U.S. Chemical Production Up in July, All Regions Nab Gain

by Zacks Equity Research   Published on August 20, 2015 | 0

U.S. chemical output ticked up in July with higher production witnessed across all chemical producing regions – according to the latest monthly report from the American Chemistry Council ("ACC").

The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") edged up 0.3% for the reported month following a revised 0.2% rise a month ago. 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 – rose 0.2% in July following gains in the previous two months. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods.

U.S. factory activity picked up on a monthly comparison basis in July on healthy new business growth. A stronger dollar, however, continues to put pressure on U.S. manufacturers as it is making American-made products costlier in other nations.

Within the manufacturing sector, production rose in several chemistry end-user markets in July including motor vehicles, construction supplies, computers, plastic products and furniture.

The July reading showed higher chemical production across all seven regions. Production in the Gulf Coast, where key building block materials are produced, scored the maximum gain of 0.6% on a monthly comparison basis in the reported month. Production went up 0.3% across West Coast, Midwest and Mid-Atlantic. Output rose 0.2% across Ohio Valley and Northeast while Southeast racked up a 0.4% gain.

By segments, chemical production was mixed in the reported month. Gains across organic chemicals, inorganic chemicals, synthetic rubber, plastic resins, agricultural chemicals and pharmaceuticals were neutralized by lower production of industrial gases, consumer products, coatings, manufactured fibers and other specialties.  

Overall chemical production went up 3.7% year over year in July with all regions logging 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 industry is gradually gaining strength after being shaken up by the global economic crisis.

Despite headwinds from a stronger greenback and depressed demand in energy markets, the U.S. chemical industry is poised for growth this year and the next. The ACC expects U.S. chemical production to rise 3.2% this year and 3% in 2016, both higher than 2% growth seen in 2014.

The ACC expects demand for chemicals to grow on continued healing across end-use markets and the industry’s sustained competitiveness. The trade group also expects chemical production to pick up pace on the heels of new capital investments and capacity additions.

The shale gas boom and abundant supply of natural gas liquids have provided the U.S. 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. New capacity is expected to provide a significant boost to chemical production as these investments come on stream in the coming years.

Leveraging the abundant natural gas supply, chemical makers including Dow Chemical (DOW – Analyst Report), LyondellBasell Industries (LYB – Analyst Report), Eastman Chemical (EMN – Analyst Report), Celanese (CE – Analyst Report) and Westlake Chemical (WLK – Snapshot Report) are ratcheting up investment on shale gas-linked projects which is expected to beef up capacity and export over the next several years.

A gradually improving U.S. economy, sustained healthy momentum in the automotive space and gradually convalescing construction markets augur well for the American chemical industry in the second half of 2015.

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