News focus: Global chemical outlook for 2013 driven by US and China

04 January 2013 16:43  [Source: ICB]

FORECAST joseph chang new york

Outlook driven by US, China

A US manufacturing boom and recovering China should drive chemical demand in 2013. US volumes are poised to jump

The global economic outlook for 2013 is positive, with the US and China leading the way, but tempered by a continuing recession in Europe, said the chief economist of the American Chemistry Council (ACC).

"The US is the best looking horse in the glue factory. The recovery after the financial crisis was led by the corporate sector, but now the consumer is coming back," said ACC chief economist Kevin Swift. "Light-vehicle sales are exceeding expectations and with the average age of the fleet at its oldest ever at 11 years, there is plenty of underlying demand."

In addition, the US housing market has bottomed out and housing starts should jump 21% in 2013 to around 960m units, noted the economist.

"Inventories of homes are in good shape and shortages have emerged in certain local markets," said Swift.

While housing starts will remain well below the previous peak of 2.07m units in 2005, they will approach 1.5m units, representing the long-term underlying demand level by mid-decade, he added.

Worries about the US fiscal cliff have dissipated after the president and Congress reached a deal on New Year's Day. The cliff referred to automatic spending cuts and tax hikes amounting to $600bn-800bn (€456bn-€608bn), starting on 1 January, if a deal was not struck.

However, some damage from the brinksmanship has already been done. "The corporate sector has already cut back on capital goods orders because of an increase in uncertainty, and this will be a factor in 2013," said Swift.

CHINA CONFIDENCE

China is also expected to recover, with GDP growth of 8.1% in 2013 versus an estimated 7.7% in 2012, noted the economist. "We are optimistic that China's economy will improve as chemical production has recovered," Swift said.

More encouraging economic data has been coming from China, boosting confidence in a recovery after slower growth through much of 2012.

The HSBC China Panufacturing PMI (Purchasing Managers' Index) rose to 51.5 for December 2012, up from 50.5 in November and the highest level in 19 months after the fourth consecutive month of improvement. A reading over 50 indicates expansion in the manufacturing economy while under 50 signals contraction.

Europe remains mired in a sluggish economy. European chemical association Cefic said it expects EU chemical output, excluding pharmaceuticals, to contract by 2.0% in 2012 and could only optimistically project growth of 0.5% in 2013.

In the US, chemical production volumes are poised to surge by 5-6% annually in 2014-2017, driven by the shale gas boom.

"Most forecast models are demand-driven, but the US shale gas phenomenon is a supply-side shock - a positive shock that will have a knock-on effect on chemical production and GDP for the next 10 years," said Swift. "Models don't capture the supply side. While the consensus outlook calls for production growth in the 2-5%/year range, we think the growth profile will be much higher."

For the coming years, he sees US chemical production volumes, excluding pharmaceuticals, rising by 2.9% in 2013, followed by a 5.4% surge in 2014 and another 6.0% jump in 2015.

Already there have been over 50 chemical projects requiring capital investment of more than $40bn announced in the US to capitalise on the shale gas advantage, said ACC economist Martha Moore.

SHALE GAS BOOM

The shale gas boom has pushed up US chemical capital spending, which is likely to have risen by 15.5% in 2012 year to $38.1bn after surging by 19.8% in 2011. Increased spending, more jobs, and a greater dynamism across the sector could mean that the sector-wide profit upswing which started in 2010 could last longer, the ACC said.

Double-digit gains in capital spending are expected in 2015, with only a slight slowdown after that. Capital spending across the industry is expected to reach $64.5bn in 2017, more than twice the amount spent by the industry in 2007.

ACC research has indicated that shale gas could boost US manufacturing and economic output across eight analysed industries by $121bn.

"We see shale gas fuelling the US manufacturing sector, which will also pull on chemical demand. But also some of the surplus will be going to exports because of renewed US competitiveness," said Moore.

The ACC projects US chemical exports will rise by 4.7% to $199.7bn in 2013, 6.6% to $212.8bn in 2014, and 7.0% to $227.8bn in 2015.

While chemical imports are also expected to rise in the coming years, the ACC expects US chemical trade surpluses to increase every year, from $1.2bn in 2012 to $6.4bn by 2017.

Additional reporting by Nigel Davis in London

Rex Features

US manufacturing should revive, led by consumer spending

"Most forecast models

are demand-driven,

but the US shale gas

phenomenon is a

supply-side shock - a

positive shock"

KEVIN SWIFT

Chief economist, ACC

Track the ups and downs in the chemical industry with news and analysis on icis.com

"Most forecast models are demand-driven, but the US shale gas phenomenon is a supply-side shock - a positive shock"

kevin swift

Chief economist, ACC


By: Joseph Chang
+1 713 525 2653



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