The American chemical industry is set to ride high this year on an upswing in the world economy, healthy demand across automotive and housing markets, an upturn in U.S. manufacturing, improving export markets and favorable shale gas economics, per a recent report from American Chemistry Council (“ACC”).
The Washington, DC-based chemical industry trade group sees strong gains in production in agricultural chemicals, consumer products, coatings and bulk petrochemicals and organics in 2018. Moreover, the ACC envisions output of plastic resins to rise at the fastest clip since 2012 on the back of new capacity and firming demand for both domestic and overseas customers. Improving industrial activities are also expected to contribute to the growth of the specialty chemicals segment.
U.S. Chemical Industry Poised for Solid Upside
The outlook for the American chemical industry paints an encouraging picture. The ACC envisions national chemical production (excluding pharmaceuticals) to rise 3.4% in 2018 and further gain steam with a 3.6% growth in 2019.
The trade group sees strong growth in several chemical sectors in including petrochemicals, fertilizers, crop protection, coatings and consumer products. It expects production to continue to expand across all regions of the United States this year, with the Gulf Coast region seeing the strongest gains.
The growth in output is expected to be spurred by an upswing in U.S. manufacturing, higher demand across light vehicles and housing markets, capital investments and strengthening export markets. While the automotive sector is expected to remain at high levels, steady recovery in housing is expected to continue in 2018.
Export Markets, Shale-linked Investments Drive U.S. Chemical
The ACC expects strengthening export markets to contribute to growth of the U.S. chemical industry this year. It sees two-way trade between the United States and its foreign partners to expand 6.2% year over year and reach $241 billion this year (after growing 6% in 2017), aided by strong demand from overseas markets and domestic manufacturers downstream.
The trade group also expects U.S. chemicals exports to expand 7.2% in 2018 to $139.2 billion on the back of the basic chemicals sector. Higher exports will result in the United States having a $71.4 billion trade surplus in chemicals by 2023.
The United States also remains an attractive investment destination for chemical investment and domestic chemical industry continue to enjoy the competitive advantage of access to abundant supplies of shale gas and natural gas liquids (NGLs). Economics of shale gas is driving strong capital investment in new chemical projects, leading to growth in the domestic chemical industry.
According to the ACC, roughly 325 chemical projects have been already announced by chemical makers worth around $194 billion that are under construction or complete. The projects include investment in new factories, expansions and restarts of plants across the United States. Such investments are expected to boost capacity and export over the next several years. New capacity is expected to provide a boost to chemical production as these investments come on stream.
5 Chemical Stocks Worth a Bet
The U.S. chemical industry’s upturn is expected to continue this year on continued demand strength across major end-markets, gains in exports and significant capital investment on capacity additions. Amid such a backdrop, it would be prudent to invest in chemical stocks with compelling growth prospects if you are looking to reap solid returns from your portfolio.
We highlight the following five stocks with Zacks Rank #1 (Strong Buy) or 2 (Buy) that are good options for investment right now.
The Chemours Company
Wilmington, DE-based Chemours is a solid choice, with a Zacks Rank #1. The company has expected earnings growth of 48.9% for 2018. It also delivered an average positive earnings surprise of 11.9% over the trailing four quarters. Moreover, the company has long-term expected earnings per share (EPS) growth of 15.5%. The stock has also gained roughly 35% over a year.
Chemours is gaining from healthy demand for Ti-Pure titanium dioxide (TiO2), sustained adoption of Opteon refrigerant and higher demand for fluoropolymers products. The company should also benefit from favorable pricing and demand in the Fluoroproducts segment in 2018.
Westlake Chemical Corporation
Based in Houston, TX, Westlake sports a Zacks Rank #1. The company has expected earnings growth of 63.4% for 2018. It also has an expected long-term EPS growth of 12.2%. Moreover, Westlake has topped the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 5.9%. The stock has also gained roughly 76% so far this year.
Westlake is gaining from higher demand for all major products in both Vinyls and Olefins segments and synergies of the Axiall acquisition. The Axiall acquisition has diversified the company’s product portfolio and geographical operations, creating a North American leader in Olefins and Vinyls.
Our next pick in the space is Philadelphia, PA-based FMC Corp, armed with a Zacks Rank #1. The company has expected earnings growth of 125.5% for 2018. It delivered positive earnings surprise in each of the trailing four quarters, with an average positive surprise of 8.2%. Moreover, the stock has gained around 18% over a year.
FMC Corp is witnessing strong momentum in its Lithium unit. Strengthening market conditions and strong demand in battery-grade lithium product are expected to drive its Lithium segment in 2018. The acquisition of a major portion of DuPont’s Crop Protection business has also provided a significant growth platform for FMC’s Agricultural Solutions unit.
Irving, TX-based Celanese sports a Zacks Rank #2 and has long-term expected EPS growth of 8.9%. The company also has expected earnings growth of 26% for 2018. Moreover, it delivered positive earnings surprise in each of the trailing four quarters, with an average positive surprise of 7%. The stock has also gained around 23% over a year.
Celanese’s strategic measures including operational cost savings through productivity actions and efficiency enhancement should lend support to its earnings in 2018. Further, the company should benefit from capacity expansion actions and acquisitions.
Illinois-based Univar carries a Zacks Rank #2 and has an expected earnings growth of 26.6% for 2018. It delivered positive earnings surprise in each of the trailing four quarters, with an average positive surprise of 26.7%. The company also has an expected long-term EPS growth of 9.8%.
Univar should gain from its sustained market expansion actions and strategic acquisitions. It also remains focused on strengthening its USA business segment through expense management and productivity actions, which should support to its margins in 2018.