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Global Chemical Output Leaps as Recovery Continues to Take Hold

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Global chemical production expanded for the fifth straight month in October on higher output in most regions, according to the latest American Chemistry Council (“ACC”) report. Production picked up across all regions barring Former Soviet Union (“FSU”). Moreover, all chemical industry segments saw growth for the reported month.

Positive October Readings

The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (“CPRI”) went up 1.5% in October on a monthly comparison basis. This follows a 1.6% rise in September. 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 0.9%), Asia-Pacific (up 2.2%), Latin America (up 3.1%) and Africa & the Middle East (up 1.2%). FSU is the only region that saw lower production (down 0.5%) in the reported month.

With respect to segments, production expanded 1.6% in basic chemicals, 2% in specialty chemicals, 0.7% in agricultural chemicals and 0.5% in consumer products in October.

Global capacity increased 0.1% for the reported month and also rose 2.3% on a year-over-year basis. Capacity utilization for the global chemical industry increased 1.1 percentage point to 81.3% in October on the back of improved production.

Chemical Industry On the Mend From Pandemic Shocks

The coronavirus pandemic led to a slowdown in industrial activities globally for much of the first half, denting demand for chemicals in key end-use markets including automotive, construction and electronics.

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. Weaker demand coupled with a sharp decline in oil prices also exerted pressure on the product prices of chemical makers.

However, a rebound in industrial demand has put the wind back in the sails of the chemical industry. Demand started to pick up from the third quarter on 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 across major end-use industries.

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 has gotten back into the groove after the virus-led slump on the back of a rebound in customer demand. U.S. auto sales have bounced back after bottoming in April amid lockdown restrictions. The rebound has been fueled by cheap borrowing costs and increasing inclination towards private transportation in the wake of the pandemic. U.S. automakers are ramping up production to boost lean vehicle inventories at dealerships. A rebound in automotive OEM production rates has led to a recovery in demand for chemicals in the automotive market.

The U.S. housing sector has also witnessed a recovery. The sector’s upturn has been backed by low interest rates and higher demand for new properties due to the rising trend of working from home amid the pandemic.

Meanwhile, economic activities in China are 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 strengthening domestic demand and government stimulus measures.

China's manufacturing activities have picked up on demand revival and government’s efforts to shrug off the impacts of the pandemic. The country’s construction sector is also gaining momentum on Beijing’s infrastructure spending push. The U.S. manufacturing sector has also rebounded from a sharp contraction in the early days of the pandemic on a return of demand and a recovery in the overall economy. The rebound in manufacturing bodes well for the chemical industry. However, the resurgence of virus cases across the United States and Europe may play a spoilsport.

Chemical Stocks to Watch For

A few stocks currently worth considering in the chemical space are Dow Inc. (DOW - Free Report) , Cabot Corporation (CBT - Free Report) , Koppers Holdings Inc. (KOP - Free Report) , The Chemours Company (CC - Free Report) and PPG Industries, Inc. (PPG - Free Report) . While both Dow and Cabot sport a Zacks Rank #1 (Strong Buy), Koppers, Chemours and PPG Industries 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 18%. The Zacks Consensus Estimate for earnings for the current year has been revised 42.2% upward over the last 60 days.

Cabot has expected earnings growth of 58.2% for the current year. The consensus estimate for the current year has been revised 21.4% upward over the last 60 days.

Koppers has delivered an earnings surprise of 25.3%, on average, over the trailing four quarters. The consensus estimate for the current year has been revised 12.3% upward over the last 60 days.

Chemours has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 54.1%. The Zacks Consensus Estimate for the current year has been revised 15% upward over the last 60 days.

PPG Industries has delivered an earnings surprise of 12.3%, on average, over the trailing four quarters. The consensus estimate for the current year has been revised 13.4% upward over the last 60 days.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

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