InterviewNorth America industrial revival to accelerate – Accenture
05 June 2012 02:44 [Source: ICIS news]
By Joseph Chang
?xml:namespace>COLORADO SPRINGS (ICIS)--The industrial revival taking place in North America is poised to accelerate in the coming years, boosting demand for chemicals and investment in new production plants, one consultancy said on Monday.
“Based on an analysis of around 96,000 manufacturing projects worldwide, it is clear that North America will increase its share versus the rest of the world,” said Paul Bjacek, global chemical research lead at international consultancy Accenture.
“Asia’s share is also growing, and although EU investment is growing, its share of new investment is declining,” he added.
Bjacek spoke on the sidelines of the American Chemistry Council (ACC) Annual Meeting in Colorado Springs, where Accenture introduced its new study on Global Shifts in Industrial Investment.
Around $1.5 trillion (€1.2 trillion) in new manufacturing projects will take place in North America from 2012-2016 – in energy, mining, chemicals, automotive and heavy equipment, among other sectors, noted Bjacek.
This will equate to an average of $300bn/year in manufacturing investment, steadily rising to about $325bn by 2016. That compares to around $250bn in 2011.
“Manufacturers are siting in North America to keep close to their large customer base, shrinking the supply chain to take out complexity,” said David Yankovitz, chemicals executive director at Accenture.
Two key factors have moved in favor of building manufacturing plants in North America over the past several years - relative labor costs and higher transportation costs because of rising crude oil prices.
“US relative unit labor costs have declined by about 35% over the last decade while China’s has risen by about 70% over the same period,” noted Larry Oglesby, executive director at Accenture’s operations strategy practice.
Foreign direct investment in China manufacturing has declined from $108bn in 2003 to $66bn in 2011, while in North America, it has increased from $47bn in 2003 to $62bn in 2011, according to Accenture.
The investment in the US chemical sector comprised 12% of the total in 2011, noted Bjacek.
The foreign direct investment fall-off in China is also attributable to the rise of China’s domestic players, which have filled the gap, noted Oglesby.
Cheap and abundant gas in the US has added another two-prong boom to North America manufacturing – low-cost energy and low-cost local access to chemical feedstock, said Yankovitz.
“When the oil/gas ratio is under 10 times, there is usually an overseas manufacturing advantage whereas over 10 times favors North America. Right now it is around 50 times, and we don’t see this dropping below 25 times through 2020,” Oglesby said.
The North America manufacturing revival will have major implications for the chemical sector.
“More investment will be required in the North America chemical sector because of the manufacturing revival,” said Bjacek.
“While much of the focus on has been on commodity chemicals for export, we believe companies should start to think about downstream and specialty chemicals to serve the growing domestic industrial sector,” Yankovitz added.
($1 = €0.80)By: Joseph Chang+1 713 525 2653
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