Monday, May 7, 2007

Where Have U.S. Volumes Gone?

One of the more notable features of first-quarter results has been the ability of producers to maintain earnings strength despite poor U.S. markets. The primary cause of U.S. weakness is sluggish housing and automotive markets, which have hurt demand across key sectors such as coatings and plastics.
Dow Chemical, for instance, reported a 7% first-quarter volume decline in the U.S., compared to the same year-ago quarter. DuPont reported a 1% decline in U.S. volumes. PPG Industries says that volumes in the U.S. and Canada grew only 1%.
U.S. indicators are showing positive signs, which bodes well for the rest of the year. Railcar loadings, an important indicator of current industry activity, have turned positive again with the 13-week average through late April up 3.4% from the year-ago period. “Year-over-year gains in railcar loadings are encouraging, as were the 3,600 production workers added to chemical industry payrolls during April,” ACC says. Several key resins, with the notable exception of polyvinyl chloride, which is tied to housing, reported strong growth in March as well, ACC adds.
Producers remain optimistic despite sluggish U.S. markets, noting that the overall global economy remains sound. PPG CFO William Hernandez said as much last month to analysts after first-quarter earnings: “Our current expectation of stable economic conditions gives us continued optimism regarding the prospects for our businesses.” Dow Chemical sounded a similar note on global conditions in quarterly regulatory filings last week. “Global GDP growth is expected to be quite healthy in 2007, above 3%,” Dow says. “The U.S. is expected to show slower growth than in 2006, principally because of weakness in residential construction and the automotive industry, although growth may improve later in the year as these industries stabilize.”

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