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Global Chemical Production Rebounds in November: 5 Top Picks

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Global chemical production bounced back to growth in November after slumping in the previous month, according to the recent monthly report from the American Chemistry Council (ACC). The growth in output in November came on the back of increased capacity.

Production Picks Up in November

The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (CPRI) rose 0.3% in November on a monthly comparison basis, reversing a 0.2% decline in October.

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.

The ACC also noted that the Global CPRI went up 1.4% year over year on a three-month moving average basis. Global capacity was up 0.2% for the reported month and also increased 3.5% on a year-over-year basis. Capacity utilization for the global chemical industry moved up 0.1 percentage points to 81.7% in November.

By regions, gains in production were seen across Latin America (up 1%), Africa & the Middle East (up 0.7%) and the Asia-Pacific (up 0.6%) in the reported month. Output fell in North America (down 0.6%) and was flat in Europe.

With respect to segments, growth was witnessed in basic chemicals and specialty chemicals while agricultural chemicals and consumer products saw declines in November.

Initial Trade Deal Augurs Well for Chemicals

The prolonged trade spat between the United States and China has taken its toll on a bevy of industries and the chemical industry is no exception. The damaging effects of the trade war were evident from the industry’s lackluster performance in 2019. In particular, the U.S. chemical industry is among those that have been hit the hardest by the trade conflict.

Washington and Beijing have levied billions of dollars in punitive tariffs on each others’ products. China’s tariffs on American products include a vast range of petrochemicals, specialty chemicals and plastics. 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 have significantly hurt U.S. chemical exports.

The Trump administration’s protectionist policies and bitter tariff war with China have largely contributed to the slowdown in the world economy. 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. Trade war and a slowdown in the automotive industry have also hurt the European chemical industry.

Nevertheless, the de-escalation in U.S.-China trade tensions, at least for now, due to the recent announcement of the phase one trade deal would instil confidence in the chemical industry.

The United States and China, last month, agreed to a phase one trade deal after months of negotiation on its terms. The deal averted the implementation of a new round of U.S. tariffs on around $160 billion of consumer goods from China, which were slated to kick in on Dec 15. China has also reportedly suspended its additional tariffs on U.S. goods that were supposed to take effect that same day. Moreover, the United States will also slash its 15% tariff on about $120 billion of Chinese imports to 7.5%. The countries are expected to sign the trade deal in Washington on January 15.

The trade deal would bring respite to the U.S. chemical industry as it would avert tariffs on some of the U.S. chemicals and plastics not already covered by earlier rounds of tariffs.

The partial trade deal will remove clouds of uncertainties and provide a boost to American chemical exports which would support the U.S. chemical industry’s growth this year.

Meanwhile, the U.S. economy has shrugged off recession fears and remains fundamentally stable. With rising consumer confidence, gradual wage growth and unemployment level at five-decade lows, the economy looks to be on firm footing.

5 Chemical Stocks Worth Betting On

The favorable November production data bodes well for the chemical industry. The U.S.-China trade deal will also provide a much-needed relief for the industry and is likely to serve as a catalyst for growth this year. As such, it would be prudent to invest in stocks in the space that have compelling prospects and are well poised for solid upside.

We highlight the following five stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) that are good options for investment right now. You can see the complete list of today’s Zacks #1 Rank stocks here.

Daqo New Energy Corp. (DQ - Free Report)

China-based Daqo New Energy sports a Zacks Rank #1. The company has expected earnings growth of 294.7% for 2020. Earnings estimates for 2020 have been revised 37.8% upward over the last 60 days. The stock also has an expected long-term earnings per share growth rate of 29%.

Air Products and Chemicals, Inc. APD

Our next pick in the space is Pennsylvania-based Air Products carrying a Zacks Rank #2. It has an expected earnings growth of 15.5% for fiscal 2020. Earnings estimates for the current fiscal have been revised 1.2% upward over the last 60 days. The stock also has long-term expected earnings per share growth rate of 12.3%.

Tronox Holdings plc TROX

Based in Connecticut, Tronox is another attractive choice. It carries a Zacks Rank #2. The company has expected earnings growth of 207.8% for 2020. Moreover, earnings estimates for 2020 have been revised 16% upward over the last 60 days.

Northern Technologies International Corporation NTIC

Minnesota-based Northern Technologies carries a Zacks Rank #2. It has expected earnings growth of 18.2% for fiscal 2020. Earnings estimates for the fiscal have been revised 8.3% upward over the last 60 days.

Akzo Nobel N.V. AKZOY

The Netherlands-based Akzo Nobel has a Zacks Rank #2. It has expected earnings growth of 26.4% for 2020. Earnings estimates for the current year have been revised 0.7% upward over the last 60 days. The stock also has an expected long-term earnings per share growth rate of 18.1%.

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