INSIGHT: Chemicals output grows slowly with manufacturing under pressure

17 December 2012 16:34  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Expect more of the same in 2013, at least at the beginning of the year as chemicals sector growth is hobbled by the recession in Europe, lacklustre economic growth in the US and the slowdown in China.

Demand is not likely to come bouncing back but industry economists are expecting an eventual return towards trend, probably in 2014, with business picking up more strongly in the developing world.

“Global economic prospects will be characterised by a two-speed world in which the developed nations (constrained by debt, adverse demographic factors, and tighter fiscal policies) grow slowly while the emerging markets offer more dynamic prospects as a result of industrialisation and rising consumer-driven economies,” the economics team at the American Chemistry Council (ACC) says. “Asia will continue to outpace the rest of the world and growth in other emerging markets will be strong as well.”

The ACC’s current projections for 2013 are not exactly encouraging. It foresees chemicals production growth of just 3.6%, but something of a bounce back to output growth 4.6% in 2014 and 2015.

On a global basis, output growth in 2012 is likely to reach 1.2%, a sharp contrast to the 4.5% rate of expansion seen in 2011. Looked at on a developing to developed world basis, growth in 2012 is put at 4.9% to -1.0% respectively, and at 6.8% to 1.8% in 2013.

In this analysis, which includes pharmaceuticals, developing world chemicals output increases steadily with strong growth predicted for China, India and other nations in Asia. Chemicals growth in western Europe is expected to be poor while the US edges up slightly.

“During 2012, the trends in the global business of chemistry have paralleled the trends in broader manufacturing,” the ACC says. “Overall growth in the $5.0 trillion global business of chemistry stalled, with a recession in Europe and pronounced slowdown in China.”

A feature of 2011 was the first half growth for petrochemicals and plastics, and it is clear that the momentum for these businesses was lost in 2012 – it had been from the middle of 2011. The switch in output growth for what the ACC calls “bulk petrochemicals & organics” has been significant, from 7.2% in 2011 to just 0.5% in 2012. Plastics output meanwhile dropped from 4.5% to 0.7%.

These numbers clearly reflect the downturn in manufacturing, in the automobile industry and in construction in 2012, overlaid with the more general industrial slowdown in China.

China’s future economic growth is likely to soak up more of these products, as well as others such as inorganics, synthetic rubber and man-made fibres.

However, global growth is likely to be tempered by much lower manufacturing activity in Europe and the seemingly still fragile recovery in the US.

The so-called fiscal cliff, which could be triggered in the US at the end of 2012 and take as much as $800bn (€600bn) out of the US economy, adds further uncertainty to an already difficult outlook.

The weakness in manufacturing globally has hit the basic, or upstream, chemical segments hard in 2012, with global growth for basic chemicals of 0.6% in 2012.

The output of these products grew more strongly after the 2008-09 global slump, driven to a large extent by government economic stimulus.

Specialties output began to outstrip that of basic chemicals in 2011 and that continued into 2012. The ACC sees a specialties production growth of 1.3% in 2012, from 4.0% growth in 2011.

Not surprisingly, consumer products and agricultural chemicals output have held up reasonably well in 2012 – with growth at 3.0% and 2.1% respectively. Their output growth in 2011 was 4.4% and 7.2%.

The chemicals sector, excluding pharmaceuticals, is expected to grow by 1.1% in 2012 from 4.5% in 2011. Output of this group of businesses is expected to expand by 3.4% and 4.5% in 2013 and 2014 respectively.

Read Paul Hodges’ Chemicals and the Economy blog
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By: Nigel Davis
+44 20 8652 3214

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