News focus: New demands on chemical suppliers

30 April 2012 00:00  [Source: ICB]

Increasing North American shale gas extraction and resulting low natural gas prices have the potential to revive not just the US petrochemicals sector, but domestic manufacturing across a broad range of industry sectors. The rapid scale-up of shale gas production over the past couple of years has changed the global competitive landscape and is prompting US manufacturers to reconsider their offshoring investment strategies.

Robotic manufacturing, Rex Features

 © Rex Features

Automation increases productivity, boosting US manufacturing

Lower energy prices at home, rising labor costs in China and other parts of Asia and still-prevalent concerns over intellectual property (IP) protection are leading to a relocation of manufacturing investment to US shores, or perhaps to near-shore Mexico, says Paul Bjacek, global chemical research lead at international consultancy Accenture.

Another big factor in the renaissance of US manufacturing, says Bjacek, is the increasing efficiencies being driven through automation, which have the effect of reducing total cost to produce.

Add in concerns over rising distribution costs in general - particularly supply chain security - following the Japanese earthquake and tsunami and the severe floods in Thailand, both of which had a global impact, and the picture looks more or less complete for US domestic production to ramp up.

This in turn will feed back into enhanced domestic demand for chemicals across a broad range of end-use customers, in sectors such as energy, metals and pulp and paper; automotive and electronics; and many others.

CHEAP FEEDSTOCKS

The chemical industry is already gearing up to exploit cheap ethane feedstocks with plans for a number of ethylene crackers in the US Gulf and northeastern states, but the demand stimulus for chemicals will be much wider than just basic petrochemicals.

As a result, says Bjacek, US and even global producers of a broad range of chemicals will have to look again at their investment and manufacturing strategies in the light of this fundamental shift in regional competitiveness.

"Chemical companies are already aware of changes in North America's gas-cost position," says Bjacek, "but less aware of the rising investment happening in downstream customer industries. They need to be aware of this and ask what it takes to serve these customer industries as they re-establish production in the US.

"They are among the most demanding of industries. So investment-driving forces are not just affecting commodities, but specialty chemicals too."

Research shows the US is now attracting a greater share of global manufacturing investment again, and that over the next 10 years Asia and North America will be the dominant regions for investment.

 ICIS/ACCENTURE TRENDS SURVEY

To get a clearer view of how the chemical industry is responding to this changing investment environment, ICIS, in association with Accenture, is this week launching research on the views of global chemical producers on the issues and trends described above. And we need your input.

How does your company see current trends? What industrial markets do you see as most likely to grow, and where? Are you adjusting your geographic investment spread and building key capabilities to serve customers, and what do you see as the main barriers to investment in your main target regions?

Visit our brief questionnaire at icis.com/surveyq2 and let us know what you think. All replies will be aggregated to maintain anonymity and a survey of results will be presented in Accenturean article in ICIS Chemical Business in June.

Thank you for taking part.

Bjacek says that Accenture has identified some $1.5 trillion (€1.14 trillion) worth of new investment in the US over 2012-2016, in projects that are already under construction or look certain to proceed. These are across diverse sectors, such as energy, pharmaceuticals, pulp and paper, chemicals and manufacturing industries.

This is not to say, adds Bjacek, that the US is becoming the only place for chemicals investment. Capacity in the Middle East is still growing at a robust rate, with projects such as the Saudi Aramco/Dow Chemical Sadara mega-complex, while China is pushing ahead with coal-to-chemicals technology and still has high market growth.

RISING COSTS

But labor costs are rising rapidly in China, making it relatively less attractive as a manufacturing base. It may still be the location of choice for high-volume commodity products in, say, electronics, but with concerns over IP and greater productivity from automation, the US can compete selectively for specialized, low- to mid-volume products in this sector, according to Bjacek.

Already there are some major examples of new investment, such as South Korean firm Samsung's recent start-up of a new $3.6bn highly automated facility in Austin, Texas, to fabricate chips for the Apple iPad. The recently expanded fabrication plant, one of the largest in the US, produces advanced logic devices for Samsung's System LSI business.

 


By: John Baker
+44 20 8652 3214



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