INSIGHT: Manufacturing slowdown takes its toll

09 July 2012 15:42  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--The strongest growth in output year-on-year in chemicals in 2012 is expected in specialties, as the global slowdown in manufacturing takes its toll in basic inorganics and petrochemicals.

The question is whether the current slowdown is likely to get worse before stronger growth is achieved and the more cyclical chemical businesses pick up. The prognosis is not good.

The American Chemistry Council (ACC) last month put a number of 2.3% on output growth for the industry globally, with the expectation of growth of 4.3% in 2013 and 4.7% in 2014. The mid-2012 forecast reflects the poor economic outlook for Europe, lacklustre growth in the US and, importantly, a slower pace of growth in China.

ACC economists suggest that globally specialties other than coatings will grow by 3.1% this year, while chemicals excluding pharmaceuticals will achieve growth of 2.2%. Growth last year for specialties (coatings aside) was also 3.1%, but chemicals growth as a whole was a healthy 4.5%. The slowdown is expected in parts of the industry that feed directly into manufacturing.

“From a product standpoint, the strongest growth in 2012 is expected in specialties, consumer products and agricultural chemicals,” the ACC says. “As the global manufacturing sector cools, so will demand for basic chemicals.”

Bulk petrochemicals & organics and plastic resins are expected to grow by just 1.8% and 1.9% respectively in 2012, before resuming growth closer to the trend in 2013.

And regionally, most of that growth is likely in emerging markets – even given China’s expected growth slowdown.

“Looking ahead, however, growth will be driven by the cyclically sensitive sectors such as petrochemicals and organic derivatives, plastic resins, synthetic rubber and man-made fibres, as well as specialty chemicals and consumer chemistry,” the ACC says.

In the coming years, the output of chemicals in emerging markets will outpace production in the developed countries. India and other emerging markets in the Asia-Pacific are expected to expand. “Africa and the Middle East will also experience strong growth, as will Latin America after 2012,” it adds.

The ACC believes that long-term growth for the sector, including pharmaceuticals – demand for which will be underpinned by demographics, particularly the ageing of populations – will be 4.0% on average, or above projected GDP growth.

The problem currently, however, is that chemicals finds itself in the grips of the global slowdown. Manufacturing and construction – key end-use sectors – remain under pressure. Consumer spending is being curtailed.

The latest data show that global manufacturing has contracted for the second time in three years – and at a pace not seen since May 2009, the ACC says in the preface to its latest weekly economics report. “Output declines were widespread, with contractions accelerating in China and Brazil. The deterioration in Europe continues to weigh heavily on output.”

Key indicators for chemicals in the US also do not look great. Railcar loadings, which are used as an indicator of the volumes of chemicals being moved across the country – and hence of sector activity – continued to track downwards in June. A US Institute for Supply Management report last week indicated that the industry contracted in June, although employment and hours work data suggest otherwise.

Of concern is the suggestion that indicators for chemical activity point to yellow (for caution) in the traffic light system the trade group uses to assess the health of the sector in the US. The colour applies to both basic and specialty chemicals.

Global chemicals production outlook

% change year-on-year

2009

2010

2011

2012

2013

2014

2015

2016

2017

US

-11.3

3.4

0.7

0.5

2.3

2.8

3.2

3.1

2.9

Latin America

-5.3

7.0

0.6

2.7

4.5

4.8

4.0

4.1

3.9

Western Europe

-7.2

7.7

1.6

-0.6

2.0

2.6

2.6

2.5

2.4

Emerging Europe

-16.4

13.8

4.2

-1.0

4.0

5.1

4.8

4.6

4.4

Africa &
Middle East

-2.0

10.8

1.8

4.4

5.5

6.0

5.5

5.3

5.1

Japan

-7.5

6.6

4.0

0.9

3.8

3.5

2.8

2.0

1.7

China

4.8

17.7

10.7

11.2

10.5

10.3

9.4

9.0

8.9

Asia Pacific

2.1

15.5

9.5

6.0

7.5

7.4

6.8

6.3

6.1

Global output

-4.7

10.0

4.5

2.3

4.3

4.7

4.4

4.2

4.0

Developed

-4.4

9.9

4.0

3.8

2.5

2.9

2.9

2.7

2.5

Developing

-2.9

12.0

4.6

4.8

6.8

7.0

6.4

6.1

5.9

Source: American Chemistry Council

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog


By: Nigel Davis
+44 20 8652 3214



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