US chem demand would increase from stimulus projects

20 February 2009 17:52  [Source: ICIS news]

HOUSTON (ICIS news)--The producers of chemicals used in the end-market of non-residential construction should benefit significantly from the US economic stimulus bill, which contains $135bn (€107bn) for non-residential construction purposes, a chief economist for the American Chemistry Council (ACC) said on Friday.

“Each $1,000 in project spending on non-residential construction yields about $160-$230 in total chemistry sales depending on the type of non-residential structure,” said the ACC's Kevin Swift.

“We are pleased that the stimulus package contains energy efficiency and renewable energy investment, both of which help drive demand for chemistry products.”

Taking the $195 midpoint of Swift’s estimate for total chemistry sales per $1,000 in project spending, the $135bn investment could mean approximately $26bn worth of chemicals and related demand over the life of the projects.

Within that $135bn, $49bn is appropriated for the construction of transportation services, including highways, rails and airports, according to a report issued by the Associated General Contractors of America (AGC).

Up to $38bn will be issued for buildings, $21bn for water and environment issues, and $30bn for issues concerning energy and technology, the report said.

The AGC estimates that the construction provisions of the stimulus will increase personal earnings nationwide by $75bn, add $230bn to GDP and create or save nearly $2m jobs over the next two years.

Those figures could be especially critical given expected cuts in state budgets.

At least 46 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well, the Center on Budget and Policy Priorities said on 10 February.

“There’s no doubt the stimulus will have a positive impact for construction businesses and their workers across the country,” said Stephen Sandherr, CEO of the AGC.

“When you get beyond the politics and the policy, the fact remains that these investments will put people to work, save businesses and help rebuild aging infrastructure.”

Several indices reflected a declining demand for construction prior to the stimulus.

The Federal Reserve reported that industrial production (IP) in manufacturing fell 2.5% in January from December levels, and 13% from the same period in the previous year.

Likewise, IP in manufacturing of construction supplies fell 3.4% from December and 17% from a year ago.

Additionally, the factory operating rate, an indicator of demand for manufacturing construction, moved down 1.7 percentage points to 68%, the lowest rate of utilisation since the statistic was first calculated in 1948.

In response to the decreasing demand, the number of layoff events within construction due to “slack work/insufficient demand” more than doubled in the past year, the Bureau of Labor Statistics said.

“Whether or not you wear a hard hat for a living, these construction investments will make a difference for the better,” said Ken Simonson, chief economist for the AGC.

“Beyond the immediate benefits, the new infrastructure projects will make businesses more efficient, commuting more reliable and our economy more prosperous for years to come.”

($1 = €0.79)

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By: Ben DuBose
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