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Chemicals Start Q4 on Soft Note with Sluggish October Growth
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Global chemicals production started the fourth quarter on a sluggish note with October witnessing a slight uptick in production on lower capacity utilization, according to the recent monthly report from the American Chemistry Council (“ACC”).
October Sees Modest Growth
The chemical industry trade group said that the Global Chemical Production Regional Index (CPRI) rose a paltry 0.1% in October on a monthly comparison basis, following flat growth in September.
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.
Per the ACC, the Global CPRI ticked up 0.6% year over year on a three-month moving average basis. Capacity utilization for the global chemical industry eased 0.2 percentage points to 83.6% in October. Utilization fell from 85.9% a year ago.
On a segment basis, growth was witnessed in agricultural chemicals, basic chemicals and specialty chemicals in October. By regions, October witnessed higher production across Europe, Africa and the Middle East, and Asia-Pacific. However, output fell in North America and Latin America.
Per the ACC, chemical production in the United States went down 0.2% on a monthly comparison basis in October. This follows a 0.1% sequential growth a month ago.
The trade group recently said that it expects U.S. chemical production (excluding pharmaceuticals) to rise 3.6% in 2019, following a 3.1% growth in 2018. The expansion is expected to be partly driven by growth in manufacturing and export and gains in business investment.
Chemical Industry Faces Multiple Headwinds
The prospects of the chemical industry have taken a beating due to the trade war between the United States and China. The Trump administration levied tariffs on $50 billion in Chinese goods earlier this year that led to China retaliating with tariffs on American products of equal value that includes a wide range of chemicals. The U.S. administration, in September, also imposed a 10% tariff on $200 billion worth of Chinese imports. In response, China hit back with tariffs on an additional $60 billion in American products.
China is one of the biggest export markets for U.S. chemicals. Beijing’s retaliatory trade actions have created an uncertain demand environment for U.S. chemical products in this major market. Chemical industry trade groups are worried that the tariffs would hurt U.S. chemical exports and the competitiveness of the American chemical industry. China’s retaliatory tariffs have hit more than 1,000 U.S. chemicals and plastics exports worth an estimated $10.8 billion, per the ACC.
Trade tensions have clouded the overall demand outlook for chemicals. Softer demand from the automotive space of late is a concern for chemical makers. Notably, the U.S.-China trade friction has led to a slowdown in demand in China in this major chemical end-use market.
Companies in the chemical space also face headwinds from a spike in costs of raw materials as a result of short supply partly due to production outages and plant shutdowns. China’s environmental crackdown has led to the tightening in the supply of certain key raw materials as a result of plant closures. The disruption in the supply chain has pushed up the prices of these inputs.
Nevertheless, strategic actions including expansion of scale through acquisitions, operational efficiency improvement, capacity expansion, price hike initiatives and continued focus on cost and productivity should help chemical companies offset these challenges.
Celanese has an expected earnings growth of 47.9% for 2018. Earnings estimates for the current year have been revised 3.4% upward over the last 60 days.
Albemarle has an expected earnings growth of 18.3% for 2018. Earnings estimates for the current year have been revised 0.7% upward over the last 60 days.
Innospec delivered an average positive earnings surprise of 10.5% in the trailing four quarters. Earnings estimates for the current year have been revised 4.6% upward over the last 60 days.
Shin-Etsu Chemical has an expected earnings growth of 13.5% for the current fiscal year. Earnings estimates for the current year have been revised 7.4% upward over the last 60 days.
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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.
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Image: Bigstock
Chemicals Start Q4 on Soft Note with Sluggish October Growth
Global chemicals production started the fourth quarter on a sluggish note with October witnessing a slight uptick in production on lower capacity utilization, according to the recent monthly report from the American Chemistry Council (“ACC”).
October Sees Modest Growth
The chemical industry trade group said that the Global Chemical Production Regional Index (CPRI) rose a paltry 0.1% in October on a monthly comparison basis, following flat growth in September.
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.
Per the ACC, the Global CPRI ticked up 0.6% year over year on a three-month moving average basis. Capacity utilization for the global chemical industry eased 0.2 percentage points to 83.6% in October. Utilization fell from 85.9% a year ago.
On a segment basis, growth was witnessed in agricultural chemicals, basic chemicals and specialty chemicals in October. By regions, October witnessed higher production across Europe, Africa and the Middle East, and Asia-Pacific. However, output fell in North America and Latin America.
Per the ACC, chemical production in the United States went down 0.2% on a monthly comparison basis in October. This follows a 0.1% sequential growth a month ago.
The trade group recently said that it expects U.S. chemical production (excluding pharmaceuticals) to rise 3.6% in 2019, following a 3.1% growth in 2018. The expansion is expected to be partly driven by growth in manufacturing and export and gains in business investment.
Chemical Industry Faces Multiple Headwinds
The prospects of the chemical industry have taken a beating due to the trade war between the United States and China. The Trump administration levied tariffs on $50 billion in Chinese goods earlier this year that led to China retaliating with tariffs on American products of equal value that includes a wide range of chemicals. The U.S. administration, in September, also imposed a 10% tariff on $200 billion worth of Chinese imports. In response, China hit back with tariffs on an additional $60 billion in American products.
China is one of the biggest export markets for U.S. chemicals. Beijing’s retaliatory trade actions have created an uncertain demand environment for U.S. chemical products in this major market. Chemical industry trade groups are worried that the tariffs would hurt U.S. chemical exports and the competitiveness of the American chemical industry. China’s retaliatory tariffs have hit more than 1,000 U.S. chemicals and plastics exports worth an estimated $10.8 billion, per the ACC.
Trade tensions have clouded the overall demand outlook for chemicals. Softer demand from the automotive space of late is a concern for chemical makers. Notably, the U.S.-China trade friction has led to a slowdown in demand in China in this major chemical end-use market.
Companies in the chemical space also face headwinds from a spike in costs of raw materials as a result of short supply partly due to production outages and plant shutdowns. China’s environmental crackdown has led to the tightening in the supply of certain key raw materials as a result of plant closures. The disruption in the supply chain has pushed up the prices of these inputs.
Nevertheless, strategic actions including expansion of scale through acquisitions, operational efficiency improvement, capacity expansion, price hike initiatives and continued focus on cost and productivity should help chemical companies offset these challenges.
Chemical Stocks to Watch For
A few stocks currently worth considering in the chemical space are Celanese Corporation (CE - Free Report) , Albemarle Corporation (ALB - Free Report) , Innospec Inc. (IOSP - Free Report) and Shin-Etsu Chemical Co., Ltd. (SHECY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Celanese has an expected earnings growth of 47.9% for 2018. Earnings estimates for the current year have been revised 3.4% upward over the last 60 days.
Albemarle has an expected earnings growth of 18.3% for 2018. Earnings estimates for the current year have been revised 0.7% upward over the last 60 days.
Innospec delivered an average positive earnings surprise of 10.5% in the trailing four quarters. Earnings estimates for the current year have been revised 4.6% upward over the last 60 days.
Shin-Etsu Chemical has an expected earnings growth of 13.5% for the current fiscal year. Earnings estimates for the current year have been revised 7.4% 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.
Click here for the 6 trades >>