The U.S. specialty chemical industry remains on the path to recovery from the coronavirus-led slowdown as volumes expanded in August, according to the latest report from the American Chemistry Council (“ACC”).
Pace of Growth Slows in August
The Washington, DC-based chemical industry trade group said that U.S. specialty chemicals market volumes rose 0.5% in August on a monthly comparison basis. This follows a revised 2.2% increase a month ago and a 5% rise in June. Notably, volumes ticked up 0.3% in May after a record decline of 12.7% in April.
Of the 28 specialty chemical segments monitored by the ACC, 27 saw growth in August, an improvement from the expansion of 26 witnessed in July. Out of the segments that saw growth in August, 15 recorded gains of 1% or more.
Per the ACC, the overall specialty chemicals volumes went down 9.3% on a year-over-year basis in August. Volumes stood at 101.9% of their average 2012 levels in August, which is equivalent to 3.15 million metric tons. Growth was witnessed in three market and functional specialty chemical segments on a year-over-year basis in August.
Resumption of Activities, Manufacturing Revival Bode Well
Specialty chemicals that include catalysts, surfactants, specialty polymers, coating additives and oilfield chemicals are used based on their performance and have a specific purpose. They have application in the manufacturing process of a vast range of products, including paints and coatings, cosmetics, petroleum products, inks and plastics.
The U.S. specialty chemical industry faced the heat from a significant downturn in demand for much of the first half of 2020 in the wake of the coronavirus pandemic.
Shutdowns and travel restrictions to blunt the spread of infection paralyzed industrial and economic activities, leading to a slump in demand for chemicals across major markets including automotive and construction. Lockdowns and restrictions brought economic activities in the United States to a near-standstill in March and April.
However, major parts of the United States have reopened for business after coronavirus-led restrictions. Notably, the U.S manufacturing sector is gaining momentum on a recovery in the overall economy.
The recovery strengthened for the U.S. manufacturing sector in August with activities rising at the fastest pace since November 2018. According to the Institute for Supply Management, the U.S. Manufacturing Purchasing Managers’ Index clocked 56% in August, rising from July’s reading of 54.2% on strong growth in new orders. A reading above 50 indicates expansion in activity.
The manufacturing sector serves as a barometer to gauge the overall health of the U.S. economy and has a major influence on the chemical industry. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods. Thus, the rebound in manufacturing activity is expected to act as a tailwind for the U.S. specialty chemical industry.
Moreover, U.S. automakers resumed production in May following a nearly two-month shutdown due to the pandemic. Automakers are currently ramping up production to normal levels in an effort to boost lagging vehicle inventories at dealerships. Resumption of several projects that were stalled earlier due to disruptions is also expected to support the revival in the U.S. construction sector. As these major markets recover, demand for chemicals is expected to go up moving ahead.
Specialty Chemical Stocks Worth a Look
A few stocks currently worth considering in the specialty chemical space are Hawkins, Inc. HWKN, Kraton Corporation KRA, H.B. Fuller Company FUL and Flexible Solutions International Inc. FSI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hawkins has expected earnings growth of 21.4% for the current fiscal year. The Zacks Consensus Estimate for the current fiscal also has been revised 7.7% upward over the last 60 days.
Kraton has delivered an earnings surprise of 101%, on average, over the trailing four quarters. The consensus estimate for the current year has been revised 211% upward over the last 60 days.
H.B. Fuller has delivered an earnings surprise of 25.9% in the last reported quarter. The Zacks Consensus Estimate for the current year also has been revised 0.8% upward over the last 60 days.
Flexible Solutions has expected earnings growth of 106.3% for the current year. The consensus estimate for the current year has been revised 50% upward over the last 60 days.
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