News focus: US chemical sector growth to accelerate to over 4% annually

27 June 2014 09:43 Source:ICIS Chemical Business

Volume growth could ramp up to over 4% annually in the back half of the decade, according to the ACC’s chief economist

The US chemical sector could see volume growth ramp up to over 4% annually in the back half of the decade, driven by strengthening industrial production in the US and abroad, and the major shift in US competitiveness from the shale gas boom, according to the American Chemistry Council (ACC).

“During the second half of the decade, US chemistry growth is expected to expand at a pace exceeding that of the overall US economy – over 4%/year on average,” said Kevin Swift, chief economist of the ACC, in the group’s mid-year outlook report.

This high rate of expected growth compares to modest volume growth of 0.1% experienced in 2012, and 1.3% in 2013. The economist expects volume growth to jump to 3.0% in 2014, followed by an acceleration to 3.4% in 2015.

The surge in natural gas liquids (NGL) supply has made the US one of the lowest cost chemical producers globally.

“North American chemical producers have a 50-60% cost advantage over those in Western Europe and Asia,” said Martha Moore, senior director, policy analysis and economics at the ACC, on a webinar on the outlook on 25 June.

“With Middle Eastern producers using blends of heavier liquids, the US will be even more competitive. Limited ethane supplies in the Middle East 
suggest that new projects starting-up at the end of the decade will crack naphtha, and thus have little cost advantage,” Moore added.

And massive capacity expansions are being undertaken in the US to take advantage of this cost position.

Already there are 186 chemical projects announced or being built in the US, representing around $117bn in capital investment, according to the ACC. By segment, 52% is in bulk petrochemicals, 24% in fertilizers, 17% in plastic resins and 4% in inorganic chemicals. And it’s not just US-based companies taking advantage. Foreign direct investment (FDI) represents 62% of the total planned capital investment.

“The wave of investment could reach over $130bn spread out over 12 or more years. The peak year for investment outlays will be in 2016 or 2017,” said Moore.

And the needle will start moving in 2015, in terms of output.

“For those asking when the growth from all this investment will appear, I tell them, just wait. 2015 will be when the wave of investment kicks in, and then we’ll see further strong growth from there,” said Swift.

The strongest gains will be in bulk petrochemicals and organics, followed by plastic resins and synthetic rubber, he noted.

“In all scenarios, the US captures market share away from Western Europe,” said Swift.

The US economy will rebound strongly from a sluggish winter weather-impacted first quarter of 2014, said the economist. First quarter GDP was revised downward to -2.9% on 25 June by the Bureau of Economic Analysis.

“The US economy will expand strongly in the second half, supported by improving consumer balance sheets and employment gains. Consumer spending will reassert itself. And with higher confidence levels, we’ll see a return of business fixed investment, led by spending for equipment,” said Swift.

The US housing sector should benefit from low interest rates and rising unemployment, although the recovery has so far been uneven. However, the automotive sector is steadily gaining strength he said.

“Light vehicle sales continue to grow steadily with 2014 sales expected to crest the 16m mark for the first time since the recession,” said Swift.

“11.4 years is the average age of light vehicles – the highest since the 1930s,” Swift said. “Pent-up, demand, improving employment and income prospects, the oil and gas boom, and better availability of credit will foster further growth.”

The economist expects US light vehicle sales to rise again to 16.4m units in 2015.

Boosted by the shale oil and gas boom, US industrial production is expected to grow by 3.7% in both 2014 and 2015 – up from 2.9% in 2013.

By 2015, industrial output growth will have outstripped services output for the sixth consecutive year, he said.

“Industries supplying to building and construction, and light vehicles are doing well as are capital goods-related industries, especially energy,” said Swift.

And globally, the industrial production cycle is starting to turn upwards, led by momentum in the US, the UK and Germany, noted the economist.

Global industrial production, which saw growth of 2.4% in 2012 and 2.4% in 2013, is expected to jump to 3.9% in 2014, and 4.0% in 2015, according to Swift. In China, industrial production growth, which slowed in 2013 to 9.7% from 10.1% in 2012, is expected to slow further to 8.6% in 2014 and 8.4% in 2015.

By Joseph Chang