The chemical industry is riding high on an upswing in the world economy and strength across major end-use markets such as construction, automotive and electronics. Another positive for the industry is a recovery in demand in the energy space – a key chemical end-market that had been out of favor for a spell. The recovery has been driven by the rebound in crude oil prices from their historic lows.

The Zacks Chemicals Diversified industry has outperformed the broader market in a year’s time. The industry has gained around 29.3% over this period, higher than S&P 500’s corresponding return of roughly 26.7%.

Moreover, the Zacks Industry Rank of 45 carried by the Zacks Chemicals Diversified industry is a testimony to the fact that the chemical industry is in fine shape. The favorable rank places the industry in the top 18% of the 250 plus Zacks industries. Our backtesting shows that the top 50% of the Zacks ranked industries outperforms the bottom half by a factor of more than two to one.

Demand 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, high homebuilders’ confidence, low unemployment levels and rising rent costs.

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

A rebound in crude oil prices has also led to a recovery in demand for chemicals in the energy space, an important end-use market. The recent uptrend in oil prices has been supported by a decline in U.S. oil stockpiles and extension of oil production cuts by OPEC and other major world producers until the end of 2018. The recovery in oil prices has also led to a favorable pricing environment for chemical products.