Sector Bird’s Eye View: Chemicals

 

What is it?

The chemicals industry is made up of companies that produce basic, specialty, or consumer chemicals. These products are either consumed as final goods or are used by businesses as inputs in their production process. 

Why is it important?

The Chemicals industry forms an important part of the global supply chain, providing end-users and intermediary companies with the inputs for their final products. Major changes in this industry have an important knock-on effect for other sectors, such as industrials, real estate & construction and pharmaceuticals. 

Popular Participants

  • Bayer
  • Dow
  • DuPont
  • Eastman Chemical
  • Air Liquide

Popular ETFs

  • S&P 500 Chemicals
  • Vectors Agribusiness
  • SPDR Materials Select Sector

When does it do well/badly?

The chemical industry is a cyclical business highly dependent on the changes of the global economy and reliant on the cost of basic commodities, especially oil and gas. Chemicals companies involved in ethylene-based plastics benefit extensively from low gas prices and tend to outperform when commodity prices are low. This also makes the sector reactive to the dollar as all commodities are priced in dollars, making them more competitive when the dollar weakens and less competitive when it is too strong. 

Why should I invest? 

An investor with a good handle on global events and foreign exchange can make extremely valuable gains by investing in this sector. While it can be fairly volatile, maintaining a small portion of your portfolio in chemical companies can be very lucrative.

 

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