The chemical industry bore the brunt of a demand slowdown in certain major markets, including consumer durables and building & construction, and an unprecedented customer inventory de-stocking that weighed on the industry through the first half of 2024. Lower consumer spending due to inflationary pressures in Europe and a slow recovery in China have impacted demand this year. The economic slowdown in China, geopolitical tensions and inflation weighed on global manufacturing activities. 

While the de-stocking has run its course, the industry remains mired in demand headwinds. Amid the challenges, certain companies in this space have managed to stand out with impressive performances in 2024. These include Ecolab Inc. (ECL Quick QuoteECL - Free Report) , ASP Isotopes Inc. (ASPI Quick QuoteASPI - Free Report) and Perimeter Solutions, Inc. (PRM Quick QuotePRM - Free Report) .

Green Shoots of Recovery Following a Tough Year

The chemical space has grappled with weaker demand this year. The downturn in the building & construction market and the de-stocking in consumer electronics have played spoilsport, leading to demand destruction in these key markets. In North America, uncertainties surrounding the U.S. housing market have weighed on building & construction. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. Housing starts have declined while home prices have remained under pressure in 2024. Manufacturing activities have also softened amid weaker demand for goods and higher borrowing costs, while recovery remains tepid. Demand for chemicals in the industrial sector has weakened as muted demand has constrained industrial production in the United States.

The automotive industry, traditionally a significant consumer of chemicals like plastics, adhesives, and coatings, has experienced a mixed year in 2024. While the shift toward electric vehicles has created pockets of demand, overall vehicle production was constrained by high input costs and economic uncertainty. In packaging, inflationary pressures constrained discretionary consumer spending, impacting the sector. The consumer electronics market, a key driver of demand for specialty chemicals and advanced materials, was among the hardest hit. Aggressive inventory de-stocking by manufacturers, combined with lower sales of devices such as smartphones and personal computers, has led to a significant contraction in chemical demand. Following the post-pandemic boom, global electronics demand cooled amid high inflation, elevated interest rates and cautious consumer behavior.

A slower recovery in economic activities in China, a major consumer of chemicals, has hurt demand in that country. China has grappled with weakening industrial production and sluggish consumer spending. The slowdown in the real estate sector further suppressed demand for construction chemicals. The slowdown in Europe, resulting from the war in Ukraine and weaker consumer spending due to high levels of inflation, has led to softer demand in that region. Energy and feedstock inflation resulted in reduced industrial production and consumer spending in Europe. The demand slowdown in industrial and consumer durables hurt volumes of chemical companies in 2024, in particular, during the first half. Weak demand in the United States and abroad led to a decline in the production of both basic and specialty chemicals. 

On a positive note, customer de-stocking has ended, leading to low inventory levels. This is expected to lead to an uptick in chemical demand and volumes in 2025. The de-stocking was primarily driven by high inflation and the lingering impacts of the pandemic that affected customer spending. The chemical industry is expected to see a recovery next year as inflation eases, borrowing costs decline, consumption improves and demand rebounds across key markets. With easing inflation and stabilization of interest rates, industrial production across North America and Europe is likely to improve, supporting chemical demand in manufacturing-intensive sectors.

Meanwhile, chemical companies continue to take a host of strategic measures, including cost-cutting and productivity improvement, operational efficiency improvement and actions to strengthen the balance sheet and boost cash flows amid a challenging environment. In particular, the industry participants are aggressively implementing actions to bring down costs. They are also raising selling prices to counter inflation. Such moves are likely to help the industry sustain margins amid the prevailing challenges. A decline in raw material and energy costs driven by the easing of supply-chain disruptions also augurs well for the chemical industry heading into 2025.

3 Chemical Stocks Worth a Look

While the chemical industry endured a challenging year amid subdued demand across certain key markets and aggressive de-stocking compounded by macroeconomic conditions in China and Europe, a few companies demonstrated remarkable resilience and delivered notable returns on the bourses in 2024. We have taken the help of the Zacks Stocks Screener to shortlist chemical stocks that have gained more than 20% this year. 

Image Source: Zacks Investment Research

Ecolab: Minnesota-based Ecolab continues to witness robust top-line growth backed by its strong segmental performance. A strong product suite raises optimism. Margin expansion and cost-efficiency programs bode well for the company’s profitability. ECL’s consistent earnings growth and continued focus on research and development position it well for achieving its long-term goals. A strong solvency is an added plus.

Ecolab has an expected earnings growth rate of 12.4% for 2025. ECL surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 0.8%. Shares of ECL have rallied 24.1% so far this year. ECL currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ASP Isotopes: Based in Washington, D.C., ASP Isotopes’ advanced technologies enable it to meet the growing demand in industries such as nuclear medicine, semiconductors and nuclear energy, allowing it to be one of the few producers in the undersupplied global medical isotopes market and tap multi-billion market opportunities. ASPI continues to expand its operating footprint in South Africa and has completed the construction of a Silicon-28 enrichment facility in Pretoria in late November 2024 with the supply of commercial quantities of Silicon-28 expected in the first half of 2025. It has also completed the construction phase of the first quantum enrichment plant for Ytterbium-176 and expects to deliver highly enriched Ytterbium-176 for commercial sale during 2025. 

ASP Isotopes, carrying a Zacks Rank #3, has an expected earnings growth of 66.7% for 2025. ASPI’s shares have surged 205% year to date.

Perimeter Solutions: Missouri-based Perimeter Solutions is expected to benefit from the recovery of major end markets. Favorable industry trends are expected to continue to drive demand for fire retardant products. The company remains focused on expanding its fire prevention and protection business. Its Specialty Products segment is seeing strong growth aided by a recovery from de-stocking activities and an increase in purchases by high-quality specialty chemicals customers. PRM’s strong balance sheet also offers adequate liquidity for growth investments and M&A opportunities. 

Perimeter Solutions currently carries a Zacks Rank #3. It has expected earnings growth of 164.6% for 2025. PRM’s shares have shot up 183.3% year to date.