5 Great Chemical Stocks To Boost Your Porfolio Performance

Ever since the shale boom began, U.S. companies have stepped up their investments on chemicals projects within the country. The shale revolution has given them abundant access to cheap ethane which provides them with a competitive edge over their foreign competitors who largely depend on naphtha derived from oil.

Fears of a trade war between the United States and China had raised concerns that chemicals companies would reconsider their investments on new projects. However, such concerns have receded following President Trump’s decision to send a delegation to China in order to negotiate on tariffs.

This development indicates that prospects of chemicals producers remain bright. Adding them to your portfolios would make for a profitable option at this point.

Shale Boom Boost Chemicals Investments

According to Martha Gilchrist Moore of the American Chemistry Council (ACC), the chemical industry has stepped up investments in the United States from 2010. This is primarily due to the availability of low-cost natural gas reserves discovered by shale drillers. Moore was speaking in Pittsburgh on Apr 20.

Moore added that from 2010 up to February this year, various companies have said that they will set up 313 projects related to chemicals, together valued at $188 billion. Nearly 60% of this amount, around $113 billion, will come from foreign companies. Additionally, nearly 700 projects related to plastics as well as fresh constructions and expansions have been announced during this period.

Mnuchin’s Visit Likely to Ease Trade-related Worries

However, the good fortunes of the chemicals industry have been clouded by prospects of a trade war between China and the United States. China’s proposal to levy 25% tariffs on nearly $50 billion of U.S. imports would harm a major market for a range of plastics and chemicals produced in the United States.

According to the ACC, China imported $3.2 billion worth of plastic resins from the United States in 2017, which makes it one of most United States’ largest trading partners. Nearly 40% of the items mentioned on China’s tariffs list are chemicals, including polyethylene and polycarbonates.

But President Trump’s decision to send a team to China in order to discuss tariff related issues have helped to calm fears that a trade war is likely to begin. Chinese President Xi Jinping has made several conciliatory statements in this connection earlier this month, promising to open up his economy further to investors.

Subsequently, Xi’s government relaxed foreign ownership norms for auto JVs set up within China. Now, the U.S. team led by Treasury Secretary Steven Mnuchin, which includes Trump’s top economic adviser Larry Kudlow and U.S. Trade representative Robert Lighthizer could ease trade-related worries further. On Apr 25, Trump stated at the White House that “We’ve got a very good chance at making a deal.”

Our Choices

The U.S. chemicals industry seems to be in good shape as we head into the second quarter. The ACC has revealed that U.S. specialty chemicals market volumes have increased significantly over the first quarter. Further, though the ACC’s Chemical Activity Barometer declined by 0.1% in April to 121.6%, it has experienced a 3.8% yearly increase

And now Mnuchin’s visit to China promises to ease out trade-related worries for the chemicals industry. Investing in chemicals stocks looks like a smart move at this time. However, picking winning stocks may be difficult.

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Written By: Zacks Investment Research