The chemical industry is poised to benefit from the recovery in demand in 2024 in certain key markets, including consumer durables and building & construction, as the unprecedented customer inventory destocking that hurt the industry for much of 2023 is nearing completion.

In addition to the demand rebound, strategic measures, including operating cost reduction and price hike actions along with declining raw material costs, bode well for the industry players. Stocks like Hawkins, Inc. (HWKN Quick QuoteHWKN - Free Report) , Innospec Inc.  (IOSP Quick QuoteIOSP - Free Report) and Kronos Worldwide, Inc. (KRO Quick QuoteKRO - Free Report) are good choices for investment in the current scenario.

In 2023, the chemical space reeled under the effects of the demand slowdown in certain major markets in 2023. The sluggishness in the building & construction market and the destocking in consumer electronics played spoilsport. In North America, uncertainties surrounding the U.S. housing market weighed on building & construction. The housing market bore the brunt of interest rate hikes last year. The demand destruction in industrial and consumer durables hurt the volumes of chemical companies. Weaker global economic activities led to a higher level of uncertainty, affecting the chemical industry.

Lower consumer spending due to inflationary pressures in Europe and a slow recovery in China also impacted demand. A slower recovery in economic activities in China following the lifting of the restrictions related to the resurgence in COVID-19 infections hurt chemical demand in that country last year. Moreover, the slowdown in Europe, resulting from the war in Ukraine and weaker consumer spending due to high levels of inflation and rising interest rates, led to softer demand in that region. The energy and feedstock inflation resulted in reduced industrial production and consumer spending in Europe.

Nevertheless, demand for chemicals in the automotive market remained healthy and is expected to improve further in 2024, aided by an increase in automotive production on an improved supply of semiconductors. Notably, the U.S. automotive sector got into gear after being plagued by the chip crisis for nearly two years. The resolution to the six-week United Auto Workers strike also augurs well for chemical demand in automotive.

Moreover, chemical companies are seeing a recovery in demand across the construction and electronics markets. Demand in the healthcare market also remains strong. On a further positive note, customer inventory destocking has largely ended, leading to low inventory levels. This should result in an uptick in chemical demand and volumes in 2024. A decline in raw material and energy costs, driven by the easing of supply-chain disruptions, is also expected to act as a tailwind. Meanwhile, industrial production is picking up pace in China, underscoring improving conditions. Moderating inflation is also likely to support the demand recovery in Europe. 

3 Chemical Stocks Worth a Bet

A rebound in end-market demand, moderating raw material and energy costs, and the absence of customer inventory destocking are expected to put the wind back in the sails of the chemical industry this year.

We highlight the following three stocks with a solid Zacks Rank that are good options for investment right now. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities.

You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Hawkins: Minnesota-based Hawkins is seeing strong growth in its Water Treatment segment, reflecting its strategic emphasis on the water treatment sector, including the successful integration of recent acquisitions. Demonstrating its commitment to expanding its water treatment business, Hawkins recently acquired Industrial Research Corporation. Its judicious pricing strategy to counter cost inflation is also supporting results. HWKN also remains committed to enhancing shareholders’ value.

Hawkins, carrying a Zacks Rank #2, has expected earnings growth of 26.2% for fiscal 2024. The Zacks Consensus Estimate for HWKN’s earnings for fiscal 2024 has been revised upward by 4.3% over the last 60 days. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters at an average of 30.6%.

Innospec: Colorado-based Innospec, carrying a Zacks Rank #2, is expected to benefit from the strength of its Oilfield Services unit and strategic growth initiatives. The recent acquisition of QGP Quimica Geral in Brazil marks a significant expansion of its global footprint, bolstering manufacturing capabilities and customer service in South America. Expansion in production capacity is also anticipated to unlock further potential, with new contracts in personal care bolstering the Performance Chemicals division. Moreover, advancements in technologies offer promising prospects for the Fuel Specialties unit.

Innospec has expected earnings growth of 10.3% for 2024. The Zacks Consensus Estimate for IOSP’s earnings for 2024 has been revised upward by 1.8% over the last 60 days. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters at an average of 10.5%.

Kronos Worldwide: Texas-based Kronos is expected to gain from higher demand for titanium dioxide (TiO2). Stronger demand for TiO2 in primary markets of Europe and North America is likely to drive its sales volumes. KRO is also expected to benefit from easing pricing pressure this year. Reduced energy costs, along with cost-reduction initiatives, are expected to support margins.

Kronos Worldwide, carrying a Zacks Rank #2, has expected earnings growth of 176.7% for 2024. The Zacks Consensus Estimate for KRO’s earnings for 2024 has been revised upward by 73.7% over the last 60 days.