INSIGHT: US retains momentum in chemicals, companies go for growth

31 December 2010 15:46  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Although some remain wary of bursting bubbles of chemicals demand, emerging market growth will drive the sector over the next few years. And the optimists predict that the US industry may be on the threshold of a “’stronger for longer’ supercycle”, based on cheap natural gas and limited new global production capacity.

Chemical industry economists are forecasting strong emerging market growth out to 2012 with the strength weighted more towards the early part of the period.

“During the next two years, the most rapid growth will occur in the merging nations in Asia-Pacific, Africa and the Middle East, Emerging Europe and Latin America,” says the American Chemistry Council’s (ACC’s) chief economist, Kevin Swift. “Most notable are China, India and Brazil, but Korea Singapore and Taiwan will present good growth prospects through 2012.”

According to the ACC, emerging market chemicals production volumes will increase by 12.2% in 2010, by 8.4% in 2011 and by 7.7% in 2012.

The US chemical industry is likely to expand at a much slower rate as the domestic economy takes longer than many might have expected to recover. The ACC’s current chemicals output growth forecast for the US industry is 3.1% in 2010, 3.0% in 2011 and 3.4% in 2012.

But where there is growth there is some hope for stronger corporate returns. And given the lift expected for basic chemicals production in North America from the development of shale gas resources, the sector has a new spring in its step.

The US chemical industry could be on the verge of a new supercycle, says Hassan Ahmed, head of research at US-based Alembic Global Advisors.

His prediction is based on strong emerging market chemicals growth and, in the US, cheap natural gas.

And Alembic reckons that the market does not yet full appreciate the imminent ‘stronger for longer’ supercycle implications. Peak commodity chemical company earnings, possibly as early as 2013, could be more than double the levels seen in 2010, Ahmed suggests.

A slowdown in planned ethylene capacity expansions points to tighter supply/demand balances sooner rather than later.

In December, Lyondellbasell suggested at an investor day that peak petrochemical market conditions might be expected within three to four years.

”We think the [ethylene] up-cycle is finally in place,” Bob Patel, the head of olefins & polyolefins outside of North America said.

Demand-side uncertainty had been replaced by a more positive trend, he suggested, with close to double-digit growth in Asia and the highly-anticipated cyclical trough was finally upon the sector.

Building away from that trough promises to be an exciting time through which US chemical industry competitiveness can be showcased.

US chemical exports are expected by Swift and his colleagues to rise - thermoplastics exports are expected to be up 15% in 2010. A positive US chemicals trade balance is forecast for 2010 with a much stronger positive balance in 2011.

In its latest economics update, the ACC says that while individual product reports at the end of 2010 suggest some seasonal softening, the year-on-year comparisons for most resins are good. Chemicals production in the US continues to gain ground and is rising globally although at a slower pace than previously.

That momentum suggests that industry players can continue to benefit from global growth running into 2011 and the North America ethane advantage.

US industry pundits are forecasting a stellar year in 2011 in terms of earnings with profit improvements across the board.

Paul Hodges studies key factors shaping the chemical industry in Chemicals and the Economy
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By: Nigel Davis
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