For Immediate Release
Chicago, IL – December 08, 2016 – Today, Zacks Equity Research discusses the Industry: Chemicals, Part 1, including Dow Chemical (NYSE:DOW) (NYSE:DOW – Free Report), BASF (OTCMKTS:BASFY –Free Report),LyondellBasell Industries (NYSE:LYB –Free Report),Eastman Chemical (NYSE:EMN –Free Report) and Westlake Chemical (NYSE:WLK – Free Report).
Industry: Chemicals, Part 1
Link: https://www.zacks.com/commentary/97705/chemicals-industry-stock-outlook---dec-2016
Chemical Industry Stays on Course Amid a Few Worries
The chemical industry is in the process of gradual healing after being badly shaken by the Great Recession. Notwithstanding a flurry of challenges, the industry put up a decent performance in the first three quarters of 2016, benefiting from healthy demand across automotive and housing sectors -- two major end-use markets for chemicals.
Amid a still-difficult global economic backdrop, chemical makers are increasingly looking for cost synergy opportunities and enhanced operational scale through consolidations, exhibited by a wide swath of deals in the recent past. These companies are also increasingly switching their focus on high-growth markets in a bid to whittle down their exposure to businesses that are struggling with depressed demand. Strategic actions including cost management and productivity improvement remain the prime focus of these companies.
However, the highly cyclical industry is still besieged by a host of headwinds. Chemical makers are still feeling the pinch of depressed demand across agriculture and energy markets. A strong dollar is also hurting U.S. chemical exports, reducing their attractiveness in overseas markets. The Eurozone’s tepid recovery and concerns over China’s future growth also remain sources of near-term uncertainties for the chemical industry.
Nagging weakness in China -- a key market for chemicals -- is expected to remain as overhang on the chemical industry in the short haul. Persistent overcapacity, weak private investment and high levels of corporate debt are hurting the world’s second-largest economy. In addition, the European chemical industry remains in limbo, trammeled by lower prices, shrinking production and weak R&D investments.
The outlook for the fertilizer and agricultural chemicals space also remains cloudy due to continued weakness in crop commodity prices and sluggish economic conditions in certain developing markets, particularly Brazil.
Despite these challenges, the industry’s recovery is expected to continue heading into 2017, supported by continued strength in the light vehicles market, positive trends in the construction space and significant shale-linked capital investment.
U.S. Outlook Users Hope
The U.S. chemical industry remains on course for growth this year and the next despite several challenges including a strong dollar and a low oil price environment. According to the American Chemistry Council (ACC), an industry trade group, U.S. chemical production will rise 1.6% in 2016 and 3.7% in 2017. Barring production of the pharmaceuticals segment, output is expected to go up 2.7% this year and 4.1% in 2017.
In particular, the trade group expects basic chemicals production to expand 3.1% in 2016 and 4.9% in 2017. Chemical production is also expected to increase across all regions of the country this year.
The ACC envisions the U.S. chemical industry to continue to gather momentum over the next several years on the heels of new capital investments, capacity additions and feedstock cost advantage, and even transcend the nation’s overall economic growth in the long term.
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 domestic 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.
The shale revolution has made the U.S. an attractive investment hotspot. Chemical makers including Dow Chemical (NYSE:DOW –Free Report) , BASF (OTCMKTS:BASFY – Free Report) , LyondellBasell Industries (NYSE:LYB – Free Report) , Eastman Chemical (NYSE:EMN – Free Report) and Westlake Chemical (NYSE:WLK – Free Report) are investing heavily on shale gas-linked projects to take advantage of abundant natural gas supplies which is expected to boost capacity and export over the next several years. The ACC expects domestic chemical industry capital spending to increase 10.4% in 2016 and 7.8% in 2017.
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DOW CHEMICAL (DOW): Free Stock Analysis Report
BASF SE (DE:BASFN) (BASFY): Free Stock Analysis Report
LYONDELLBASEL-A (LYB): Free Stock Analysis Report
EASTMAN CHEM CO (EMN): Free Stock Analysis Report
WESTLAKE CHEM (WLK): Free Stock Analysis Report
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