OUTLOOK '19: US chem industry to grow despite global economic uncertainty

Source: ICIS News

2018/12/28

HOUSTON (ICIS)--The US petrochemical industry in 2019 is primed to continue the growth thanks to feedstock advantage trumping increased economic uncertainty various trade and fiscal policies.

Feedstock advantage

The American Chemistry Council (ACC) expects chemical output to grow by 3.6% in 2019, compared to 3.1% in 2018.

Competitive advantage from shale gas is the main factor keeping the US petrochemical outlook positive, the ACC said.

Although US chemical manufacturers experienced higher oil and gas prices at the end of 2018, the ACC noted they continue to enjoy cheaper and more abundant feedstocks and energy compared to foreign competitors.

The Energy Information Administration (EIA) said it expects strong growth in US natural gas production in 2019 to pressure prices lower.

Liquid natural gas (LNG) export capacity is expected to more than double in 2019, the EIA said, from 3.6bn cubic feet per day (bcf/d) in 2018 to 8.9  (bcf/d) at the end of 2019.

Despite this forecast, market participants could turn cautious following the last quarter of 2018.

"I think so much has changed in the last three or four months, the steadily rising cost of the feedstock for the chemical guys, and the volatile price of oil has brought a little more caution into the game," Deloitte vice chairman Duane Dickson said. "For the chemical industry it’s brought a more cost reduction mindset."

End-use markets

As noted by the ACC, US economic growth in 2018 remained dynamic across a wide spectrum of industries, and chemicals output improved as a result.

The ACC forecasted that improvement in major end-use markets such as housing (representing $15,000 in chemical product per housing start) will also encourage gains in US chemical production for 2019.

2018 2019 Housing starts 1.27m 1.34m

Source: ACC

The auto industry, which represents an average $3,250 worth of chemical products per light vehicle, has a less positive outlook than other sectors.

New US light vehicle sales are expected to average 16.8m in 2019 as opposed to 2018's estimated 17.5m in sales, as forecast by the National Automobile Dealers Association (NADA).

Foreign markets 

The ACC warned that slowdown in foreign markets presents one of the major risks to US economic activity in 2019, as well as restricted access to those markets.

Despite recent progress, rising trade tensions also risk economic disruption, which will in turn negatively effect the chemical industry.

Investment enigma 

The US chemical industry's success in 2019 hinges on abundant and affordable energy/feedstocks, a strong US manufacturing base, a beneficial regulatory environment and access to global markets, as noted by the ACC.

Even if all those factors remain ideal, it's likely chemical companies will favour methodical approaches towards investment decisions for 2019.

2018 2019 Business investment 6.8% 4.7%

Source: ACC

Regarding mergers and acquisitions (M&A), the focus on lower costs will translate into and buying companies at affordable values as opposed to reducing M&A activity overall.

Dickson said companies will likely continue to search for cost savings as they consolidate their businesses.

“I think they’re really going to look at tightening their belts,” Dickson said .“For investments that we saw in digital technology or sustainability, they’ll probably do it, but not as aggressively as if the earnings picture was as it was during the first half of this year [2018].”

Focus article by David Haydon

ICIS US Outlook Seminar 2019

Register for your complimentary place at the ICIS Outlook Seminar on 30 January in Houston, Texas. Join our market experts as they cover the key developments, potential growth opportunities and future trends in the petrochemicals and polymer markets. Secure your place now.