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US Chemical Output Slips in February on Broad-Based Declines

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U.S. chemical production dropped in February on a monthly comparison basis with lower output witnessed across all chemical producing regions, particularly in Gulf Coast and Ohio Valley – according to the latest monthly report from the American Chemistry Council ("ACC"). Activity for the U.S. manufacturing sector – the largest consumer of chemical products – was also down in February.

The chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") slipped 0.4% in February compared with the previous month. This follows a revised 0.2% rise a month ago and a 0.5% gain in December. The U.S. CPRI, which is measured using a three-month moving average, was created to track chemical production in seven regions nationwide.

February Data Shows Lower Regional Output

The February reading showed a decline in chemical production on a monthly comparison basis across all regions. Production in the Gulf Coast – the epicenter of the U.S. specialty chemicals and petrochemicals industry – was down 0.7% in the reported month. Production also fell 0.5% across Midwest and Southeast. Ohio Valley witnessed a 0.6% decline while output was down 0.1% in Northeast. Production also fell across Mid-Atlantic (down 0.4%) and West Coast (down 0.3%).

By segments, chemical production was mixed. Gains in inorganic chemicals, synthetic rubber, fertilizers, consumer products, manufactured fibers and other specialty chemicals were neutralized by lower production in plastic resins, organic chemicals, adhesives, pesticides and coatings.

U.S. Manufacturing Activity Dips

The manufacturing sector serves as a barometer to gauge the overall health of the U.S. economy and has a major influence on the chemical industry. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods. Manufacturing activity is also a key indicator for chemical production.

According to the ACC, U.S. manufacturing activity was down 0.1% in February, the first drop since May 2018.

Within the manufacturing sector, production rose in several chemistry end-user markets in February including food and beverages, aerospace, construction supplies, fabricated metal products, computers and electronics, oil and gas extraction, plastic products, rubber products and tires.

U.S. factory activity cooled in February as the pace of new orders, production and employment lost steam. Bad weather conditions disrupted production during the month.

Chemical Production Up Y/Y in February

While U.S. chemical production declined on a monthly basis in February, it was up year over year for the month. Per the ACC, overall chemical production spiked 4.4% on a year over year basis in February. This marks an improvement from a 4.1% growth in January.

All regions racked up gains with the biggest rise was witnessed in the Gulf Coast where output climbed 5.4% year over year in the reported month. The gain reflects higher output at new shale-advantaged plants.

U.S. Chemical Industry Set for an Upswing in 2019

The U.S. chemical industry is poised for an upside this year. The ACC expects U.S. chemical production (excluding pharmaceuticals) to rise 3.6% in 2019, following a 3.1% growth in 2018. The expansion is expected to be partly driven by growth in manufacturing and export, demand strength across major end-markets and gains in business investment. However, trade tensions pose a risk to the outlook.

The trade group also expects basic chemicals production to expand 4.8% in 2019.  The specialty chemicals segment is also expected to see production growth of 2.2% in 2019. Growth in manufacturing and exports markets this year will continue to boost demand for basic chemicals. These factors coupled with growth in construction markets are also expected to drive the specialty chemicals segments.

According to the ACC, strength in export markets and higher business investment have boosted demand in major chemical end-use markets such as light vehicles and housing.

The United States also remains an attractive investment destination for chemical investment and domestic chemical industry continue to enjoy the competitive advantage of access to abundant supplies of shale gas and natural gas liquids (NGLs). Economics of shale gas is driving strong capital investment in new chemical projects, leading to growth in the domestic chemical industry.

Chemical Stocks Worth Considering

A few stocks currently worth a look in the chemical space are Ingevity Corporation (NGVT - Free Report) , Innospec Inc. (IOSP - Free Report) , W. R. Grace & Co. (GRA - Free Report) and Israel Chemicals Ltd. (ICL - Free Report) . Both Ingevity and Innospec sport a Zacks Rank #1 (Strong Buy), while W. R. Grace and Israel Chemicals 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 3.2% 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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