INSIGHT: Housing still a drag for US chemicals

23 April 2007 17:25  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--It looks as de-stocking still has some way to go in the US before a better balance is achieved in the industrial economy.

Chemicals production increased in March led by basic chemicals and plastics, according to Federal Reserve data and from railcar loadings - the latter a key indicator of activity.

But the early local data for April suggest that industrial activity was flat. It will take more time to bring inventories back into line, economists suggest.

Good and not so go news then for the sector which has bounced back from the late 2006 slowdown. Upstream, producers remain relatively confident given the still high price of oil and favourable supply/demand balances.

Running down into specialties, however, and closer to important market segments the picture is not necessarily as bright.

Specialties maker Rohm and Haas on Monday said its first quarter volumes were up 2% but pointed to weaker than expected conditions in the North American building and construction markets.

First quarter sales were up 5% at $2.16bn with the salt business, performance materials and electronic materials all doing relatively well.

The building and construction slowdown has been sufficient, however, to force management to rein back its expectations for the year and sales growth from the earlier estimated 6% to 8% range to between 5% and 6%. Management is sticking though with its full-year earnings guidance of between $3.40 and $3.60 a share.

The construction slowdown in the US is hitting the chemicals sector and demand for products like polymers and coatings as well as more specialised materials hard. That impact will be apparent in the first quarter results from a range of sector companies over the next few days. The statistical data suggest some improvement in March but it is questionable just how sustainable that development might be.

There was an unexpected rise in housing starts last month but that may have had more to do with the unseasonably warm weather than anything else.

Building permits, a more robust measure, perhaps, rose also but were down 25.9% year-on-year. Housing starts were down 23.0% compared with the year earlier period.

Gloom in the building sector, however, has been offset by better news from other parts of the economy. US consumers are exhibiting considerable resilience, American Chemistry Council economists note.

This should help offset the weakness in housing and retrenchment in the business environment, they note.

Inflation is an underlying concern, nevertheless, with higher food and energy prices suggesting that there still may be problems ahead.

The multinational chemical players though are encouraged by the fact that European industrial output continues to expand and China growth know few bounds.

China’s first quarter gross domestic product grew at 11.1% year-on-year a rate of expansion that compares with year-on-year growth in the fourth quarter 2006 of 10.4%.

China’s industrial production slowed somewhat in March to 17.6% year-on-year.

By: Nigel Davis
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