Manufacturing Rebound Lifts U.S. Chemical in May - Analyst Blog

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U.S. chemical production recorded its fifth straight monthly gain in May with higher output from all regions barring the West Coast, according to the latest monthly report from the American Chemistry Council (ACC). A rebound in manufacturing production - after being hit by a long and cold winter - contributed to the rise.

The Washington, DC-based chemical industry trade group noted that the U.S. Chemical Production Regional Index (CPRI) nudged up 0.4% in May, following a 0.6% increase a month ago.

Created by Moore Economics to track chemical production in seven regions nationwide, the U.S. CPRI is comparable to Federal Reserve's industrial production index for chemicals. The CPRI is measured using a three-month moving average.


The May reading showed continued gain in chemical output in the Gulf Coast where key building block materials are produced. Production from this region rose 1% on a monthly comparison basis in the reported month after a revised 0.7% rise a month ago. Production edged up 0.2% across Midwest, Southeast and Northeast while Mid-Atlantic saw a 0.1% gain. Ohio Valley logged a 0.8% gain. However, output slipped 0.2% in West Coast.

Output from the U.S. manufacturing sector, the largest consumer of chemical products, went up 0.5% in May on a three-month moving average basis. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods.

Manufacturing output bounced back to a healthy gain in the reported month after slumping unexpectedly in April, thanks to strong consumer and business demand, especially for cars, industrial machinery and equipment. The rebound - manifested by a healthy pickup in factory activities - augurs well for U.S. economic recovery in the second quarter after a 1% contraction in the first due to a frigid winter that curbed activities.

Within the manufacturing sector, gains were seen in several chemistry end-user markets including aerospace, construction supplies, appliances, motor vehicles, machinery, fabricated metal products, computers, semiconductors, plastic products, rubber products, paper and furniture.

As witnessed in April, chemical production was once again mixed across the segments in the reported month. Gains across chlor-alkali and other inorganic chemicals, plastic resins, synthetic rubber, synthetic dyes and pigments, industrial gases, consumer products and organic chemicals were partly ebbed by declines in pharmaceuticals, fertilizers, pesticides, synthetic fibers, coatings and adhesives.

Overall chemical production was up 2.1% year over year in May with gains recorded across all seven regions. Year to date, output is up 1.4% compared with the year-ago period.

The roughly $770 billion U.S. chemical industry 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 had a bumpy ride in 2013 as a weak European economy, effects of sequestration in the U.S. along with certain industry-specific challenges led to subdued demand for chemicals for most of the year. These factors weighed upon the companies in the chemical space including majors like DuPont ( DD ), Dow Chemical ( DOW ), Eastman Chemical ( EMN ) and Celanese ( CE ).

While a still-challenging economic backdrop in Europe remains a roadblock, the chemical industry is expected to fare relatively better this year, aided by a shale gas boom in the U.S., strength across agriculture and automotive markets, healthy demand in emerging geographies, and significant capital investment by chemical makers.

The ACC foresees national chemical production to move up 2.5% in 2014 (up from a 1.6% increase in 2013) and further improve to a 3.5% gain next year, supported by strong agricultural market fundamentals, healthy demand from light vehicles market and a revival in the housing market. On the global front, the trade group projects output to rise 3.8% in 2014 and 4.1% in 2015 with healthy gains expected across North America and the emerging markets.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: ACC , EI , DD , DOW , EMN

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