US Chemical August Output Nudges Up on Manufacturing Strength
U.S. chemical production ticked up in August on gains in output across most chemical producing regions, according to the latest monthly report from the American Chemistry Council (“ACC”).
The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") rose 0.6% in August on a monthly comparison basis, following a 1% rise a month ago and a 1.4% decline in June. The U.S. CPRI, which is measured using a three-month moving average, was created to track chemical production in seven regions nationwide.
Per the ACC, recovery strengthened for the U.S. manufacturing sector with overall factory activities rising 4.1% in August on a three-month moving average basis. Production rose across all major end-use industry segments in the reported month. Biggest gains in output were witnessed in appliances, motor vehicles, aerospace, foundries, iron and steel, refining, plastic and rubber products, tires and apparel.
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 and demand.
Meanwhile, overall chemical production fell 4.8% on a year-over-year comparison basis in August, the ACC noted. This marked the 15th straight month of year-over-year declines. However, it reflects an improvement over the past several months.
Production Rises in Most Regions
The August reading showed higher production on a monthly comparison basis across all regions barring the West Coast. Gulf Coast — the epicenter of the U.S. specialty chemicals and petrochemicals industry — witnessed the biggest gain.
Production in the Gulf Coast went up 1% in August. Output across Midwest, Southeast and Northeast rose 0.2% in the reported month. Production also edged up 0.1% in Ohio Valley. West Coast recorded a 0.1% drop in output.
Chemical production also expanded in many segments in August. These include plastic resins, chlor-alkali, organic chemicals, industrial gases, synthetic dyes and pigments, consumer products, synthetic rubber, manufactured fibers and fertilizers. However, declines were witnessed across adhesives, coatings, other specialty chemicals and crop protection chemicals.
U.S. Chemicals Recuperate From Virus-Led Slump
The U.S. chemical industry grappled with demand slowdown across major markets including automotive and construction and supply chain disruptions due to the coronavirus pandemic during much of the first half of 2020. Shutdowns and travel restrictions to curb the spread of infection paralyzed industrial and economic activities, sapping demand for chemicals.
However, business activities have picked up as major parts of the United States have reopened with the easing of restrictions. Notably, the U.S manufacturing sector is gaining strength on a recovery in the overall economy.
The recovery gained steam in the U.S. manufacturing sector in August with activities rising at the fastest pace since November 2018. According to the Institute for Supply Management, the U.S. Manufacturing Purchasing Managers’ Index registered 56% in August, rising from July’s reading of 54.2% on strong growth in new orders. A reading above 50 indicates expansion in activity. The rebound in manufacturing activities bodes well for the U.S. chemical industry.
Moreover, U.S. automakers resumed production in May following a nearly two-month shutdown due to coronavirus and are ramping up production to normal levels. Resumption of several projects that were stalled earlier due to virus-led disruptions is also supporting the revival in the U.S. construction sector. As these major markets recover, demand for chemicals is expected to go up moving ahead.
Meanwhile, chemical makers 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. A number of chemical companies are ramping up production to address the surging demand for these products in these testing times.
Chemical Stocks Worth a Look
A few stocks currently worth considering in the chemical space are Dow Inc. DOW, Koppers Holdings Inc. KOP, Hawkins, Inc. HWKN, Kraton Corporation KRA, and Kronos Worldwide, Inc. KRO. While both Dow and Koppers sport a Zacks Rank #1 (Strong Buy), Hawkins, Kraton and Kronos Worldwide each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dow has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 11.7%. The Zacks Consensus Estimate for the current year has been revised 19% upward over the last 60 days.
Koppers has delivered an earnings surprise of 25.1%, on average, over the trailing four quarters. The Zacks Consensus Estimate for the current year has been revised 48% upward over the last 60 days.
Hawkins has expected earnings growth of 21.4% for the current fiscal year. The consensus estimate for the current fiscal has been revised 7.7% upward over the last 60 days.
Kraton has delivered an earnings surprise of 100.9%, on average, over the trailing four quarters. The Zacks Consensus Estimate for the current year has been revised 211.1% upward over the last 60 days.
Kronos Worldwide has delivered an earnings surprise of 79.4%, on average, over the trailing four quarters. The consensus estimate for the current year also has been revised 47.2% upward over the last 60 days.
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