The chemical industry bore the brunt of coronavirus fallout during the first half of 2020. The pandemic brought industrial activities to a grinding halt globally, sapping demand for chemicals across major end-markets including automotive and construction.
The industry also faced headwinds from the short supply of raw materials as a result of the contagion. The closure of a large number of factories across China to stem the spread of the virus disrupted the global supply chain and impaired logistics.
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 top consumer of chemicals.
Manufacturing Recovery Puts Wind Back Into Industry’s Sails
With the easing of restrictions on business activities across the world, demand for chemicals has recovered of late across major end-use industries. The global economy is gradually pulling out of its coronavirus-induced rut as businesses reopen following lockdowns and restrictions. Notably, recent positive manufacturing data from the United States, Eurozone and China signalled a recovery in global manufacturing activities. The rebound in manufacturing is welcome news for the chemical industry.
The recovery strengthened for the U.S. manufacturing sector in August with activities rising at the fastest pace since November 2018. According to the Institute for Supply Management, the U.S Purchasing Managers’ Index (“PMI”) clocked 56% in August, rising from July’s reading of 54.2% on strong growth in new orders. A reading above 50 indicates expansion in activity.
New orders rose for the third straight month in August on the back of a growth in new export orders. ISM's New Orders Index registered 67.6% in August, rising from 61.5% in July. Out of the 18 manufacturing industries, 15 reported growth in new orders in August.
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. Manufacturing activity is also a key indicator for chemical demand. As such, the rebound in manufacturing activities augur well for the U.S. chemical industry.
Moreover, economic activities in China are picking up pace as the country continues its recovery from the pandemic-led slowdown. China’s industrial sector is gradually returning to pre-pandemic levels, supported by a revival in domestic demand and Beijing’s infrastructure push.
China’s official manufacturing 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.
Meanwhile, the Eurozone manufacturing sector continued to recover in August from the coronavirus-led shock. IHS Markit’s final Eurozone manufacturing PMI came in at 51.7 in August, a tad below July’s reading of 51.8 but higher than the 50 mark that separates expansion from contraction.
New orders rose for the second month in a row in August, per IHS Markit. Italy, Germany and Ireland saw strongest gains in manufacturing output. Notably, Eurozone manufacturing output expanded for the second consecutive month in August and also reached its highest level in more than two years. The expansion in manufacturing activities instils optimism regarding the recovery in the overall Eurozone economy.
5 Chemical Stocks Worth a Wager
The chemical industry grappled with demand slowdown and supply chain disruptions due to coronavirus in the first half. However, with China seeing an economic rebound and manufacturing activities are improving around the world, things are looking up for the industry. As such, it would be prudent to zero in on stocks in the space that have healthy prospects.
We highlight the following five stocks, with a solid Zacks rank, that are good options for investment right now.
Koppers Holdings Inc. (KOP - Free Report)
This Pennsylvania-based company, sporting a Zacks Rank #1 (Strong Buy), has 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.
Ashland Global Holdings Inc. (ASH - Free Report)
Kentucky-based Ashland carries a Zacks Rank #2 (Buy). The consensus estimate for the current year has been revised 13.8% upward over the last 60 days. The company also has an expected long-term earnings per share growth rate of 10.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hawkins, Inc. (HWKN - Free Report)
The Minnesota-based company, carrying a Zacks Rank #2, has expected earnings growth of 21.4% for the current fiscal year. The Zacks Consensus Estimate for the current fiscal has been revised 7.7% upward over the last 60 days. The company has also delivered an earnings surprise of 45.5%, on average, over the trailing four quarters.
Stepan Company (SCL - Free Report)
Illinois-based Stepan has a Zacks Rank #2. It has expected earnings growth of 1.6% for the current year. The consensus estimate for the current year also has been revised 17.4% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 25.9%.
Flexible Solutions International Inc. (FSI - Free Report)
Canada-based Flexible Solutions carries a Zacks Rank #2. It has expected earnings growth of 106.3% for the current year. The Zacks Consensus Estimate for the current year has been revised 50% upward over the last 60 days. The company has also delivered an earnings surprise of 35.6%, on average, over the trailing four quarters.
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