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Global Chemical Output Leaps for Sixth Straight Month: 5 Picks

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

Upbeat November Readings

The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (“CPRI”) went up 1.9% in November on a monthly comparison basis. This follows a 1.7% rise in October. The growth reflects sustained recovery in activities that started in June after declining 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 1.7%), Asia-Pacific (up 2.5%), Latin America (up 0.4%) and Africa & the Middle East (up 0.6%). FSU saw flat production in the reported month.

With respect to segments, production expanded 1.9% in basic chemicals, 2.8% in specialty chemicals, 1.3% in agricultural chemicals and 0.7% in consumer products in November.

Global capacity rose 0.1% for the reported month and also expanded 2.2% on a year-over-year basis. Capacity utilization for the global chemical industry increased 1.5 percentage point to 82.9% in November on the back of improved production, marking an improvement from 81.7% in October.

Chemical Industry Bounces Back From Pandemic-led Downturn

Coronavirus led to a slowdown in industrial activities globally for much of the first half of 2020 due to lockdowns and restrictions, sapping demand for chemicals in key end-use markets including automotive, construction and electronics.

The industry also faced the heat from short supply of raw materials and higher logistics costs as a result of the pandemic. Weaker demand coupled with a slump in oil prices also exerted pressure on the product prices of chemical makers.

However, the chemical industry has rebounded from the coronavirus blues on a recovery in industrial demand. Demand started to pick up from the third quarter of 2020 on a return of global economic activities and an economic rebound in China — a top consumer of chemicals. Demand for chemicals has recovered across major end-use industries on a rebound in industrial and manufacturing activities globally.

A recovery in construction and automotive, two major chemical-consuming markets, bodes well for the chemical industry. The automotive industry has gotten back into the groove after the virus-led slump riding on a revival in consumer demand. Pent-up demand and the shift toward private transportation amid the pandemic are driving new car sales globally. A rebound in automotive OEM production rates has led to a recovery in demand for chemicals in the automotive market. The construction sector has also bounced back with the resumption of many projects, which were postponed earlier due to labor shortage and supply chain disruptions.

Moreover, economic activities in China remain strong as the country continues its recovery to pre-pandemic levels. China’s industrial sector is gradually gaining strength, supported by healthy domestic demand, strong exports and government stimulus measures. China's manufacturing activities have picked up on demand revival with the pace of recovery accelerating in the fourth quarter of 2020. The country’s construction sector is also gaining momentum on China government’s big infrastructure investment drive.

Business activities have also recovered in the United States after slumping during much of spring amid virus-led lockdowns. The economic recovery started in May 2020 after major parts of the United States reopened for business following coronavirus-led shutdowns. Lockdowns and travel restrictions brought economic activities to a near-standstill in March and April.

The U.S. manufacturing sector has also recuperated from a sharp contraction in the early days of the pandemic on a demand recovery and an upturn in the overall economy. The momentum in manufacturing continued in December despite a rise in coronavirus cases.

According to the Institute for Supply Management, the U.S. Manufacturing Purchasing Managers’ Index clocked 60.7% in December, up from 57.5% in November, reflecting sustained rebuilding of economic activities. The December figure indicated an expansion in the overall economy for the eighth straight month following a contraction in March, April and May. New orders also grew for the seventh month in a row in December. Strength in manufacturing augurs well for the chemical industry as manufacturing is a key indicator for chemical demand.

Meanwhile, the U.S. chemical industry has pulled off a comeback from coronavirus-induced challenges and is poised for an upswing in 2021. The ACC envisions total domestic chemical production volumes (barring pharmaceuticals) to grow 3.9% this year. Basic chemicals production is also forecast to rise 5% in 2021. U.S. chemical production has gained momentum after being hit by weaker demand, supply disruptions and falling revenues resulting from the pandemic. Rising demand, stabilizing export markets and the competitive advantage linked to domestic supplies of shale gas and natural gas liquids are among the factors that are expected to contribute to the upswing.

5 Chemical Stocks Worth Betting On

The chemical industry is looking up from the pandemic-led slump and is poised for an upturn this year on a rebound across major end-markets and recovering industrial and manufacturing activities globally. As such, it would be prudent to invest in stocks in the space that have compelling prospects and are well poised for solid upside.

We highlight the following five stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) that are good options for investment right now. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cabot Corporation (CBT - Free Report)

Massachusetts-based Cabot sports a Zacks Rank #1. The company should gain from a recovery in demand from its automotive and tire customers from the pandemic-led slowdown. It will also benefit from the acquisition of Shenzhen Sanshun Nano New Materials. The acquisition significantly bolsters the market position and formulation capabilities of Cabot in the high-growth batteries market, especially in China.

Cabot has expected earnings growth of 61.5% for the current fiscal year. Moreover, the Zacks Consensus Estimate for current fiscal year earnings has been revised 22.6% upward over the last 60 days. The company’s shares are also up around 20% over the past six months.

Huntsman Corporation (HUN - Free Report)

Based in Texas, Huntsman flaunts a Zacks Rank #1. The company benefits from its investment in downstream businesses and differentiated product innovation. The company remains focused on growing its downstream specialty and formulation businesses and is shifting its methylene diphenyl diisocyanate business from components to differentiated systems that typically have higher margins and lower volatility. Huntsman should also gain from acquisitions of Icynene-Lapolla, Demilec and CVC Thermoset Specialties.

The company has expected earnings growth of 114% for the current year. Moreover, the consensus estimate for current-year earnings has been revised 15.1% 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 28.6%. Its shares are also up around 41% over the past six months.

The Chemours Company (CC - Free Report)

Based in Delaware, Chemours carries a Zacks Rank #1. The company is expected to benefit from improved customer demand for refrigerants, especially in the automotive sector on a rebound in automotive OEM production rates. It should also benefit from increasing adoption of the Opteon platform and growing applications of fluoropolymers, especially in automotive, electronics and energy end-markets. Moreover, the company stands to gain from its efforts to reduce costs.

Chemours has expected earnings growth of 48.9% for 2021. Moreover, the Zacks Consensus Estimate for earnings for this year has been revised 19.6% 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 54.1%. The stock has also surged around 57% over the past six months.

PPG Industries Inc. (PPG - Free Report)

Pennsylvania-based PPG carries a Zacks Rank #2. It is executing an aggressive cost-cutting and restructuring strategy, which is expected to support its bottom line. It is also taking steps to grow business inorganically through strategic acquisitions. Acquisitions including Industria Chimica Reggiana and Alpha Coating Technologies are expected to contribute to the company’s top line this year.

The company has expected earnings growth of 21.6% for the current year. The consensus estimate for current-year earnings has been revised 2.4% upward over the last 60 days. The company has also delivered an earnings surprise of 12.3%, on average, over the trailing four quarters. The stock is also up around 30% over the past six months.

Celanese Corporation (CE - Free Report)

Texas-based Celanese has a Zacks Rank #2. Celanese is expected to benefit from its productivity measures, investments in high-return organic projects and strategic acquisitions. The company is also seeing a recovery in demand across most of its end markets. Moreover, Celanese continues to actively pursue acquisitions, which are providing it opportunities for additional growth, investment and synergies.

The company has expected earnings growth of 30% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 2.7% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 8.6%. Moreover, its shares have rallied around 43% over the past six months.

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