FocusUS housing impacts chems but upturn seen

18 January 2008 15:30  [Source: ICIS news]

WASHINGTON (ICIS news)--The continuing decline in the US housing market will impact some chemical product lines but many of those will be sustained by export markets, industry officials said.

 

In addition, housing industry economists say the downturn in US new home construction is not as bad as it seems and that a recovery is still likely by the middle of this year.

 

Reaction to the ongoing and steep slide in the country’s housing sector - a key downstream consuming sector for chemicals - came after the Commerce Department reported a 14.2% decline in new home construction for December compared with November.

 

Permits filed in December for future home construction fell 8.1%, suggesting that the housing slide still has not hit bottom and could continue well into 2008.

 

“We do sell a lot to building and construction and to light vehicles manufacturing, which also is soft, and this will weigh on the chemicals industry,” said Kevin Swift, chief economist at the American Chemistry Council (ACC).

 

However, Swift also noted the offsetting effect of export sales for the industry.

 

“Exports will certainly help with soft domestic demand,” he said.  “Exports have been aided by stronger growth overseas, the low dollar and still high oil prices compared to natural gas.”

 

US chemicals manufacturers rely heavily on natural gas as a feedstock.  While North American gas prices have increased four fold since 1999, global oil prices have shot up much faster - by 60% in the last year alone - giving gas-based manufacturers an advantage in the global market over naphtha-based producers.

 

Even so, Swift noted that the US Federal Reserve branch bank in Dallas, Texas, reported “a recent softening of export demand for several important petrochemicals and plastics”.

 

Greg Minchak, spokesman for the Synthetic Organic Chemical Manufacturers Association (SOCMA), said the ongoing housing slump will hit some chemical segments, such as adhesives, paints and coatings and other construction-related products.

 

“But exports remain strong, and there is growth in the emerging markets,” Minchak said.  “Hopefully, US firms will be able to find ways to participate in that growth in a significant way.”

 

In addition, the leading US housing trade group, the National Association of Home Builders (NAHB), contends that Thursday’s housing statistics were not in fact all that bad.

 

David Seiders, NAHB chief economist, said the 14.2% drop in new housing starts for December is misleading because it chiefly reflects a 40% decline in multifamily housing, a small but volatile segment.

 

“The multifamily sector tends to display significant month-to-month volatility,” Seiders said.

 

The decline in single-family home construction was only 2.9% in December, Seiders noted, “which is right on the money in terms of what we’ve been forecasting and what our members have told us in recent surveys”.

 

Seiders said he holds to the forecast he made late last year, that the housing decline will bottom out in mid-2008 and begin a slow but steady recovery in the third quarter.

 

The decline in building permits, he said, is simply evidence that home builders are holding back, waiting for existing homes inventory to decline.

 

“This is all with an eye to repositioning themselves for later this year when market conditions should warrant an increase in building activity,” Seiders said.

By: Joe Kamalick
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