OUTLOOK '18 US chemical industry experiencing renaissance

Author: David Haydon


HOUSTON (ICIS)--Despite disruptions from several major hurricanes three-quarters into the year, the US chemical industry grew in 2017, with similar growth expected for 2018 thanks to continued investments, as well as gains in a wide spectrum of industries.

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Continued gains in manufacturing and exports during 2018 and beyond will drive demand for basic chemicals, in particular for areas where the US has what the American Chemistry Council (ACC) describes as a renewed competitive advantage.

In its year-end 2017-2018 outlook, the ACC noted that American chemistry is experiencing a “renaissance” as new investments come online while others continue to be announced. At the same time, US chemical companies continue to research improving efficiencies and product development.

The continued recovery in the oil and gas sector, as well as improvement in related investments, is a leading factor behind the stronger economic growth figures, the ACC said.

US chemistry output is expected to increase by 3.7% in 2018, driven mainly by export growth due to new capacity coming online, the ACC said.

Although the Society of Chemical Manufacturers and Affiliates (SOCMA) does not conduct formal studies on the economics of the chemical industry, SOCMA Vice President of Legal and Government Relations Robert Helminiak said that anecdotally a lot of its members have had a “stellar” year, with continued expectations of a strong market.

“It’s tough for us to project what the industry is going to do. And especially for chemicals,” he said, “But I would expect we will continue to see an upward trend. There’s always a need for innovation, and that’s specifically what our guys do.”

The end-use markets, such as vehicles and housing, are also driving growth for the industry.

The automotive industry contributes more than a third of the raw material costs of an average vehicle. The ACC estimates that each vehicle represents $3,500 worth of chemical products.

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Although auto sales have been slipping (in particular for internal combustion engines) the demand for electric and self-driving cars is expected to rise next year. California-based industry analyst Edmunds forecasts that the market share for electric vehicles (EVs) overall will go beyond 4% in 2018.

Though adoption of EVs decreases fuel consumption and demand, the vehicles require several lightweight plastics, including acrylonitrile-butadiene-styrene (ABS), polypropylene (PP), polystyrene (PS), polycarbonate (PC), and several others.

Despite the growth, analysts with the Energy Information Administration (EIA) expect that uncertainties with consumer acceptance, vehicle cost, policies and other market conditions could affect EV adoption rates into 2018 and beyond.

The specialty chemicals segment was a particular example for the industry overall. The ACC forecasted that in 2017, production would increase by 3% in 2017, and grow an additional 2.3% in 2018.

Improvement in oilfield and mining chemicals, adhesives, and electronic chemicals were specific drivers for gains in specialty chemicals, though the ACC said the manufacturing and construction sectors are expected to push demand in 2018.

Paul Hirsh, SOCMA’s senior vice president of industry development and strategic partnerships, had similar sentiments towards specialty chemicals and its end-markets.

“We really do see the trend continuing in key sectors like electronics, adhesives and sealants going into 2018 as well,” Hirsh said. “We’re very upbeat in terms of the outlook for 2018 within specialty chemicals overall.”

Hirsh highlighted that providing alternate services with products will be just as relevant in 2018 as the products themselves.

“We are value added within the chemical supply chain. What we see is that playing a part, as our members provide their customers with the service aspect of the project,” he said. “It’s not just providing physical, tangible products, it’s also about providing services as well.”

How much of the chemical industry’s success can be attributed to the political climate, specifically the first year of US President Donald Trump’s administration, is hard to pinpoint. SOCMA noted the chemical industry also did well during 2016.

Helminiak did say that the Trump Administration has at least taken a few deregulatory initiatives that have helped business.

“We’ve seen them push back a couple of departmental labour rules that would have been problematic for the industry,” Helminiak said.

Throughout 2017, the Trump administration made a spectrum of decisions that potentially aided the industry, ranging from signing executive orders reviving the Keystone XL and Dakota Access pipeline projects, to suspending protections against methane leaks under the Clean Air Act.

Regardless of the political climate, the US has a competitive advantage thanks to shale gas and abundant supplies of natural gas liquids, which the industry uses as feedstocks. The ACC expects US production to continue to meet growing global demand in 2018, the latter of which is expected to strengthen in turn.