The U.S. specialty chemical industry started the third quarter on a soft note with July seeing a decline in volumes, according to the latest report from the American Chemistry Council (“ACC”).
Tepid July Readings The Washington, DC-based chemical industry trade group said that U.S. specialty chemicals market volumes fell 0.1% in July on a monthly comparison basis. This follows a 0.2% gain a month ago and modest increases in both May and April. The data changes are reported on a three-month moving average basis. Of the 28 specialty chemical segments monitored by the ACC, 11 saw growth in July while decline was witnessed across 16 markets. No large market volume growth (1% and over) was witnessed during the reported month. Per the ACC, the overall specialty chemicals volume index went up 1.4% on a year-over-year basis in July. Year-over-year comparisons have been on a decline since third-quarter 2018. Volumes were up in 15 markets and functional specialty chemical segments in July while declining in 13 segments. Specialty chemicals that include catalysts, surfactants, speciality polymers, coating additives and oilfield chemicals are used in specific fields based on their performance. They have application in the manufacturing process of a vast range of products, including paints and coatings, cosmetics, petroleum products, inks and plastics. Trade War Getting Worse – A Worry for Chemicals The specialty chemical industry has been bruised by trade tensions between the United States and China. The Trump administration levied 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 swath of petrochemicals, specialty chemicals and plastics. According to the ACC, the United States has imposed tariffs on $15.4 billion worth of imports of chemicals and plastics from China, with Beijing retaliating with duties on $11 billion in U.S. exports of chemicals and plastics to China. Making matters worse, the Trump administration earlier this month reignited trade feud with China by announcing new 10% tariffs on an additional $300 billion worth of Chinese exports not already covered by earlier rounds of tariffs. Earlier, in June 2019, President Trump agreed to hold back from imposing the new tariffs after the United States and China agreed to a tentative trade truce at the G20 Summit in Japan. However, instead of a resolution, the trade war appears to be getting increasingly bitter. The ACC earlier noted that the total value of U.S. chemicals and plastics imports from China subject to tariffs would reach $26.4 billion should the new round of tariffs come into effect. In response to the United States' announcement of new tariffs, Beijing last Friday hit back by slapping 5% to 10% tariff on $75 billion of U.S. imports, thereby re-escalating the trade conflict. The tariffs will be levied in two tranches, on Sep 1 and Dec 15. The Trump administration retaliated by raising the planned tariffs on $300 billion of Chinese goods from 10% to 15%, some of which slated to go into effect on Sep 1. The United States also bumped up tariff to 30% from the existing 25% on $250 billion in Chinese imports, effective Oct 1. This further adds to the woes of the chemical industry. The tariffs currently in place are already doing considerable harm to the U.S. chemical industry. China is one of the biggest export markets for U.S. chemicals, leaving the American chemical industry heavily exposed to Beijing’s countermeasures. China's retaliatory trade actions have created an uncertain demand environment for U.S. chemical products in this major market. The tariffs are hurting U.S. chemical exports and the competitiveness of the American chemical industry. Per the ACC, loss to U.S. chemical and plastics exports to China could reach as much as $6.1 billion annually. The new round of tariffs, if implemented, will take further toll on the chemical industry. Specialty Chemical Stocks Worth a Look A few stocks currently worth considering in the specialty chemical space are NewMarket Corporation NEU, Israel Chemicals Ltd. ICL, Axalta Coating Systems Ltd. ( AXTA Quick Quote AXTA - Free Report) and Valvoline Inc. VVV. While NewMarket sports a Zacks Rank #1 (Strong Buy), Israel Chemicals, Axalta and Valvoline each have a Zacks Rank #3 (Hold). You can see . the complete list of today’s Zacks #1 Rank stocks here NewMarket has an expected earnings growth of 16.2% for the current year. Earnings estimates for the current year have been revised 10.4% upward over the last 60 days. Israel Chemicals has an expected earnings growth of 13.5% for the current year. The company has delivered positive earnings surprise in each of the trailing four quarters with an average beat of 12.8%. Axalta has an expected earnings growth of 39.8% for the current year. Earnings estimates for the current year have gone up 3.5% over the last 60 days. Valvoline has an expected earnings growth of 3.1% for the current fiscal year. Earnings estimates for the current fiscal have been revised 2.3% upward over the last 60 days. More Stock News: This Is Bigger than the iPhone! It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market. Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. 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