The chemical industry has so far enjoyed a positive run this year, helped by an upswing in the world economy and continued strength across major end-use markets such as construction, automotive and electronics.

The Zacks Chemicals Diversified industry has outperformed the broader market year to date. The industry has gained around 23.6% over this period, higher than S&P 500’s corresponding return of roughly 14.5%.

Strategic Measures to Reap Margin Benefits

Chemical companies continue to shift their focus on attractive, growth markets in an effort to cut their exposure on other businesses that are grappling with weak demand. Moreover, they remain actively focused on mergers and acquisitions to diversify and perk up growth. Synergies from acquisitions should lend support to their earnings in Q3.  

Moreover, cost-cutting measures and productivity improvement actions by chemical companies should continue to yield industry-wide margin improvements in Q3. A number of chemical makers are also taking appropriate pricing actions (reflected by hikes in chemical prices in the recent past) in the wake of a sharp rise in raw materials costs. This is also expected to support their margins in Q3.

Strength Across Major End-Markets

Chemical makers continue to see strong demand from construction and automotive sectors – major chemical end-use markets. The underlying trends in the housing space remain healthy, backed by steady buyer demand, low mortgage rates, rising rent costs and easy loan availability.

The automotive sector also continues its good run, supported by an improving job market, rising personal income, improved consumer confidence, low fuel prices, and attractive financing options.

Harvey-Stoked Disruptions Pose a Headwind

Hurricane Harvey weighed on U.S. chemical production during Q3, knocking off a sizable chunk of production capacity. Harvey led to the shutdown of several chemical plants along the U.S. Gulf Coast – the epicenter of the U.S. specialty chemicals and petrochemicals industry.