Chemical Industry Off To A Good Start In Q2, April Output Up

The global chemical industry has gotten off to a positive start in the second quarter with April seeing an uptick in chemical production, according to the recently-released monthly report from the American Chemistry Council (“ACC”).

Positive April Readings

The chemical industry trade group said that the Global Chemical Production Regional Index ("CPRI") went up 0.3% in April on a monthly comparison basis, following a 0.1% growth in March and a 0.2% rise in February. The ACC also noted that the Global CPRI rose 2.3% year over year on a three-month moving average basis.

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.

By regions, April saw sequentially higher production across North America, Africa and the Middle East, and Asia-Pacific. Output was flat in Europe while declining in Latin America.

On a segment basis, growth was witnessed in consumer products, bulk petrochemicals and organics, plastic resins, synthetic rubber, manufactured fibers, coatings and other specialties for the reported month. This was offset by softness across agricultural chemicals and inorganic chemicals.

The U.S. chemical industry also started the second quarter on a positive note. Per the ACC, chemical production in the United States went up 0.3% on a monthly comparison basis in April. This follows a 0.2% sequential decline a month ago. Output also rose 0.2% in North America for the reported month.

The U.S. chemical industry is expected to run higher this year on the back of strength across major end-use markets, higher industrial activities and gains in business investment.

The ACC envisions national chemical production (excluding pharmaceuticals) to rise 3.6% in 2019. The growth is expected to be spurred by gains in manufacturing and export and sustained demand across light vehicles and housing markets.

Trade Tensions Cloud Prospects

The chemical industry is among the industries that have been roiled by the bitter year-long trade spat between the United States and China. In particular, the U.S. chemical industry is bearing the brunt of the trade conflict.

Washington and Beijing levied billions of dollars in punitive tariffs on each others’ products last year. China’s list of U.S. goods hit with tariffs includes an array of petrochemicals, specialty chemicals and plastics.

China is one of the biggest export markets for U.S. chemicals and plastics. Beijing’s countermeasures have created an uncertain demand environment for U.S. chemical products in China. The tariffs are hurting U.S. chemical exports and the competitiveness of the American chemical industry. Trade tensions have also led to a slowdown in industrial activities across Asia and Europe, hurting demand for chemicals and plastics.

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Chemical makers are seeing weaker demand in China associated with the U.S.-China trade tiff 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 as this would hurt growth of the industry.

Chemical Stocks to Watch For

A few stocks currently worth considering in the chemical space are Flexible Solutions International Inc. (NYSE:FSI) , Axalta Coating Systems Ltd. (NYSE:AXTA) , Innospec Inc. (NASDAQ:IOSP) , Air Products and Chemicals, Inc. (NYSE:APD) and Compass Minerals International, Inc. (NYSE:CMP) . Flexible Solutions and Axalta Coating Systems sport a Zacks Rank #1 (Strong Buy), while Innospec, Air Products and Compass Minerals carry a Zacks Rank #2 (Buy). You can see Zacks Investment Research