06 December 2010 17:24 [Source: ICIS news]
By Nigel Davis
Spending on plants and equipment was ramped up this year following the slump in 2009 and could reach $247bn, the American Chemistry Council (ACC) said late last week. It was $239bn in the sector in 2008.
In its end-of-the-year appraisal and outlook, the chemicals advocacy group forecasts a 13.5% increase in capital spending in 2011 to $280bn and a rise to $317bn in 2012. In 2009, it slumped 4.5% to $229bn.
However, it comes as no surprise to learn that the ACC’s forecast is for 90% of the incremental investment gain between 2010 and 2015 to be made in emerging markets, with “noteworthy gains” in
Production capability is being tagged to demand growth, as BASF showed on Monday, when it announced further expected heavy investment in Asia, this time in specialty chemicals with
The ACC believes that the most rapid chemicals volume growth will be in the emerging economies, with a 12% rise in 2010 followed by 8.4% and 7.7% gains in 2011 and 2012, respectively.
In the developed economies, which as far as chemicals is concerned have been given a lift in 2010 by a number of factors, output growth is expected average 3.1% a year in the 2011-2012 period.
The point is that the chemicals industry is mirroring broader industrial activity, which this year, in the developed economies, was lifted initially by fiscal stimulus initiatives and by restocking. However, with both coming to an end, chemicals growth has already moderated and is likely to continue to do so, taking investment spending with it.
Oxford Economics, which regularly issues estimates of global chemicals growth, said on Monday that world chemicals production slowed markedly in the third quarter to 0.5% from 1.8% in the second quarter.
“Sluggish growth in [the second half] will limit the rise in world output to 7.25% this year, with the developed economies up by 5.25% and emerging markets up by a lower than expected 10%,” it said.
Developed economies are projected to grow by 3% in 2011 and slip to 2.5%, with emerging markets up by over 9.5% initially but sliding towards 7% by 2020.
Oxford Economics has lowered its estimate of world chemicals growth for this year and next from previous estimates, with global economic developments, particularly in the eurozone, providing the downside risk.
The ACC is a little more upbeat but makes the critical point that slow economic growth in the
“Three years after the recession began and nearly 18 months after its end, however, [
“The recovery is fragile; multiple risks remain and the wrong trade, tax and other policy initiatives could derail activity.”
That fragility is being reflected in output statistics but not yet in prices. With oil prices moving higher, there is pressure on chemicals producers to continue to raise their own prices and push the pain of higher costs downstream.
“The rise in prices, driven by energy costs, is not likely to affect the countries with competitive exchange rates, as they are more able to pass on rising costs,” Oxford Economics says. Unemployment is limiting the inflationary pressure of wage rises.
But investment is lacking in the developed world and, according to Oxford Economics, it is unlikely to recover in a major way until 2011.
The pace at which emerging markets are taking investment and chemicals volume growth away from the developed economies is accelerating.
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