Chemical Output Edge Up in October

U.S. chemical output barely rose on a monthly basis in October, according to the latest monthly report from the American Chemistry Council (ACC). The Washington-based chemical industry trade group said on Wednesday that the U.S. Chemical Production Regional Index (CPRI) inched up 0.2% in October, following an upwardly revised 0.3% gain in September. The weak manufacturing sector, the largest consumer of chemical products, is keeping a lid on production growth.

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.

The ACC noted that chemical production improved across all regions barring West Coast, Mid-Atlantic and Northeast on a monthly comparison basis in October.

Output from the U.S. manufacturing sector nudged down 0.5% in October after declining 0.2% a month ago. Within this sector, output rose in several key chemistry end-user markets including appliances, aerospace and structural panels.

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 which touches around 96% of manufactured goods. Lower investment given the ongoing uncertainty surrounding the looming fiscal cliff led to the weakness in manufacturing.

The ACC said that output rose across many segments such as organic chemicals, plastic resins, consumer products, coatings, adhesives, and other specialty chemicals. This was, however, neutralized by declines in pesticides, fertilizers, manmade fibers, synthetic rubber industrial gases and pharmaceuticals.

October reading showed that overall chemical production fell 0.2% when compared on a year-over-year basis. On a region-by-region basis, production rose across the Gulf Coast and Ohio Valley areas while the Midwest, Mid-Atlantic, Southeast, Northeast and West Coast regions saw declines. On a year-to-date basis (production for the first nine months of 2012 compared with the year-ago data), production edged up 0.1%.

On a monthly comparison basis, chemical production in the Gulf Coast region, where key building block materials are produced, inched higher 0.5% in October. The Midwest and Ohio Valley regions witnessed a 0.1% and 0.6% increase, respectively. Output slipped in the Mid-Atlantic (down 0.1%), Northeast (0.1%) and West Coast (0.2%) regions. Production crept up 1% in the Southeast.

The chemical industry, which is among the biggest industries in the U.S., is cyclical by nature and heavily linked to the overall condition of the U.S. economy. The roughly $760 billion industry has been consistently leading the U.S. economy’s business cycle due to its early position in the supply chain.

A challenging economic backdrop in Europe continues to weigh on the companies in the chemical space including majors such as EI DuPont de Nemours & Co (DD - Analyst Report), The Dow Chemical Company (DOW - Analyst Report), Eastman Chemical Co. (EMN - Analyst Report) and Celanese Corporation (CE - Analyst Report). Moreover, weakness across some key end-markets including construction and electronics remains the major impediments to growth.