American chemicals industry enjoying good year, poised for growth

American chemicals manufacturers benefitting from competitively priced hydrocarbon feedstocks

The American Chemistry Council has released its mid-year report and things are looking up for the American chemicals industry, thanks in large part to cheaper feedstocks from natural gas.

American chemicals

The shale revolution has revitalized the American chemicals industry.

The first quarter of 2015 was a bit soft, according to the Mid-Year 2015 Chemical Industry Situation and Outlook, due to a cutback on capital spending, extreme weather, and port disruptions.

“Against this backdrop, however, the U.S. chemical industry will be a long-term economic growth engine as improvements in its customer industries and in emerging markets occur,” the Council said in a press release.

With the development of shale gas and the surge in natural gas liquids supply, the U.S. has moved from being a high-cost producer of key petrochemicals and resins to among the lowest-cost producers globally.

This shift in competitiveness will eventually support robust export demand and is driving significant flows of new capital investment toward the United States. The Council anticipates that announced new capacity for American chemicals will significantly expand production when those investments come online in the coming years.

American chemicals exports are expected to grow, and as external demand becomes more robust, and the recent pattern of trade deficits shift to one of net surplus. The Council the industry will post a trade surplus until 2018 and by 2020 it will be posting record trade surpluses, positioned as a net exporter over the longer-term.

As a result, employment in the business of chemistry will further accelerate.

The industry is expected to continue adding high-paying jobs through the end of the decade. Growth has reversed a decade-long declining trend in employment, which is expected to grow by 0.7 per cent in 2015, with jobs being added through 2020.

Despite the slowdown in global manufacturing and volatile oil price dynamics, the American chemicals industry volume gains have held up well, the Council says. The future outlook is for a 3.2 per cent gain in production volumes this year, followed by 3.0 per cent in 2016.

This is slightly down from ACC’s 2014 outlook as first quarter softness and the strong U.S. dollar weigh on expectations. According to ACC, excluding pharmaceuticals, the numbers are even brighter: a 4.1 per cent gain in 2015 followed by a 3.4 per cent gain in 2016.

Production will continue to gather steam as renewed competitiveness fosters a wave of new investment and new capacity. In the long-term, the American chemicals industry will grow faster than the overall U.S. economy, which is expected to be near its long-term growth potential this year and will be led by consumer spending. Following growth of around 2.5 per cent in 2015, growth is expected to accelerate to around 2.9 percent in 2016, before moderating in the second-half of the decade. Areas of drag include exports and, in the short-term, business investment, as lower oil prices continue to curb energy sector investment.

At the midway point in 2015, the chemicals business is poised for growth, according to the Council.

Continued recovery in end-use markets, sustained competitiveness and the eventual return of global economic growth will lift demand for American chemistry over the next several years. Inventories remain largely balanced, so increasing demand for American chemicals will be met by new production rather than stock drawdowns.

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