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US Plastic Resins Output Rises in October: Tariffs a Concern

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U.S. production of major plastic resins expanded 6.6% year over year to 7.3 billion pounds in October, according to the latest monthly report from the American Chemistry Council (“ACC”), a leading industry trade group.

Production of major plastic resins was 71.7 billion pounds year to date, an 8.7% rise from the same period a year ago.

Per the ACC, sales and captive (internal) use of major plastic resins was 7.4 billion pounds for the reported month, up 9.9% year over year. The same was 71.6 billion pounds on a year-to-date basis, also rising 8% from the same period in 2017.

The ACC, earlier this year, said that it envisions U.S. plastic resins production to grow at the fastest pace this year since 2012 as new capacity comes onstream and demand firms for domestic and overseas customers.

The plastics industry includes manufacturers of polymer materials for a host of end-use markets such as packaging, building & construction, transportation, electronics, containers and aerospace. These products include plastic resins such as polyethylene, polypropylene, polyvinyl chloride (PVC) and polystyrene that are made from raw materials sourced from crude oil and natural gas.

U.S. plastics makers are gaining from healthy demand from major end-markets such as packaging, building & construction and transportation. Packaging and construction industries remain the mainstays of the chemical plastics industry.

Higher industrial activities and growing consumer spending are expected to support demand for major plastic products including polyethylene and PVC across key markets. Demand for polyethylene — the most widely consumed polymer globally — remains strong in the packaging market for applications in films, bags, bottles and other packaging materials, thanks to growing usage in food and consumer packaging. Moreover, building and construction is a significant market for PVC and the favorable overall outlook for the housing market augurs well for this major plastic product.

The American plastics industry also continues to enjoy the advantage of access to abundant and cheap ethane feedstock extracted from shale gas. The shale bounty has provided U.S. plastics producers a compelling cost advantage over their global counterparts, which use oil-based feedstock such as naptha. This is driving investment in plastics production projects in the U.S. Gulf Coast to beef up capacity.

However, the trade tensions between the United States and China pose as headwinds to the plastics industry. The Trump administration imposed tariffs on $50 billion in Chinese goods earlier this year that led to China retaliating with tariffs on American products of equal value. The U.S. administration, in September, also levied a 10% tariff on $200 billion worth of Chinese imports, thereby intensifying the trade tensions. In response, China hit back with tariffs on an additional $60 billion in American products.

China’s list of U.S. goods hit with tariffs include an array of plastics products. Beijing’s retaliatory tariffs would harm a major market for a range of chemicals and plastics produced in the United States. Chemical industry groups have raised concerns that the tariffs would hurt U.S. plastics exports and the competitiveness of the domestic plastics industry. China’s retaliatory tariffs have hit more than 1,000 U.S. chemicals and plastics exports worth an estimated $10.8 billion, per the ACC.

The trade tensions have weighed on U.S. chemical plastics stocks this year. Shares of prominent plastics makers such as Westlake Chemical Corporation (WLK - Free Report) , Trinseo S.A. (TSE - Free Report) , Rayonier Advanced Materials Inc. (RYAM - Free Report) and PolyOne Corporation (POL - Free Report) have sagged around 32%, 30%, 28% and 23% year to date, respectively.  

Westlake Chemical currently carries a Zacks Rank #3 (Hold). While both Trinseo and PolyOne hold a Zacks Rank #4 (Sell), Rayonier Advanced Materials is a Zacks Rank #5 (Strong Sell) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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