US trade wars would be a big blow to chemical investment – CEOs

COLORADO SPRINGS, Colorado (ICIS)–Escalating trade tensions between the US and its main trading partners are causing concern and ratcheting up risk. If actual trade wars break out, investment in the US chemical industry would take a big hit, company CEOs said on Tuesday.

“In the near term, demand is fixed and will be met somehow. We could see a shift in US and global trade patterns. But long term, this has implications on investment and where that will be made,” said Bob Patel, chairman and CEO of LyondellBasell, at the American Chemistry Council (ACC) press briefing during the trade group’s annual meeting.

“Unfavourable trade outcomes and tariffs erode our feedstock advantage. We are more concerned about the long-term implications. When you build a plant, it’s a 50-60 year investment – you can’t reverse that,” he added.

Since the US shale gas boom, 325 new chemical projects valued at over $194bn have been announced through late May 2018, with 63% of them representing foreign direct investment or including a foreign partner, according to the ACC.

“We are very concerned with the US administration’s actions to date. The new investment is not coming in for the domestic market but to build a platform to serve global markets,” said Cal Dooley, president and CEO of the ACC.

In large part because of the big investments in US chemical projects, the ACC expects the US trade surplus in industrial chemicals to surge from around $33bn in 2017 to $72bn by 2023, Dooley noted.

“We are concerned with the unilateral approach to dealing with trade deficits in parts of the economy. If we are not collaborating with our allies, this exposes our industry and other sectors to retaliation,” said Dooley.

“Retaliation is always targeted to sectors that have a global competitive advantage,” he added, noting that chemicals comprised about 40% of the US products China has targeted for retaliatory tariffs.

“In the short term, we’ll work through [the potential tariffs]. Long term, there would be a huge impact on US investment, as this is meant to serve growth in the world,” said Mark Vergnano, president and CEO of Chemours.

If the US can avoid a trade war, the US chemical industry is “incredibly poised” for growth through the next decade, riding the wave of tax reform, he said.

“The tax law changes give us the ability to put capital in the ground and depreciate the cash side quickly. This is a huge incentive to invest. And more of the cash generated can be funneled to R&D [research and development],” said Vergnano.

“As you look at the US chemical industry, there is a decade of high growth ahead of us. We just have to do it sustainably,” he added.

Vergnano sees Chemours’ Opteon next generation class of refrigerants as a “blockbuster product that will generate billions of dollars in revenue in the next several years” as it “drives down global warming potential in the world”.