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Zacks Industry Outlook Highlights: Dow Chemical, DuPont, BASF, LyondellBasell Industries and Celanese

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Chicago, IL - December 16, 2015 - Today, Zacks Equity Research discusses the Chemicals (Part 1), including Dow Chemical ( DOW ), DuPont ( DD ), BASF ( BASFY ), LyondellBasell Industries ( LYB ) and Celanese ( CE ).

Industry: Chemicals (Part 1)

Link: http://www.zacks.com/ commentary/64921/chemicals- industry-stock-outlook---dec- 2015

The broad-based meltdown in commodities this year has put several industries in the Basic Materials space on slippery ground, and the $5 trillion global chemical industry is no exception. Nevertheless, the chemical industry has fared reasonably well in the first three quarters of 2015, thanks to continued strength in the automotive space and a recovery in residential construction markets.

But the highly cyclical industry is not without its challenges, as headwinds such as soft agriculture market fundamentals, depressed demand in energy markets, slowdown in China, lumpiness in Europe and a stronger dollar weighed on the performance of chemical companies this year.

Chemical companies remain actively focused on increasing their reach in high-growth markets to cut their exposure on businesses that are grappling with weak demand and input cost pressures. Strategic measures including cost management and productivity improvement also remain the prime focus of these companies to stay afloat in the prevailing difficult global economic backdrop.

In a bid to cope with the current low commodity price environment, chemical companies are also looking for cost synergy opportunities and enhanced operational scale through consolidations. The recently announced $130 billion proposed mega-merger of Dow Chemical ( DOW ) and DuPont ( DD ) -- the biggest chemical deal ever -- is a huge testimony to these strategic moves.

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. Chemical makers are also feeling the pinch of weak demand in the energy space amid a subdued oil price environment.

Despite these headwinds, the industry's recovery momentum is expected to continue heading into 2016, aided by strength in the light vehicles market, positive trends across the construction markets and significant shale-linked capital investment.

U.S.Holds Promise, EU & China in Choppy Waters

The U.S. chemical industry is poised for growth despite multiple challenges. According to the American Chemistry Council (ACC), an industry trade group, U.S. chemical production will expand both this year and next, and the American chemical industry will eventually transcend the nation's overall economic growth and emerge as a long-term economic growth engine as improvements in key end-use industries and emerging markets take hold.

The ACC envisions U.S. chemical production to rise 3.2% this year and 3% in 2016, higher than 2% growth witnessed in 2014. Notwithstanding the slowdown in global manufacturing and oil price volatility, the U.S. chemical industry is seeing production volume gains. Production is expected to pick up pace on the heels of new capital investments and capacity additions.

The shale gas bounty 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.

The shale revolution has incentivized a number of chemical companies to invest billions of dollars to ramp up capacity in the country. Chemical makers including BASF ( BASFY ), Dow Chemical, LyondellBasell Industries ( LYB ) and Celanese ( CE ) are investing heavily on shale gas-linked projects to take advantage of ample natural gas supplies which is expected to boost capacity and export over the next several years.

However, a stronger dollar is holding down U.S. exports, reducing their attractiveness in overseas markets. While strength in the U.S. manufacturing, an improving job market and expansion in major end-use markets have boosted demand for chemicals, persistent softness in overseas markets has constrained U.S. export sales.

Outlook for Europe remains tepid given fresh signs of slowdown in the region. The Eurozone economy continues to sputter with a lackluster growth in the third quarter of 2015. Chemical makers in the European Union remain affected by lower prices, flat production growth and sluggish demand.

According to a recent report from the European Chemical Industry Council (CEFIC), European chemical output rose just 0.3% during the first eight months of 2015. Chemical prices, which are down 4.5% in the first eight months in the European Union, also remain under pressure. High energy costs and weak R&D investments are also hurting the European chemical industry.

Moreover, the persistent weakness in China -- a key market for chemicals -- is expected to remain a major drag on the industry. China's economic growth slowed in third-quarter 2015 despite a raft of government stimulus measures including interest rate cuts. The world's second-biggest economy remains battered by its tepid property market and weak manufacturing and export sectors, which is contributing to its sluggish economic growth.

In addition, the near-term outlook for the fertilizer and agricultural chemicals space still remains cloudy due to insipid economic growth in certain developing markets, particularly Brazil.

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DOW CHEMICAL (DOW): Free Stock Analysis Report

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

BASF SE (BASFY): Free Stock Analysis Report

LYONDELLBASEL-A (LYB): Free Stock Analysis Report

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

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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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