US Fed says chem exports thrive in slow economy

11 June 2008 20:12  [Source: ICIS news]

WASHINGTON (ICIS news)--US economic activity remained generally weak as the second quarter neared an end but continued strong export demand for US chemicals provided a bright spot, the Federal Reserve Board said on Wednesday.

 

The Fed, the US central bank, said that reports from its 12 branch offices across the country indicate that consumer spending slowed in April and May as personal incomes were pinched by rising energy and food prices.

 

Consumer spending is the principal driving force of the US economy, accounting for up to 70% of all commercial activity.

 

In addition, said the Fed in its economic survey report known as the “Beige Book,” manufacturing activity in the first two months of the second quarter was “generally soft, with weak demand for housing-related and some other products but with increasing demand for exports”.

 

In the report from the central bank’s eleventh district office in Dallas, Texas, that export demand growth was said to be “strongest for chemicals, such as ethylene, that are domestically produced with natural gas and have a cost advantage over oil-based production in other parts of the world”.

 

So while US petrochemical producers are pressed by natgas prices in the range of $12/m Btu - compared with $2 gas as recently as 1999 - that five-fold increase in feedstock costs is at least partially offset by the global climb in crude oil to nearly $140/bbl.

 

However, the Fed report indicated that while US chemicals producers with export markets are apparently enjoying continued strong demand, those limited to domestic sales are not equally favoured.

 

“Higher input prices, including those for energy, are pushing up production costs for most products and services,” the eleventh district reported.

 

“Rising energy costs put upward price pressure on a wide range of chemicals and plastics,” the Fed said, “and some firms are struggling to raise selling prices, increase fees or reduce costs to survive.”

 

($1 = €0.65)

 

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By: Joe Kamalick
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