U.S. Chemical Output Up in July: Recovery Remains on Track - Analyst Blog

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U.S. chemical production notched up its seventh consecutive monthly gain in July, thanks to a healthy rise in manufacturing production - according to the latest monthly report from the American Chemistry Council (ACC). The gain was broad-based with output rising in all seven regions in the reported month.

According to a Washington, DC-based chemical industry trade group, the U.S. Chemical Production Regional Index (CPRI) moved up 0.4% in July after a revised 0.2% increase a month ago, an early sign that the industry's recovery momentum will carry over into the second half of 2014.

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.

The July reading showed a rise in chemical output across the board with Northeast raking in the highest gain of 0.6%. The Gulf Coast, where key building block materials are produced, recorded a 0.1% gain on a monthly comparison basis in the reported month. Production nudged up 0.4% across Midwest and Southeast. Mid-Atlantic and West Coast saw a 0.5% gain. Ohio Valley registered a 0.3% rise.

Output from the U.S. manufacturing sector, the largest consumer of chemical products, went up 0.6% in July on a three-month moving average basis after a 0.3% rise a month ago. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods.

Manufacturing gain in the reported month was strongly backed by increased motor vehicles production and a pick-up in consumer and business spending. Manufacturing production has rebounded strongly in recent months after being hit by frigid winter that curbed activities. This augurs well for U.S. economic growth in the current quarter. The nation's economy grew 4% in the second quarter and analysts foresee a 3% rise in the third.

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

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

Overall chemical production went up 1.2% year over year in July with gains recorded across all regions barring the Gulf Coast. Year to date, output is up 0.8% compared with the year-ago period.

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 chemical industry started the year on a positive note following a tough 2013. With the U.S. economy clawing its way back, the first half of 2014 showed encouraging demand trends for chemicals and continued recovery across end-use markets such as non-residential construction and electronics after being in a rut for the most part of last year.

Although some industry-specific challenges and slow economic recovery in Europe remain roadblocks, the chemical industry is expected to continue to recover through the balance of 2014, invigorated by cost benefits from a shale gas boom in the U.S., strength across agriculture and automotive markets, and significant shale-linked capital investment by chemical makers including majors like BASF ( BASFY ), Dow Chemical ( DOW ), ExxonMobil Chemical - a part of Exxon Mobil ( XOM ), DuPont ( DD ), LyondellBasell Industries ( LYB ), and Shell Chemical - a unit of Royal Dutch Shell ( RDS.A ).

The ACC envisions 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, backed by strong agricultural market fundamentals, healthy demand from light vehicles market and a recovery in the housing market.


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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 , XOM

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