Global chemical production retreated in April on broad-based weakness due to the impact of the coronavirus pandemic, according to the latest American Chemistry Council (“ACC”) report. Production dropped across all regions and most chemical industry segments for the reported month.
Pace of Decline Improves in April The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (“CPRI”) declined 1.3% in April on a monthly comparison basis. This marks an improvement from a 3.3% drop in March. 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 production indices. By regions, output fell in North America (down 2.8%), Latin America (down 2.7%), Africa & the Middle East (down 0.2%), Former Soviet Union (down 0.1%), Europe (down 3.3%) and Asia-Pacific (down 0.3%). April saw stabilizing activity in China which has crawled out of the worst of the coronavirus impact. Production in China rose 1% in the month. With respect to segments, production rose in basic chemicals (up 0.5%), but fell in specialty chemicals (down 4.2%), agricultural chemicals (down 4.4%) and consumer products (down 4%) in April. The ACC also noted that the Global CPRI went down 5.8% year over year on a three-month moving average basis. Global capacity was up 0.2% for the reported month and also increased 3.3% on a year-over-year basis. With a drop in output, capacity utilization for the global chemical industry also slipped 1.2 percentage points to 75.6% in April. Coronavirus Stings Chemicals The chemical industry reeled under the effects of the bitter tariff war between the United States and China last year. The coronavirus pandemic, which continues to spread globally, has dealt a fresh blow to this space. Chemical makers are witnessing demand slowdown in China, a top consumer of chemicals, as coronavirus-induced disruptions have hurt industrial activities. Coronavirus has pushed China's economy to the brink. China’s GDP shrank 6.8% year over year in the first quarter of 2020, the first contraction in decades, as travel restrictions and quarantine measures hurt industrial production and retail sales. The pandemic has slowed down activities in the construction space (a key chemical end-use market) in China. The automotive industry, another major end-market for chemicals, has also gotten hammered as the outbreak has pummelled demand and disrupted supply chains. China’s manufacturing sector, which bore the brunt of the trade war for most part of 2019, suffered another shock amid the pandemic. While manufacturing has rebounded somewhat of late, overall demand in the sector remains subdued. The weakness in China’s economy will be heavily felt in the chemical sector. Coronavirus is also hurting business activities in other parts of Asia and Europe. The difficult demand environment for chemicals is expected to persist in the near term amid a slowdown in industrial activities globally. Nevertheless, some of the companies in this space are benefiting from higher demand for chemicals and materials across industries like healthcare and packaging. With a surge in the number of coronavirus cases around the world, demand for health, hygiene and safety products (including PPEs, sanitizers, disinfectants and cleaning products) has skyrocketed. Meanwhile, chemical makers are grappling with short supply of raw materials as a result of coronavirus. The closure of a large swath of factories across China to stem the spread of the virus has even disrupted the global supply chain. The city of Wuhan in Hubei province, where the outbreak was first reported, is one of China's biggest manufacturing centers and the country’s transportation and logistics hub. Coronavirus has impaired logistics across the country. The supply disruption in China is likely to impact the availability of raw materials for the chemical industry at least through the first half of 2020. This is expected to hurt global chemical production. In particular, U.S. chemical producers are facing the heat as they procure several chemicals critical to their production processes from China that are not available elsewhere. Disruptions due to the pandemic are affecting the delivery of key raw materials used in chemical production, leading to a spike in costs of these inputs. Some of the companies are also facing challenges arising from elevated logistics costs. In a challenging environment, chemical companies remain focused on self-help measures, including cost-cutting and productivity improvement, and actions to strengthen balance sheet and boost cash flows. Some of the companies are also taking aggressive price hike actions in an inflationary environment. Chemical companies also remain actively focused on acquisitions to diversify and drive growth. These actions are likely to help these companies to sail through the turbulent times. Chemical Stocks Worth a Look A few stocks currently worth considering in the chemical space are Stepan Company ( SCL Quick Quote SCL - Free Report) , AdvanSix Inc. ( ASIX Quick Quote ASIX - Free Report) , Flexible Solutions International Inc. ( FSI Quick Quote FSI - Free Report) and Rayonier Advanced Materials Inc. ( RYAM Quick Quote RYAM - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Stepan beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 19.6%. The Zacks Consensus Estimate for current-year earnings has gone up 10.5% in the last 60 days. AdvanSix has delivered an average positive earnings surprise of 20.7% over the trailing four quarters. The consensus estimate for the current year has been revised 4.8% upward over the last 60 days. Flexible Solutions has expected earnings growth rate of 37.5% for the current year. The consensus estimate for the current year has been revised 22.2% upward over the last 60 days. Rayonier Advanced Materials has expected earnings growth rate of 49.5% for the current year. The Zacks Consensus Estimate for the current year has been revised 12.8% upward over the last 60 days. 5 Stocks to Soar Past the Pandemic: In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade. See the 5 high-tech stocks now>>