U.S. Chemical Industry Ends FY13 on Upbeat Note - Analyst Blog


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The U.S. chemical industry ended last year on a positive note and is poised for a brighter 2014. The nation's chemical output rose on a monthly basis in December on the heels of gains across Gulf Coast and Ohio Valley regions, according to the latest monthly report from the American Chemistry Council (ACC). 

The Washington-based chemical industry trade group said that the U.S. Chemical Production Regional Index (CPRI) moved up 0.8% in December, following a 0.3% gain a month ago, with production rising across all seven regions. Production for full-year 2013, when compared with the year-ago data, went up 1.2%.

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

Output from the U.S. manufacturing sector, the biggest consumer of chemical products, edged up 0.6% in December. Within this sector, output rose in several key chemistry end-user markets including appliances, motor vehicles, construction materials, fabricated metal products, computers, semiconductors, plastic products, structural panels, printing, apparel and furniture.

The manufacturing sector serves as a barometer to gauge the overall health of the U.S. economy and is a major driver for the chemical industry which touches around 96% of manufactured goods. 

The ACC noted that chemical output was mixed across the segments in December. Production gains across chlor-alkali, industrial gases, adhesives, coatings, synthetic rubber, consumer products, organic chemicals, plastic resins, pesticides, manmade fibers and other specialties were neutralized by declines in inorganic chemicals, acids, fertilizers and pharmaceuticals.

Overall chemical production moved up 1.4% in the reported month when compared on a year over year basis, following a 1.5% gain a month ago. On a region-by-region basis, production rose across all regions year over year. 

On a monthly comparison basis, December reading showed that chemical production in the Gulf Coast region, where key building block materials are produced, went up 1.4%. Output rose 0.8% across Midwest and Southeast. Ohio Valley raked in the biggest monthly gain of 1.5%. Production inched up 0.4% in Mid-Atlantic and West Coast regions while Northeast registered a 0.5% rise.  

The roughly $770 billion U.S. chemical industry is cyclical by nature and 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.

Last year, Europe's debt predicament, effects of sequestration along with weakness across some key end-use markets weighed on companies in the chemical space including majors such as DuPont ( DD ), Dow Chemical ( DOW ), Eastman Chemical ( EMN ) and Celanese ( CE ).

While lingering crisis in Europe coupled with other industry-specific challenges continues to pose downside risks, the global chemical industry is poised for a recovery this year, aided by healthy Chinese demand, significant capital investment and a shale gas boom in the U.S. 

The ACC envisions U.S. chemical production to rise 2.5% in 2014 and further improve to a 3.5% gain next year. Strong agricultural market fundamentals, healthy demand from light vehicles market, and a gradual revival in the housing market augur well for the industry.

CELANESE CP-A (CE): Free Stock Analysis Report

DU PONT (EI) DE (DD): Free Stock Analysis Report

DOW CHEMICAL (DOW): Free Stock Analysis Report

EASTMAN CHEM CO (EMN): Free Stock Analysis Report

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