US Chemical Output Slips In February On Mixed Regional Results

U.S. chemical production fell slightly in February with lower output witnessed across all chemical producing regions barring the Northeast that witnessed a modest gain and Mid-Atlantic and West Coast that saw flat production – according to the latest monthly report from the American Chemistry Council ("ACC").

The chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") edged down 0.1% in February on a monthly comparison basis. This follows a 0.3% drop a month ago and a 2.3% gain in December. The U.S. CPRI, which is measured using a three-month moving average, was created to track chemical production in seven regions nationwide.

However, overall chemical production spiked 3.8% on a year over year basis in February with all regions racking up gains. This marks an improvement from a 3.4% growth in January.

February Data Shows Mixed Picture

The February reading showed a decline in chemical production on a monthly comparison basis across four regions. Production in the Gulf Coast, where key building block materials are produced, was down 0.3% on a monthly comparison basis in the reported month. Production also fell 0.1% across Midwest, Ohio Valley and Southeast. Northeast was the only chemical producing region to rake in a gain in output with a 0.1% increase. Production was flat across Mid-Atlantic and West Coast.

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

U.S. Manufacturing Picks Up

The manufacturing sector serves as a barometer to gauge the overall health of the U.S. economy and has a major influence on the chemical industry. Manufacturing activity is also a key indicator for chemical production.

Per the ACC, activity for the U.S. manufacturing sector – the largest consumer of chemical products – rose 0.4% in February, following flat growth a month ago. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods. Within the manufacturing sector, production rose in several chemistry-intensive industries in February including food and beverages, motor vehicles, construction supplies, fabricated metal products, computers and electronics, semiconductors and apparel.

U.S. factory activity picked up pace in February, reaching its highest level since May 2004 on the back of improved sentiment among manufacturers and a strengthening global economy.

U.S. Chemical Industry Set for Solid Growth

The U.S. Chemical Industry has clawed its way back from the devastation wrought by Hurricane Harvey and is set to ride high this year despite a few challenges. The ACC envisions national chemical production (excluding pharmaceuticals) to rise 3.7% in 2018.

The growth is expected to be spurred by higher demand across light vehicles and housing markets, capital investments and improved export markets. Major export markets such as Latin America and Asia are also expected to play a significant role in basic chemical production growth this year and the next. Strengthening export markets and increasing capital spending are also driving chemical demand across key end-use markets such as light vehicles and housing.

The United States remains an attractive investment hotspot for chemical investment and domestic chemical makers continue to enjoy the advantage of access to abundant and cheaper feedstocks and energy. This is driving investment in chemical production projects.

Per the ACC, the chemical industry has invested $185 billion in new factories, expansions and restarts of plants across the United States with more than half of these projects presently in the planning stage. New capacity is expected to provide a boost to chemical production as these investments come on stream.

Chemical Stocks to Consider

A few stocks that are worth considering in the chemicals space are Kronos Worldwide, Inc. (NYSE:KRO) , Methanex Corporation (NASDAQ:MEOH) , LyondellBasell Industries N.V. (NYSE:LYB) , Huntsman Corporation (NYSE:HUN) and The Chemours Company (NYSE:CC) .

While Kronos, Methanex and LyondellBasell sport a Zacks Rank #1 (Strong Buy), Huntsman and Chemours carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kronos has an expected long-term earnings growth of 5%. The stock has gained around 57% over a year.

Methanex has an expected long-term earnings growth of 15%. The stock has gained around 40% over a year.

LyondellBasell has an expected long-term earnings growth of 9%. The stock has gained around 26% over a year.

Huntsman has an expected long-term earnings growth of 8.3%. The stock has gained around 38% over a year.

Chemours has an expected long-term earnings growth of 15.5%. The stock has gained around 48% over a year.

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