U.S. chemical production ticked up in May on modest gains across the seven chemical producing regions – according to the latest monthly report from the American Chemistry Council ("ACC").
The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") edged up 0.1% for the reported month following a 0.1% fall a month ago and a 0.5% rise in March. The U.S. CPRI, which is measured using a three-month moving average, was created by Moore Economics to track chemical production in seven regions nationwide. It is comparable to the Federal Reserve’s industrial production index for chemicals. According to the ACC, activity for the U.S. manufacturing sector – the largest consumer of chemical products – was down for the second straight month in May on a three-month moving average basis, declining 0.2%. The manufacturing sector is a major driver for the chemical industry which touches around 96% of manufactured goods. The sector remains weighed down by fewer new factory orders and sluggish export growth amid a weak global economy. Within the manufacturing sector, production rose across several chemistry end-user markets in May including motor vehicles, computers and electronics, machinery and aerospace. The May reading showed higher chemical production across all seven regions. Production went up 0.1% on a monthly comparison basis across Gulf Coast, West Coast, Ohio Valley, Midwest, Northeast and Mid-Atlantic. Output rose 0.2% in the Southeast region. By segments, chemical production was mixed in May. Gains across fertilizers, dyes and pigments, chlor-alkali, other inorganic chemicals, industrial gases, plastic resins, pharmaceuticals adhesives, coatings, and other specialty chemicals were neutralized by lower production of organic chemicals, consumer products, synthetic rubber and manufactured fibers. Overall chemical production went up 1.3% year over year in May with all regions racking up gains. The U.S. chemical industry, a nearly $800 billion enterprise, is heavily linked to the overall condition of the nation’s economy. It has been consistently leading the U.S. economy’s business cycle due to its early position in the supply chain. The chemical industry is still in gradual recovery mode from the trough of the great recession. The industry’s recovery is expected to continue this year, supported by continued strength in the automotive market, positive trends in the construction space and significant shale-linked capital investment. The shale gas bounty and abundant supply of natural gas liquids has been a huge driving force behind chemical investment on plants and equipment in the U.S. and have provided American petrochemicals producers a compelling cost advantage over their global counterparts. The ACC expects this competitiveness to drive export demand and new capital investment in the country. Leveraging the abundant natural gas supply, chemical makers including Dow Chemical ( DOW Quick Quote DOW - Free Report) , LyondellBasell Industries ( LYB Quick Quote LYB - Free Report) , BASF ( BASFY Quick Quote BASFY - Free Report) , Eastman Chemical ( EMN Quick Quote EMN - Free Report) , Celanese ( CE Quick Quote CE - Free Report) and Westlake Chemical ( WLK Quick Quote WLK - Free Report) are ratcheting up investment on shale gas-linked projects. Per ACC, domestic chemical investment related to shale gas has reached as high as $164 billion, more than 60% of which are from firms outside the U.S. Already 264 projects – many backed by the Federal government – have been announced by chemical makers to take advantage of ample natural gas supplies with 40% of them already complete or under construction. Such investments are expected to boost capacity and export over the next several years. However, the chemical industry is still feeling the bite of slowdown in China, lumpiness in Europe, a weak agriculture market and sluggish demand in the energy space. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>