Catalyst

Third-quarter earnings reports this week promise to show how well chemical makers are coping with the slowdown in U.S. manufacturing and with surging energy and feedstock costs.
Census Bureau data shows that U.S. exports, aided by a weakening dollar, are picking up the slack in U.S. demand. Domestic exports of chemicals gained 6.9% in August, to $13.5 billion, and chemical imports fell 6.3%, to $12.7 billion. The chemical trade balance swung from a deficit of $820 million in July, to a surplus of $1.13 billion in August. Improvements were across the board, according to ACC’s analysis of the data. This is one of the few monthly surpluses for chemical makers since trade surpluses turned to deficits in 2001.
PPG Industries, an early earnings reporter, last week said it expects the North American economy to grow slightly in the fourth quarter aided by higher exports, albeit at a slower pace (p. 10). “We currently see evidence of customers cautiously managing or even paring inventories, due to conflicting economic projections,” says PPG CFO William Hernandez. “Also, we see no signs of improvement in residential construction, which may result in customer outages in a seasonally slower fourth quarter.” Non-residential construction, one of the bright spots in the U.S. economy, is holding up, though there are signs that growth may be peaking. “Regarding commercial construction, there is anecdotal evidence of certain sub-segments hitting a plateau, while other sub-segments continue to grow nicely.”
Demand outside the U.S. is expected to remain solid, however. “We anticipate Europe will continue to grow at nice levels, but slightly slower than has been recorded over the past few quarters,” Hernandez says. “Meanwhile, we are pegging the other emerging economies, including China, to continue with their current pace.”
Growth and momentum have clearly shifted away from the U.S. How well producers do in capturing growth outside the U.S. will go a long way in determining whether the industry’s healthy margins can be sustained into next year.