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U.S. chemical makers are poised to post stronger-than-expected third-quarter earnings, but demand for their products could cool later this year as government stimulus programs unwind, industry experts say.

The chemicals industry — which makes the base products that go into thousands of everyday items like electronics, automobiles and clothing — is expected to show a strong uptick in earnings.

But major stock moves, which often immediately follow big earnings beats or misses, might be in short supply this quarter as investors look for solid evidence that the economy has begun to right itself and demand for chemicals has returned.

Data from heavyweights like Dow Chemical Co, DuPont Co and Ashland Inc will be important indications about the health of the rest of the U.S. economy.

“The third quarter is going to look good — probably a lot better than most people expect,” Greenwich Consultants analyst Mike Judd told Reuters.

Government programs, like the so-called “Cash for Clunkers” autos program and a first-time home buyer’s rebate, boosted business in the sector during the June-to-September period, industry observers say.

Other positive indicators include low energy costs — especially for the important feedstock natural gas — and a steady improvement in railcar loadings, a popular way to ship chemicals.

Many of the industry’s largest players have also been able to launch successful debt or equity offerings to finance acquisitions or repay debt.

Going forward, the question is whether or not those gains can be sustained. Cash-for-clunkers is over, the home buyer’s credit is expiring in December and the winter is cyclically the worst time for chemical makers.

The clunkers program depleted carmakers’ vehicle inventories, so they will have to ramp up production for a bit. But, eventually that increase would taper off should demand not be sustained.

“I think we’ll see good activity (in the chemical sector) through the end of November,” Deutsche Bank analyst David Begleiter told Reuters. “But December looks uncertain right now.”

For investors unsure about what to do right now, Greenwich Consultants’ Judd sees a clear path:

“Why wouldn’t you want to sell on the good news, and then wait to see what happens?”

ONE STEP AT A TIME

While many chemical makers were able to report second-quarter profits largely due to draconian cost-cutting, investors and analysts are eager this time to see income generated from actual sales. 

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