U.S. chemical production growth cooled in October on a monthly comparison basis as output rose at a slower pace across all chemical producing regions – 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 – slowed in October.
The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") edged up 0.2% in October on a monthly comparison basis, following a 0.5% rise a month ago. The U.S. CPRI, which is measured using a three-month moving average, was created to track chemical production in seven regions nationwide.
Overall chemical production fell 0.6% on a year over year comparison basis in October. Declines were witnessed across Gulf Coast and Midwest with other regions racking up modest gains. Notably, production in the Gulf Coast – the epicenter of the U.S. specialty chemicals and petrochemicals industry – was off 1.3%.
Regional Output Growth Eases
The October reading showed a rise in chemical production on a monthly comparison basis across all regions. However, the rate of growth slowed in the reported month, per the ACC.
Production in the Gulf Coast, Midwest, Ohio Valley and Southeast was up 0.2% in the reported month. Output rose 0.3% across Mid-Atlantic, Northeast and West Coast.
By segments, chemical production was mixed. Gains in plastic resins, chlor-alkali, pesticides, organic chemicals, consumer products, adhesives, coatings and other specialty chemicals were masked by lower production in synthetic rubber, miscellaneous inorganic chemicals, synthetic dyes and pigments, industrial gases fertilizers and manufactured fibers.
U.S. Manufacturing Activity Ticks Down
According to the ACC, activity for the U.S. manufacturing sector edged down 0.2% in October. 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.
U.S. manufacturing activities shrunk in October as domestic manufacturers faced a challenging global demand environment amid trade tensions with China. Global economic slowdown and the trade spat walloped American factories last month. A strike at General Motors Company (GM - Free Report) also contributed to the contraction.
Tariffs, Weaker Demand Weigh On Chemicals
The U.S. chemical industry is bearing the brunt of the protracted trade conflict. Washington and Beijing levied billions of dollars in punitive tariffs on each others’ products last year. China’s tariffs on American products include a vast range of petrochemicals, specialty chemicals and plastics.
While recent talks between the countries have raised hopes of a possible resolution to the bitter trade dispute, the tariffs currently in place are already doing harm to the U.S. chemical industry. China is among the most important trading partners of the American chemical industry and is one of the biggest export markets for U.S. chemicals. Beijing’s retaliatory tariffs are hurting demand for U.S. chemical exports.
The trade tiff has also led to a slowdown in industrial activities globally, hurting demand for chemicals. In particular, chemical makers are seeing demand weakness in China associated with the trade war amid a slowing Chinese economy. Notably, the trade friction has led to a slowdown in demand in the automotive market (a major chemical end-use market) in China.
Moreover, a slowing global economy, partly due to the trade tensions, is a concern for the chemical industry. Economic conditions have, in particular, weakened across emerging economies.
The impact of demand weakness resulting from a slowdown in industrial activities, especially in Asia and Europe, due to trade issues was well visible in the third-quarter performance of U.S chemical makers.
Leading U.S. chemical companies like Celanese Corporation (CE - Free Report) , Eastman Chemical Company (EMN - Free Report) and PPG Industries, Inc. (PPG - Free Report) faced the heat from a downturn in demand across Asia (particularly in China) and Europe in the third quarter, hurting their sales volumes and revenues. The difficult environment is expected to continue through the December quarter amid global slowdown and lingering trade uncertainties.
Chemical Stocks Worth a Look
A couple of stocks currently worth considering in the chemical space are Element Solutions Inc (ESI - Free Report) and Northern Technologies International Corporation (NTIC - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Element Solutions has an expected earnings growth of 521.4% for 2019. The company also delivered positive earnings surprise in three of the trailing four quarters, with an average positive surprise of 1.7%.
Northern Technologies has expected earnings growth of 18.2% for the current fiscal year. Earnings estimates for the current fiscal have been revised 8.3% 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 Q3 2019, while the S&P 500 gained +39.6%, five of our strategies returned +51.8%, +57.5%, +96.9%, +119.0%, and even +158.9%.
This outperformance has not just been a recent phenomenon. From 2000 – Q3 2019, while the S&P averaged +5.6% per year, our top strategies averaged up to +54.1% per year.
See their latest picks free >>