Global chemical production expanded in July on improved activities in many nations, according to the latest American Chemistry Council (“ACC”) report. Production picked up across major regions barring Latin America and Africa & the Middle East. Moreover, all chemical industry segments saw growth for the reported month.
Positive July Readings
The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (“CPRI”) went up 1.4% in July on a monthly comparison basis. This follows a 1.6% rise in June and declines from January through May.
The Global CPRI, which is measured using a three-month moving average, measures chemical production volumes for 33 major nations, sub-regions and regions. It is comparable to the Federal Reserve Board production indices.
By regions, output rose in North America (up 0.7%), Europe (up 2.7%), Former Soviet Union (up 1.9%) and Asia-Pacific (up 1.4%). Production slipped in Latin America (down 0.5%) and Africa & the Middle East (down 0.7%).
With respect to segments, production expanded in basic chemicals (up 1.2%), specialty chemicals (up 1.9%), agricultural chemicals (up 0.9%) and consumer products (up 1.7%) in July.
Global capacity was stable for the reported month and increased 2.3% on a year-over-year basis. Capacity utilization for the global chemical industry increased 1 percentage point to 77% in July.
Chemical Industry Recovering from Virus-Led Shock
The chemical industry grappled with demand slowdown across major markets including automotive and construction and supply chain disruptions due to the coronavirus pandemic during much of the first half of 2020. The contagion brought global industrial activities to a shuddering halt, squeezing demand for chemicals.
However, the chemical industry appears to have crawled out of the worst of the coronavirus impact on the back of a return of global economic activities and an economic rebound in China, a major consumer of chemicals.
The global economy is gradually pulling out of its coronavirus-induced slump as businesses reopen following lockdown restrictions. Notably, economic activities in China are picking up as the country continues its gradual recovery from the fallout of the pandemic. China’s industrial sector is gradually returning to pre-pandemic levels, supported by government investment in infrastructure and a recovery in domestic demand.
China’s official manufacturing purchasing managers’ index (“PMI”) expanded for the sixth consecutive month in August on strength in its services sector. While the manufacturing PMI eased slightly to 51 from 51.1 in July due to flooding in parts of China, it remained in the expansion territory. A reading above 50 indicates expansion in activity.
Meanwhile, lockdown measures are gradually being lifted by governments across Europe and Asia in an effort to resuscitate their economies. Major parts of the United States have also reopened for business after shutdowns and restrictions.
Notably, the U.S manufacturing sector is gaining momentum on a recovery in the overall economy. According to the Institute for Supply Management, the U.S Purchasing Managers’ Index clocked 56% in August, rising from July’s reading of 54.2% on strong growth in new orders. New orders grew for the third straight month in August on the back of a growth in new export orders. The rebound in manufacturing activities augur well for the U.S. chemical industry.
Chemical Stocks to Watch For
A few stocks currently worth considering in the chemical space are Koppers Holdings Inc. (KOP - Free Report) , PPG Industries, Inc. (PPG - Free Report) , Flexible Solutions International Inc. (FSI - Free Report) , Ashland Global Holdings Inc. (ASH - Free Report) and H.B. Fuller Company (FUL - Free Report) . While Koppers sports a Zacks Rank #1 (Strong Buy), PPG Industries, Flexible Solutions, Ashland and H.B. Fuller each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Koppers has delivered an earnings surprise of 25.1%, on average, over the trailing four quarters. The Zacks Consensus Estimate for the current year has been revised 42.8% upward over the last 60 days.
PPG Industries has delivered an earnings surprise of 13.1%, on average, over the trailing four quarters. The consensus estimate for the current year has been revised 15.3% upward over the last 60 days.
Flexible Solutions has expected earnings growth of 106.3% for the current year. The consensus estimate for the current year has been revised 50% upward over the last 60 days.
Ashland has an expected long-term earnings per share growth rate of 15%. The Zacks Consensus Estimate for the current year has been revised 13.2% upward over the last 60 days.
H.B. Fuller has delivered an earnings surprise of 25.9% in the last reported quarter. The consensus estimate for the current year also has been revised 0.8% upward over the last 60 days.
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