OUTLOOK ’08: Weak dollar strengthens US exports

26 December 2007 16:14  [Source: ICIS news]

By Brian Ford

HOUSTON (ICIS news)--The US will achieve a chemical trade surplus of close to $2.1bn (€1.4bn) in 2008 as a result of the weakened dollar and flat import growth, according to a projection by the American Chemistry Council (ACC).

The 2008 situation would mark a continuation from 2007, when the US was expected to achieve a $500m chemicals trade surplus, the first surplus since 2001, according to the ACC’s year-end report.

The low value of the dollar, growing overseas demand and competitive feedstock costs underpin the 2008 projection, said ACC chief economist Kevin Swift.

“We wouldn’t expect the dollar to remain low,” said Swift, adding it will continue to be one of the forces behind the surplus through 2008.

Expansions overseas and competitive natural gas feedstock costs will also contribute to the situation, Swift said.

Natural gas is the primary feedstock for petrochemicals in the US and mild winters for the past two years have helped to keep natural gas feedstock costs low when compared with naphtha-based feedstock costs in western Europe and Asia, he said.

The US chemical trade deficit with western Europe will shrink to $20.5bn in 2008 from $22.8bn in 2007, according to the ACC forecast.

For 2007, numbers still being compiled suggested US exports of chemistry products were estimated to rise nearly 15% to $154.8bn and imports would increase 8.2% to $154.3bn, according to the ACC year-end report, resulting in a swing to a $500m trade surplus from a $7.8bn trade deficit in 2006.

“Continued strong growth is expected overseas and the value of the dollar will continue to be depressed through 2008,” the report said. “As a result, the demand for US exports is expected to rise.”

During 2008, however, “as US growth moderates and the value of the dollar will make imports more expensive, import growth will remain relatively flat, allowing the trade surplus in chemicals to grow to $2.1bn,” the ACC said.

Chemical exports will total $168.7bn in 2008, while imports will total $166.6bn.

The export of basic chemicals will lead the way in the trade balance equation, jumping to a surplus of $25.6bn in 2008 from a $25bn surplus in 2007, according to the ACC.

However, the pharmaceuticals chemicals trade deficit will increase to $20.5bn in 2008 from $19.3bn in 2007.

More pharmaceutical production is being outsourced overseas, Swift said, particularly to countries such as Ireland, which has a low corporate tax rate and a well trained workforce.

At the same time, the aging of the US population has increased demand for pharmaceuticals, Swift said.

A stronger dollar in 2009 will erode export growth and imports will grow at a faster rate, the ACC said, resulting in a likely deficit of $1.8bn. Chemical exports will total $180.5bn, while imports will total $182.3bn.

Swift said the US had a chemical trade surplus from 1926 to 2001.

The impact of the weaker dollar has not gone unnoticed in the receiving countries.

Citing the “unfavourable foreign exchange environment” caused by the weaker US dollar, Rhodia announced on 18 December a programme to improve the competitiveness of its Acetow cellulose acetate business.

At least one Brazilian polypropylene (PP) producer was considering cutting the price of domestically made material to fend off the inflow of US imports, according to market sources at the November Latin American Petrochemical Association (APLA) conference in Buenos Aires, Argentina.

US PP exports to Brazil have jumped 149% to 37,088 tonnes in the first months of the year from the same period in 2006, according to the US International Trade Commission (ITC).

Total US exports of PP in January-October were 1,714,139 tonnes, up 41% compared with the same period in 2006, according to the ITC.

Exports of high density polyethylene (HDPE), polyvinyl chloride (PVC), polyethylene terephthalate (PET) and polystyrene (PS) also increased substantially compared with the same period in 2006, according to the ITC.

US chemical trade balance 2005-2009 ($ billions)

	2005	2006	2007	2008	2009
Total balance	-$8.4	-$7.3	$0.5	$2.1	-$1.8
Pharmaceuticals	-14.0	-17.8	-19.3	-20.5	-22.0
Consumer products	-0.9	-0.4	-0.4	0.2	0.0
Agricultural chemicals	0.0	0.6	-0.4	0.2	0.0
Specialties	-6.7	-6.2	-4.4	-3.6	-4.0
Basic chemicals	13.2	16.5	25.0	25.6	24.0

Source: ACC

($1 = €0.69)

Additional reporting by William Lemos

By: Brian Ford
+1 713 525 2653

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