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Global Chemical Output Up in August Amid Harvey Disruptions

Zacks

Global chemical production continues its uptrend with August seeing a rise in production amid the impact of the devastating Hurricane Harvey, according to the latest monthly report from the American Chemistry Council (ACC). However, the pace of growth eased in the reported month on a monthly comparison basis due to disruptions from Harvey.

Growth Moderates in August

The chemical industry trade group said that the Global Chemical Production Regional Index (CPRI) rose 0.4% in August on a monthly comparison basis, down from a 0.5% gain in July. Hurricane Harvey weighed on production in the reported month.

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.

The ACC also noted that the Global CPRI went up 3.1% year over year on a three-month moving average basis. Capacity utilization for the global chemical industry moved up 0.1 percentage points to 80.7% in August.

The results were favorable on a product basis in August. Gains were witnessed in pharmaceuticals, organic chemicals, plastic resins, manufactured fibers, coatings and other specialty chemicals.

By regions, gains in production were seen across Western Europe (up 0.5%), Africa & the Middle East (up 0.2%) and the Asia-Pacific (up 0.7%) in the reported month. Production was soft in other regions. North America saw flat production while Latin America registered a 0.6% decline.

The U.S. chemical industry saw flat production in August as activities in the Gulf Coast were interrupted by Harvey, leading to a 1.2% decline in output from that region, per the ACC. The Gulf Coast is the epicenter of the U.S. specialty chemicals and petrochemicals industry.

Declines across Gulf Coast and Ohio Valley offset gains in West Coast, Northeast and Mid-Atlantic regions. Output stalled in Midwest and Southeast in the reported month.

Chemical Industry in Good Health

The chemical industry is back on track after bearing the brunt of the global economic crisis. The favorable Zacks Industry Rank of 56 carried by the Zacks Chemicals Diversified industry is a testimony to the fact that the chemical industry is in fine shape. The favorable rank places the industry in the top 22% of the 250+ groups enlisted.

The Zacks Chemicals Diversified industry has also outperformed the broader market over the past year. The industry has gained around 31.7% over this period, higher than S&P 500’s corresponding return of 17.2%.


Notwithstanding some lingering headwinds, the chemical industry’s momentum is expected to continue through the remainder of 2017, supported by continued strength across key end-use markets (such as automotive and construction), an upswing in the world economy and significant shale-linked capital investment.

Stocks to Consider

A few stocks that are worth considering in the chemicals space are The Chemours Company CC, Orion Engineered Carbons, S.A. OEC, Kraton Corporation KRA, Koppers Holdings Inc. KOP and Eastman Chemical Company EMN. While Chemours, Orion Engineered Carbons and Kraton sport a Zacks Rank #1 (Strong Buy), both Koppers and Eastman Chemical carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chemours, Orion Engineered Carbons and Kraton have expected earnings growth of 255.4%, 19% and 7.2%, respectively, for 2017. Koppers and Eastman Chemical have expected earnings growth of 17.2% and 11.3%, respectively, for the current year.

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