OUTLOOK '10: US chems to stage muted recovery

31 December 2009 18:15  [Source: ICIS news]

US chemical industry will grow in 2010HOUSTON (ICIS news)--In 2010, the US chemical industry will likely grow for the first time in three years, as increasing trade and a general economic recovery will boost demand.

However, the industry will continue to contend with tight credit as well as weak housing and automobile markets. It could take years before the industry returns to its previous peaks.

The US recession started in December 2007, leading to the nation's worst economic crisis since the Great Depression, according to an annual economic outlook released by the American Chemistry Council (ACC).

Financial markets froze, and both consumers and businesses had almost no access to credit. Tronox delayed its bankruptcy until 2009 because the company could not line up debtor-in-possession (DIP) financing.

By the end of 2009, light vehicle sales will fall to 10.2m, the worst year since the 1980s, the ACC said. Housing starts will fall to 564,000 units for 2009, down 73% from the peak of 2.07m in 2005.

In all, the ACC expects that the US economy will shrink by 2.3% in 2009. Business investment will fall by 17.5% for the year.

Due to the resulting drop in demand, US chemical producers spent much of the year working down inventories by shutting down plants and reducing operating rates.

Average operating rates likely fell to 70.1% in 2009, down from 74.3% in 2008 and 79.0% in 2007, the ACC said.

In all, the US business of chemistry will decline by 6.2% in 2009, its second drop following a 4.7% fall in 2008.

Foreign trade, however, was one of the few success stories of the year - as advantaged feedstock, a weak dollar and a global economic recovery increased demand for US exports, said Kevin Swift, chief economist for the ACC.

In 2009, the nation reported a chemical trade surplus of $2.4bn, its best performance in nine years, he said. The US should report another surplus in 2010.

In all, the industry should benefit from a recovery in the general economy, Swift said. The nation's automobile and housing markets are gradually improving.

Financial markets will continue to loosen, although they will not be back to normal, Swift said.

In all, the ACC expects the US chemical industry will grow by 3.4% in 2010.

Still, any recovery will be muted, given the depth of the recession, Swift said.

Moreover, any improvements in 2010 should be taken in the context of the low starting points in 2008 and 2009, he said.

"It was a very steep and large decline in 2008 and 2009 for a lot of segments," he said.

For the general economy, consumer spending will rise by 1.7% in 2010, after falling 0.6% for 2009, the ACC said. Business spending will increase by 1.6%.

Unemployment, a trend that lags the general economy, will continue increasing in 2010, the ACC said. The average rate will rise to 9.8% in 2010 from 9.3% in 2009.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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By: Al Greenwood
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