US Chemicals Poised For Upside Amid Headwinds: 5 Solid Picks

The U.S. chemical industry is set to ride high this year notwithstanding a challenging world economy – according to the newly released “Mid-Year 2019 Chemical Industry Situation and Outlook” by the American Chemistry Council (“ACC”). Growth is expected to be spurred by strength across major chemical end-use markets and significant shale gas-linked investment on capacity expansion.

However, the industry faces headwinds from slowing global growth, escalating trade tensions and a slowdown in manufacturing and chemical exports, the Washington, DC-based chemical industry trade group noted.

U.S. Chemical Industry Set to Run Higher

Amid the prevailing challenges, the ACC envisions the U.S. chemical industry to grow 2.5% in 2019 and further gain steam with a 3% growth in 2020. The trade group expects growth in the American chemical industry to surpass that of the U.S. economy through 2024.

The ACC expects growth in important end-use markets to support the expansion of the U.S. chemical industry. While the automotive sector is expected to remain at high levels, slow recovery in the housing market is expected to continue.

On a segment basis, the trade group sees strong gains in production in organic chemicals, inorganic chemicals and other specialty chemicals in 2019. This will be partly masked by modest declines in production of agricultural chemicals and consumer products.

While the ACC expects the U.S. chemical industry trade surplus to continue to grow, it sees the expansion to be limited by lower external demand due to slower global growth and increasing trade barriers.

The trade group expects U.S. chemicals exports to expand 5.9% in 2019 to $149 billion, resulting in the United States having a $37 billion trade surplus in chemicals. It also sees two-way trade between the United States and its foreign partners to expand 4.4% year over year and reach $260 billion this year.

Shale-linked Investments to Drive U.S. Chemicals

The American chemical industry continues to enjoy the advantage of access to abundant and cheap feedstock extracted from shale gas.

Per the ACC, the United States remains an attractive investment destination for chemical investment and domestic chemical industry continue to enjoy the competitive advantage of access to ample supplies of natural gas and natural gas liquids (NGLs) from shale activity. This is driving capital investment in new chemical projects to beef up capacity. The trade group expects gains in capital spending, rising 5.4% in 2019 and 4.9% in 2020.

According to the ACC, 334 chemical projects have been already announced by chemical makers worth $204 billion that are complete/under construction or in the planning phase. Such investments are expected to boost capacity and export over the next several years. New capacity is expected to provide a boost to chemical production as these investments come on stream.

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5 Chemical Stocks Worth a Bet

The U.S. chemical industry’s upturn is expected to continue this year on continued strength across major end-markets and significant capital investment on capacity additions. Amid such a backdrop, it would be prudent to invest in chemical stocks with compelling growth prospects.

We highlight the following five stocks, armed with a solid Zacks rank, that are good options for investment right now.

Westlake Chemical Partners LP (NYSE:WLKP)

Based in Texas, Westlake Chemical Partners carries a Zacks Rank #1 (Strong Buy). You can see Zacks Investment Research