OUTLOOK ’23: More challenges in 2023 after big year for US chems

HOUSTON (ICIS)–While the chemical industry may have experienced one of its best years in a decade, growth slowed in the latter part of 2022, casting a bit of industry doubt as the calendar turns to 2023.

“We anticipate a shallow recession beginning in early 2023 followed by recovery in latter part of the year,” said Martha Moore, ACC chief economist and author of the ACC Outlook. “Weak demand in the US and abroad will weigh on US chemical producers but chemical manufacturing in the US will continue to enjoy a competitive advantage on the strength of domestic energy production.”

Deloitte, in its 2023 outlook, pointed to emerging new industrial policy in the US, evolving consumer preferences, supply chain challenges, and economic uncertainty as key issues to watch in the coming year.

As with other sectors of the economy, inflation continues to affect the purchasing power of consumers as 2022 comes to a close.

Likewise, the war between Russia and Ukraine worsened inflation, while central banks aggressively tightened monetary policy and increased interest rates in 2022.

Meanwhile, China continued to deal with COVID-19 lockdowns and property downturn.

In the face of global concerns, the US economy was resilient because consumers have had healthy balance sheets due to a large cushion of savings.

Consumer spending in 2022 focused on goods. Recently, it is rotating to services, which should affect demand for chemicals.

Looking ahead to 2023, consumer spending will determine how deep the downturn is.

Supply chains are improving, but they are still more fragile than before the pandemic.

US business investment was one of the largest contributors to GDP growth this year, but is expected to slow to 0.4% in 2023.

The ACC is predicting a shallow recession for 2023, and US GDP growth is expected to be flat.

Among the major chemical end markets, 15 out of 18 had positive growth in 2022. That could fall in 2023.

Automotives will be one of the stronger sectors in 2023. The US had three years during which vehicle production was suppressed because of supply-chain problems. As a result, there is pent-up demand.

Energy is expected to be another growing sector in 2023.

Natural gas production has exceeded its pre-COVID peak, but US oil production has not because of tight labour and scarce building materials.

With this in mind, US oil production will not break its pre-COVID peak until 2024.

Semiconductors is another growing sector. New semiconductor capacity is starting up, and bottlenecks are easing.

For chemical exports, the stronger dollar has hampered shipments. Still, the US has a cost advantage against foreign producers, and energy fundamentals favours US production, on the heels of a record year in 2022.

Capital spending in the chemical industry will slow down in 2023, the ACC said, and will shift towards lowering greenhouse gas emissions and chemical recycling.

Four chemicals industry trends to watch for 2023 include:

Integrating innovation and sustainability
Global chemical producers expect to focus on their stated objectives of emissions reduction to meet their 2030 goals, starting with Scope 1 and 2 emissions and, in many cases, driving noticeable reductions across Scope 3 as well, Deloitte said. And to impact the larger ecosystem, these efforts should reach beyond abatement to harness material or product alternatives on a larger scale.

Near-term portfolio action
Buoyed by gains in 2022, the chemical industry enters 2023 in a strong financial position. The year ahead could be a turning point when companies emphasise the long-term viability of product portfolios in the context of sustainability in a move toward asset-oriented deal-making, Deloitte said. This trend will take longer to scale, given the uncertainty around feedstock prices, energy demand, supply chain, and end-market demand.

Balancing costs and carbon footprint
Over the coming year, reevaluating supply-chain structures will be critical for producers to meet the scale of changes required for the next decade, Deloitte said. Overall, supply chains will need to balance costs and carbon footprint while managing resiliency – maybe not the easiest ask – which will require companies to consider strategies markedly different than those of the past three decades.

Emerging technologies drive value chain improvements
Digital implementation is changing the decision-making of chemical producers. However, the near-term focus will be on stabilising current platforms and capabilities, with the intent to monetise the current investment pool before expanding to newer areas, Deloitte said. Producers may increasingly use digital technologies to empower materials innovation.

Focus article by JT Strasner