Market intelligence: Global outlook for 2014 is mixed, depening on region

06 January 2014 00:00 Source:ICIS Chemical Business

US chemical industry economists may be upbeat but those in Europe are less so, although there is confidence among analysts that the eurozone’s problems are being managed and that growth will return.

The global industrial cycle is beginning to turn upwards, economists at the American Chemistry Council (ACC) said.

Inflationary pressures have eased and monetary policy around the world is more accommodative of growth.

They suggest that 2012 and 2013 are years to forget, but that the US chemical industry is back in the game as a result of the gas boom.

Nevertheless, slow economic growth in the US, Europe beginning to pull out of recession and China looking somewhat stronger are among the few plus-points at the end of 2013.

Austerity measures still squeeze the potential for stronger global economic growth. The shift in economic emphasis in China is particularly important for producers of chemicals, who have come to rely on ever-advancing China demand.

The US chemical industry has every right to be buoyed by shale gas.

Input costs have dropped remarkably in a few years. A new wave of investment has lifted spirits as well as opportunities across the sector.

EUROPE PERSPECTIVE

It cannot be the same in high-cost Europe, although there are opportunities in adversity. Certain segments of the industry will do much better than others even though cost competitiveness is such an over-arching issue.

From a European perspective, stronger demand growth still seems a long way off.

“These green shoots will need a lot of watering,” credit ratings agency Standard & Poor’s said. “Recession is gradually receding from the eurozone, but a recovery looks set to be slow and uneven across the member states.”

S&P’s GDP forecasts for the eurozone are for a decline of 0.6% in 2013 and an expansion of just 0.9% in 2014.

Global chems graph

“Various other indicators suggest that a European recovery will be long and arduous,” it said.

For chemical producers, the premium to GDP that they can capture is still achievable in some of the potentially faster-growing emerging economies.

Stronger industrial growth in the large chemical markets in the US and Europe in 2014 is also likely to help drive chemicals demand.

US CHEMICALS OUTPUT

US chemicals output will continue growing this year, rising by 1.6% from the 0.1% gain in 2012, the ACC said.

It forecasts that production should increase by 2.5% in 2014 and possibly 3.5% in 2015.

Given the wave of investment upstream in the sector by the second half of the decade, US chemical production growth could be exceeding 4% a year. A significant proportion of the new output, however, would be directed at export markets.

“The US chemical industry may be experiencing its own tipping point,” ACC chief economist, Kevin Swift, said in an interview with ICIS. “Following a decade of lost competitiveness, the sector is re-emerging as a growth industry.”

The revival of the US chemical industry is evident in the level of investment going into the sector. Capital spending surged by 14.9% in 2011, another 16.9% in 2012, and is expected to gain another 10.0% in 2013 to $42.4bn.

Then capital spending is set to grow by 8% on average through 2016 with only a minor slowdown thereafter, according to the ACC.

“By 2018, US capital spending by the chemical industry will reach $61.2bn – more than double the level of spending at the start of this prolonged cycle in 2010,” said Swift.

GERMANY VIEW

The forecasts for chemicals production output in Europe are, not surprisingly, less positive.

“There will be an upward development next year for the German chemical industry – but a slow one,” president of Germany’s chemicals trade group, the VCI, Karl-Ludwig Kley, said.

The stability mechanisms in the eurozone are showing effect, he added, expressing cautious optimism for the region as a whole.

Chemicals production growth worldwide next year is expected to be similar to that in 2013 at 4.5%, according to the VCI.

Chemicals production growth in the EU, including pharmaceuticals, is likely to improve to 1.5% in 2014 from 0.5% in 2013, the trade group forecasts. Chemicals growth in the US is expected to rise to 2.0% in 2014 from 1.0% in 2013 but contract in China to 10.0% in 2014 from 12.0% in 2013.

Production growth started to pick up in the US in the fourth quarter of 2012 and in Europe in the second quarter of 2013.

Basic chemicals and petrochemicals have been troubled, however, while the output of agricultural chemicals, specialty chemicals and consumer chemicals, has been stronger.

Plastics, rubber and fibres output has been relatively strong.

  • Additional contribution from Joseph Chang in New York
By Nigel Davis