INSIGHT: Encouraging global outlook for chemicals

23 June 2010 17:01  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--BASF has seen a slightly better than expected second quarter thus far, chief executive Jurgen Hambrecht told investment analysts on Wednesday. The CEO’s comments came as he discussed the €3.1bn ($3.8bn) acquisition of consumer chemical intermediates producer Cognis.

That deal had been expected for some time but is a further reflection of the growing mood of optimism and a degree of sure-footedness in the sector. On Monday, AkzoNobel said it had agreed the sale of the remains of National Starch to US-based Corn Products International. Divestment of that business had been on hold through the downturn.

Uncertainty in global chemical markets is not far below the surface, however. And nervousness is being driven by the steep correction in chemicals prices in Asia over the past few weeks.

The demand outlook is encouraging but curiously fragile. So much depends on macro-economic factors: the continued growing strength of the US economy and key chemicals consuming markets within it; the onward march of China, and the potential knock-on effects of the Greek debt crisis in Europe.

Bringing those elements to bear on a sector economic analysis this week, the American Chemistry Council (ACC) was talking with some confidence about chemicals output growth in the US of 6.0% in 2010, to be followed by a growth slowdown in 2011 and 2012. The industry has to be encouraged by the suggestion of a return to trade surplus for the sector. US chemicals trade turned to deficit in 2001.

The encouraging aspect of the analysis, however, was that longer-term chemicals production globally is likely to be expanding soon at 1.2 times GDP.

Using the data and expertise from economists at other chemical associations in Europe - and at the macro level from IHS Global Insight and Oxford Economics - the global projection is for output growth of 7.2% this year. Growth in 2011 is forecast at 5.0% and at 4.9% in 2012.

The industry’s growth, however, is likely to be focused very much on developing nations led by China and India. This year particularly, basic chemicals and petrochemicals are forecast to grow strongly as industrial output improves. More specialised segments of the industry might be expected to provide a greater proportion of overall growth in later years.

The forecasts run out to 2014 and suggest that capital spending, having dropped markedly last year because of the restraints imposed during the recession, will rise in 2010 and strongly through 2013.

The ACC talks about a “new wave of industry investment”.

“The global chemical industry is recovering, led by resilience in the emerging Asian economies,” it says.

“With past peaks breached in some nations, growth in emerging markets will outpace that in developed countries,” it adds. “Growth after 2011 will moderate slightly but rise at a premium (1.2x) to global economic growth and will be broad-based among regions."

Global chemicals output

Year-on-year change in ACC output index (%)	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014
Business of Chemistry Output
United States	3.5	3.1	1.2	-4.7	-4.5	6.0	4.0	3.6	3.2	2.8
Canada	-1.4	0.8	1.4	-3.5	-11.2	8.0	4.5	3.5	3.4	3.2
Mexico	1.7	1.5	2.2	-0.2	-0.8	3.3	4.8	4.2	4.0	3.5
North America	3.2	2.9	1.3	-4.5	-4.7	6.0	4.1	3.7	3.2	2.9
Brazil	5.5	-0.4	1.0	1.4	-8.8	8.2	6.5	6.5	5.7	5.1
Other	7.4	6.8	4.9	2.4	-3.8	4.2	5.5	5.3	4.7	3.8
Latin America	6.6	3.8	3.4	2.0	-5.7	6.0	5.9	5.8	5.1	4.4
France	3.2	6.9	5.7	-0.6	-5.5	7.6	3.4	2.7	2.5	2.5
Germany	5.5	4.2	5.5	-1.5	-10.9	8.3	2.8	2.7	2.4	2.1
Italy	-0.4	4.8	-0.3	-3.2	-7.2	3.8	1.9	2.2	2.0	1.8
United Kingdom	2.6	3.1	-1.2	-0.4	-4.7	2.1	3.0	2.7	2.6	2.4
Belgium	-2.9	3.8	-1.4	5.2	-8.3	4.4	2.4	2.8	2.9	2.7
Ireland	-4.9	5.5	4.9	3.1	15.4	4.3	3.8	4.0	3.6	3.2
Netherlands	0.5	4.9	2.1	-4.3	-6.7	5.5	2.9	2.6	2.5	2.3
Spain	1.0	4.2	3.5	-1.4	-0.9	2.6	2.5	2.5	2.3	2.2
Sweden	0.1	9.1	-12.0	-5.7	-7.3	2.2	3.5	3.3	3.0	3.0
Switzerland	7.2	9.9	14.9	1.7	-5.5	2.8	3.2	3.3	3.0	3.1
Other	5.0	2.3	4.0	-0.4	-7.9	2.0	2.5	3.0	2.7	2.6
Western Europe	2.4	5.0	3.3	-0.7	-5.9	5.0	2.9	2.8	2.6	2.4
Russia	2.7	3.1	9.0	-1.8	-8.0	5.6	4.9	5.0	5.2	4.6
Other	4.6	9.1	6.1	-1.8	-15.6	4.4	5.3	5.9	5.5	5.0
Emerging Europe	3.6	5.9	7.6	-1.8	-11.6	5.1	5.1	5.4	5.3	4.8
Africa & Middle East	6.9	8.2	4.2	10.2	-0.1	6.1	6.6	6.8	6.4	6.0
Japan	-0.3	1.8	1.9	-2.1	-9.8	5.7	3.5	3.2	2.7	2.2
Asia-Pacific (ex Japan)	10.7	11.9	13.9	4.9	4.0	12.3	8.5	8.6	8.1	7.7
China	19.0	21.1	20.2	7.7	6.4	16.5	11.9	11.6	11.0	10.5
India	10.7	7.4	10.4	5.2	10.3	8.4	8.3	8.6	8.3	8.2
Australia	-1.2	-8.4	-1.7	0.6	-2.0	2.7	2.2	2.1	2.0	1.7
Korea	1.2	2.8	6.7	1.6	3.0	9.2	5.1	6.3	5.6	4.8
Singapore	3.9	1.9	2.9	-0.6	-13.1	12.9	5.9	5.4	5.3	5.3
Taiwan	-2.0	2.2	7.4	-1.6	-8.3	11.7	6.3	6.6	6.0	5.5
Other	8.6	2.3	4.9	-1.6	-2.5	9.0	7.4	7.5	6.9	6.3
Asia/Pacific	6.4	8.2	9.8	2.6	-0.3	9.5	6.4	6.3	5.8	5.3
Total Global Output	4.2	5.5	4.9	0.0	-3.6	7.2	5.0	4.9	4.6	4.2
Developed	2.3	3.5	2.2	-2.5	-6.0	5.5	3.5	3.2	2.8	2.6
Developing	8.7	8.8	9.3	3.7	-0.7	9.7	7.6	7.7	7.2	6.7
Capital Spending ($bn)	$156.2	$171.9	$204.6	$235.6	$223.8	$242.4	$272.8	$307.8	$342.8	$372.0
% change	12.6	10.0	19.0	15.2	-5.0	8.3	12.6	12.8	11.4	8.5

Source: American Chemistry Council

($1 = €0.81)

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By: Nigel Davis
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