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Global Chemical Output Growth Speeds Up as Activities Recover

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Global chemical production expanded for the second straight month in August on higher production across all regions, according to the latest American Chemistry Council (“ACC”) report. All chemical industry segments saw growth for the reported month.

Broad-Based Rise in Production

The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (“CPRI”) went up 2.7% in August on a monthly comparison basis. The pace of growth accelerated from a 1.7% rise in July. The growth reflects sustained global recovery in activities that started in June after declining from January through May, ACC noted.

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 0.9%), Europe (up 3.6%), Former Soviet Union (up 1.3%), Asia-Pacific (up 2.9%), Latin America (up 2.9%) and Africa & the Middle East (up 1.8%).

With respect to segments, production expanded 2.6% in basic chemicals, 3% in specialty chemicals, 1.7% in agricultural chemicals and 2.2% in consumer products in August.

Global capacity increased 0.2% for the reported month and also rose 2.6% on a year-over-year basis. Capacity utilization for the global chemical industry increased 1.9 percentage point to 79.1% in August on the back of improved production.

Chemical Industry Recovering From Pandemic Shocks

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 short supply of raw materials and higher logistics costs 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.

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.

Business activities are recovering in the United States as major parts of the nation have reopened with the loosening of restrictions. Notably, the U.S. automotive sector is on the mend following the virus-led slump on the back of a rebound in customer demand. Major U.S. automakers are ramping up production to boost lean vehicle inventories at dealerships. The U.S. housing sector has also witnessed a solid recovery with new home sales hitting a 14-year high in August. The sector’s rebound has been backed by record-low mortgage rates and higher demand for new properties due to the rising trend of working from home amid the pandemic.

Economic activities in China are also picking up speed 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 rebound in domestic demand and Beijing’s infrastructure push.

Moreover, recent positive manufacturing data from the United States, Eurozone and China signalled a recovery in global manufacturing activities. Notably, the U.S manufacturing sector is gaining momentum on a return of demand and a recovery in the overall economy. China's manufacturing activities have also picked up on demand revival and government’s efforts to shrug off the impacts of the pandemic. The rebound in manufacturing bodes well for the chemical industry.

Chemical Stocks to Watch For

A few stocks currently worth considering in the chemical space are Dow Inc. (DOW - Free Report) , Ashland Global Holdings Inc. (ASH - Free Report) , Koppers Holdings Inc. (KOP - Free Report) , Flexible Solutions International Inc. (FSI - Free Report) and Akzo Nobel N.V. (AKZOY - Free Report) . While both Dow and Ashland sport a Zacks Rank #1 (Strong Buy), Koppers, Flexible Solutions and Akzo Nobel each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dow has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 11.7%. The Zacks Consensus Estimate for the current year has been revised 19% upward over the last 60 days.

Ashland has an expected long-term earnings per share growth rate of 10.7%. The consensus estimate for the current fiscal year has been revised 0.4% upward over the last 60 days.

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 4.6% 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 32% upward over the last 60 days.

Akzo Nobel has expected earnings growth of 21.6% for the current year. The Zacks Consensus Estimate for the current year has been revised 9.3% upward over the last 60 days.

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