The chemical industry is clawing its way back from the trough of the Great Recession. Despite a spate of headwinds, the highly cyclical industry put up a decent performance last year, helped by continued strength across automotive and housing markets – two major end-use markets for chemicals.

Chemical makers continue to shift their focus on attractive, growth markets in an effort to whittle down their exposure on businesses that are grappling with weak demand. The industry is also seeing a pick-up in consolidation activities as chemical makers are increasingly looking for cost synergy opportunities and enhanced operational scale in a still-difficult global economic environment. Moreover, cost-cutting measures and productivity improvement actions by chemical companies are expected to yield industry-wide margin improvements.

Within the Zacks Industry classification, the chemical industry falls under the broader Basic Materials sector. Looking at the overall results of this sector, earnings for 45% of the sector participants in the S&P 500 index reported so far are up 19.6% in fourth-quarter 2016, per the latest Earnings Preview.Overall earnings for the sector for the quarter are projected to move up 2.3%.

U.S. Chemical Industry on Course for Solid Growth

The outlook for the U.S. chemical industry paints an encouraging picture. The American chemical industry remains on course for strong growth this year and the next despite several challenges including a strong dollar, soft export markets and a low oil price environment. The American Chemistry Council (“ACC”) envisions national chemical production to rise 3.6% in 2017, further accelerating to a 4.8% growth in 2018. The trade group also expects basic chemicals production to expand 4.2% in 2017 on the back of advances in manufacturing and exports.

Moreover, the shale gas bounty is expected to drive investment on plants and equipment in the U.S. Chemical makers are ratcheting up investment on shale gas-linked projects to take advantage of ample natural gas supplies.

Per the ACC, over 275 new chemical projects have been announced by chemical makers (worth more than $170 billion) since 2010, nearly half of which already complete or under construction. Such investments – many backed by Federal government support – are expected to boost capacity and export over the next several years.

Major End-Markets Showing Strength