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Chemicals Start 2019 on Soft Note With Tepid January Growth
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Global chemicals production started 2019 on a sluggish note with January witnessing a slight uptick in production on lower capacity utilization, according to the recent monthly report from the American Chemistry Council (“ACC”).
January Sees Modest Growth
The chemical industry trade group said that the Global Chemical Producing Regional Index ("CPRI") rose a measly 0.1% in January on a monthly comparison basis, following a 0.3% growth in December.
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 (“FRB”) production indices.
Per the ACC, the Global CPRI ticked up 0.5% year over year on a three-month moving average basis. Capacity utilization for the global chemical industry eased 0.2 percentage points to 83.1% in January. Utilization fell from 85.6% a year ago.
On a segment basis, growth was witnessed in agricultural chemicals, inorganic chemicals, plastic resins, synthetic rubber, manufactured fibers, coatings and other specialty chemicals for the reported month. This was offset by softness across consumer products and bulk petrochemicals and organics.
By regions, January witnessed higher production across North America, Africa and the Middle East and Asia-Pacific. However, output fell in Europe and was flat in Latin America.
Per the ACC, chemical production in the United States went up 0.3% on a monthly comparison basis in January. This follows a 0.6% sequential growth a month ago.
The trade group expects U.S. chemical production (excluding pharmaceuticals) to rise 3.6% in 2019, following a 3.1% growth in 2018. The growth is expected to be spurred by gains in manufacturing and export and sustained demand across light vehicles and housing markets.
Chemical Industry Faces Several Challenges
Trade tensions between the United States and China have clouded the prospects of the chemical industry. The Trump administration slapped punitive tariffs on $250 billion worth of Chinese products last year while China has imposed retaliatory tariffs on $110 billion in U.S. goods. China’s tariffs on American products include a wide range of petrochemicals, specialty chemicals and plastics.
While recent talks between the two countries have raised hopes of a possible resolution of the trade dispute, the tariffs currently in place are already doing damage to the chemical 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.
China is one of the biggest export markets for U.S. chemicals. Beijing’s retaliatory tariffs have created an uncertain demand environment for U.S. chemical products in this significant market. Notably, the trade friction has led to a slowdown in demand in the automotive market (a major chemical end-use market) in China.
Chemical makers also face margin headwinds from a spike in costs of raw materials as a result of short supply partly due to production outages and plant shutdowns. The stricter environmental policy in China has led to the tightening in the supply of certain key raw materials as a result of plant closures. The disruption in the supply chain has pushed up the prices of inputs. Some of the chemical companies are also exposed to challenges from elevated logistics costs.
Nevertheless, chemical companies remain focused on offsetting these challenges through strategic actions including productivity improvement, capacity expansion, price hike initiatives and expansion of scale through acquisitions.
Chemical Stocks to Watch For
A few stocks currently worth considering in the chemical space are Ingevity Corporation (NGVT - Free Report) , Innospec Inc. (IOSP - Free Report) , W. R. Grace & Co. , American Vanguard Corporation (AVD - Free Report) and Israel Chemicals Ltd. (ICL - Free Report) . Both Ingevity and Innospec sport a Zacks Rank #1 (Strong Buy), while W. R. Grace, American Vanguard and Israel Chemicals each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingevity has an expected earnings growth of 17.9% for the current year. Earnings estimates for the current year have been revised 2.7% upward over the last 60 days.
Innospec has an expected earnings growth of 3.5% for the current year. Earnings estimates for the current year have been revised 5.3% upward over the last 60 days.
W. R. Grace has an expected earnings growth of 10.4% for the current year. Earnings estimates for the current year have been revised 2.9% upward over the last 60 days.
American Vanguard has an expected earnings growth of 10.8% for the current year. Earnings estimates for the current year have been revised 2.3% upward over the last 60 days.
Israel Chemicals has an expected earnings growth of 10.8% for the current year. Earnings estimates for the current year have been revised 5.1% upward over the last 60 days.
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Chemicals Start 2019 on Soft Note With Tepid January Growth
Global chemicals production started 2019 on a sluggish note with January witnessing a slight uptick in production on lower capacity utilization, according to the recent monthly report from the American Chemistry Council (“ACC”).
January Sees Modest Growth
The chemical industry trade group said that the Global Chemical Producing Regional Index ("CPRI") rose a measly 0.1% in January on a monthly comparison basis, following a 0.3% growth in December.
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 (“FRB”) production indices.
Per the ACC, the Global CPRI ticked up 0.5% year over year on a three-month moving average basis. Capacity utilization for the global chemical industry eased 0.2 percentage points to 83.1% in January. Utilization fell from 85.6% a year ago.
On a segment basis, growth was witnessed in agricultural chemicals, inorganic chemicals, plastic resins, synthetic rubber, manufactured fibers, coatings and other specialty chemicals for the reported month. This was offset by softness across consumer products and bulk petrochemicals and organics.
By regions, January witnessed higher production across North America, Africa and the Middle East and Asia-Pacific. However, output fell in Europe and was flat in Latin America.
Per the ACC, chemical production in the United States went up 0.3% on a monthly comparison basis in January. This follows a 0.6% sequential growth a month ago.
The trade group expects U.S. chemical production (excluding pharmaceuticals) to rise 3.6% in 2019, following a 3.1% growth in 2018. The growth is expected to be spurred by gains in manufacturing and export and sustained demand across light vehicles and housing markets.
Chemical Industry Faces Several Challenges
Trade tensions between the United States and China have clouded the prospects of the chemical industry. The Trump administration slapped punitive tariffs on $250 billion worth of Chinese products last year while China has imposed retaliatory tariffs on $110 billion in U.S. goods. China’s tariffs on American products include a wide range of petrochemicals, specialty chemicals and plastics.
While recent talks between the two countries have raised hopes of a possible resolution of the trade dispute, the tariffs currently in place are already doing damage to the chemical 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.
China is one of the biggest export markets for U.S. chemicals. Beijing’s retaliatory tariffs have created an uncertain demand environment for U.S. chemical products in this significant market. Notably, the trade friction has led to a slowdown in demand in the automotive market (a major chemical end-use market) in China.
Chemical makers also face margin headwinds from a spike in costs of raw materials as a result of short supply partly due to production outages and plant shutdowns. The stricter environmental policy in China has led to the tightening in the supply of certain key raw materials as a result of plant closures. The disruption in the supply chain has pushed up the prices of inputs. Some of the chemical companies are also exposed to challenges from elevated logistics costs.
Nevertheless, chemical companies remain focused on offsetting these challenges through strategic actions including productivity improvement, capacity expansion, price hike initiatives and expansion of scale through acquisitions.
Chemical Stocks to Watch For
A few stocks currently worth considering in the chemical space are Ingevity Corporation (NGVT - Free Report) , Innospec Inc. (IOSP - Free Report) , W. R. Grace & Co. , American Vanguard Corporation (AVD - Free Report) and Israel Chemicals Ltd. (ICL - Free Report) . Both Ingevity and Innospec sport a Zacks Rank #1 (Strong Buy), while W. R. Grace, American Vanguard and Israel Chemicals each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingevity has an expected earnings growth of 17.9% for the current year. Earnings estimates for the current year have been revised 2.7% upward over the last 60 days.
Innospec has an expected earnings growth of 3.5% for the current year. Earnings estimates for the current year have been revised 5.3% upward over the last 60 days.
W. R. Grace has an expected earnings growth of 10.4% for the current year. Earnings estimates for the current year have been revised 2.9% upward over the last 60 days.
American Vanguard has an expected earnings growth of 10.8% for the current year. Earnings estimates for the current year have been revised 2.3% upward over the last 60 days.
Israel Chemicals has an expected earnings growth of 10.8% for the current year. Earnings estimates for the current year have been revised 5.1% upward over the last 60 days.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>