U.S. Chemical Output Flat In April On Mixed Regional Results

U.S. chemical output stalled in April on mixed production results across the seven chemical producing regions – according to the latest monthly report from the American Chemistry Council ("ACC").

The Washington, DC-based chemical industry trade group said yesterday that the U.S. Chemical Production Regional Index ("CPRI") was flat for the reported month following a 0.4% increase a month ago and a 0.1% decline in February. The U.S. CPRI, which is measured using a three-month moving average, was created by Moore Economics to track chemical production in seven regions nationwide. It is comparable to the Federal Reserve’s industrial production index for chemicals.

Per the ACC, activity for the U.S. manufacturing sector – the largest consumer of chemical products – was flat for the second straight month in April. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods.

U.S. manufacturing activity slowed in April, weighed down by fewer new factory orders, depressed oil prices and a strong dollar. The sector has been hamstrung by sluggish export growth due to weak global demand and a strong greenback.

Within the manufacturing sector, production rose in several chemistry end-user markets in April including motor vehicles, machinery, electronics, petroleum refining, iron and steel and plastic products.

Per April reading, the Gulf Coast was the only chemical producing region to rake in a gain in output. Production from that region edged up 0.1% for the reported month. Output was flat across Midwest, Ohio Valley, Mid-Atlantic, West Coast and Southeast while declining 0.1% in Northeast.

By segments, chemical production was mixed in April. Gains across fertilizers, dyes and pigments, chlor-alkali, other inorganic chemicals, industrial gases, plastic resins, pharmaceuticals and consumer products were neutralized by lower production of organic chemicals, adhesives, coatings, other specialty chemicals, synthetic rubber, and manufactured fibers.

Overall chemical production went up 1.1% year over year in April with all regions except West Coast (flat year over year) scoring gains.

The U.S. chemical industry, a more than $800 billion enterprise, is heavily linked to the overall condition of the nation’s economy. It has been consistently leading the U.S. economy’s business cycle due to its early position in the supply chain.

The chemical industry is still in gradual recovery mode from the trough of the great recession. The industry’s recovery is expected to continue this year, supported by continued strength in the automotive market, positive trends in the construction space and significant shale-linked capital investment. Chemical makers are gaining from strategic measures including expansion into high-growth markets, aggressive cost management and productivity actions and acquisitions.

The ACC envisions domestic chemical production to rise 2.9% in 2016 and 4.4% in 2017. The trade group also sees the momentum to continue through the second half of the decade riding on new capital investments and capacity additions.

Chemical makers including Dow Chemical (NYSE:DOW) , LyondellBasell Industries (NYSE:LYB) , BASF (OTC:BASFY) , Eastman Chemical (NYSE:EMN) , Celanese (NYSE:CE) and Westlake Chemical (NYSE:WLK) are investing heavily on shale gas-linked projects to take advantage of ample natural gas supplies which is expected to boost capacity and export over the next several years. The ACC, last month, said that domestic chemical investment related to shale gas has reached as high as $164 billion, more than 60% of which are from firms outside the U.S.

The shale gas bounty and abundant supply of natural gas liquids has been a huge driving force behind chemical investment on plants and equipment in the U.S. and have provided American petrochemicals producers a compelling cost advantage over their global counterparts. The ACC expects this competitiveness to drive export demand and new capital investment in the country.

However, the chemical industry still faces certain roadblocks including a weak agriculture market, soft demand in the energy space, lumpiness in Europe and a cooling Chinese economy.