4 Chemical Stocks Worth A Bet Before Their Q2 Earnings

The chemical industry is among the industries that have been hardest hit by the fierce trade spat between the United States and China. The U.S. chemical industry, in particular, is caught in the crosshairs of the year-long trade conflict.

The Trump administration slapped punitive tariffs on $250 billion worth of Chinese products last year while China has imposed retaliatory tariffs on $110 billion in U.S. goods. China’s tariffs on American products include a wide range of petrochemicals, specialty chemicals and plastics. The U.S. administration, in May 2019, also proposed a new round of tariffs on $300 billion worth of Chinese imports that include chemicals and plastics products.

The United States and China, last month, agreed to a tentative trade truce at the G20 Summit in Japan that could potentially resolve the trade dispute between the world’s two biggest economies. Washington and Beijing agreed to resume trade talks after President Trump agreed to hold back from imposing new tariffs on an additional $300 billion worth of Chinese goods.

However, the tariffs currently in place are already doing harm to the U.S. chemical industry. China is one of the biggest export markets for U.S. chemicals. Beijing’s retaliatory tariffs have created an uncertain demand environment for U.S. chemical products in this significant market. The tariffs are hurting U.S. chemical exports.

Chemical makers are also seeing demand weakness in China associated with the U.S.-China 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.

A downturn in the global economy, partly due to the trade tensions, is another concern for the chemical industry. Economic conditions have, in particular, weakened across emerging economies. Moreover, Brexit and other concerns have led to a slowdown in the European economy. Trade war and a slowdown in the automotive industry are hurting the European chemical industry.

Notwithstanding the challenges, the chemical industry is poised for an upswing in 2019. In particular, prospects for the U.S. chemical industry appear upbeat, driven by strength in the U.S. economy, healthy industrial activities and continued strong demand across construction and automotive end markets.

The American Chemistry Council ("ACC"), a leading industry trade group, expects expansion of the domestic chemical industry to continue this year despite a challenging world economy. The trade group expects the U.S. chemical industry to grow 2.5% in 2019.

Growth is expected to be spurred by strength across major chemical end-use markets and significant shale gas-linked investment on capacity expansion. While the automotive sector is expected to remain at high levels, slow recovery in the housing market is expected to continue.

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Expectations for Q2

Per the Zacks Industry classification, the chemical industry is under the broader Zacks Investment Research

Written By: Zacks Investment Research