U.S. Chemical Production Ticks Up in August on Broad Gains

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U.S. chemical output rose for the third straight month in August with gains 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") ticked up 0.4% for the reported month following a 0.3% 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.

According to the ACC, activity for the U.S. manufacturing sector - the largest consumer of chemical products - edged up 0.3% in August following gains in the previous two months. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods.

Within the manufacturing sector, production rose in several chemistry end-user markets in August including appliances, construction supplies, computers, plastic products, structural panels, apparel and furniture.

The August reading showed a rise in chemical output across all seven regions. Production in the Gulf Coast, where key building block materials are produced, rose 0.4% on a monthly comparison basis in the reported month. Production also went up 0.4% across Midwest and Northeast while both Mid-Atlantic and West Coast logged a 0.5% gain. Output rose 0.3% across Ohio Valley and Southeast.

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

Overall chemical production went up 3% year over year in August with all regions scoring 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 on the slow road to recovery after being shaken up by the global economic crisis.

Notwithstanding headwinds from a stronger greenback, sluggishness in China 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. Production is expected 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.

The shale bounty has incentivized a number of chemical companies including Dow Chemical DOW , LyondellBasell Industries LYB , Eastman Chemical EMN , Celanese CE and Westlake Chemical WLK to ramp up capacity in the U.S. New capacity is expected to provide a significant boost to chemical production as these investments come on stream in the coming years.

Some industry-specific challenges, Eurozone's tepid recovery and concerns over China's future growth remain sources of near-term uncertainties for the chemical industry. Nevertheless, the industry is expected to continue to recuperate through the balance of 2015, supported by strong momentum in the automotive market, an upswing in the housing sector and continued recovery in commercial construction.

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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 Nasdaq, Inc.

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

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