region-by-region basis, production rose across all regions year over year. Production for the first ten months of 2013, when compared with the year-ago data, was up 1.2%.

The roughly $770 billion chemical industry is cyclical by nature and heavily linked to the overall condition of the U.S. economy. It has been consistently leading the U.S. economy’s business cycle due to its early position in the supply chain.

Last year, Europe’s debt predicament, weak U.S. manufacturing along with sluggish activity in China and other key emerging markets weighed on companies in the chemical space including majors such as DuPont (DD - Analyst Report), Dow Chemical (DOW - Analyst Report), Eastman Chemical (EMN - Analyst Report) and Celanese (CE - Analyst Report).

While lingering crisis in Europe coupled with other industry-specific challenges continues to pose downside risks, the global chemical industry is expected to fare relatively better this year and the next. Strength across agriculture, automotive and aerospace and a recovery in the housing market augur well for the industry.

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