Industry Market Trends

U.S. Chemicals Outlook Improving

Mar 03, 2011

The U.S. chemicals industry showed significant improvements in 2010, and signs point to a continued upswing in 2011, due in part to exports to emerging markets, according to recent data.

The outlook for chemicals manufacturing in the United States is gradually improving and production is set to increase 3 percent in 2011, thanks in part to dramatic growth in export markets for chemical products, the American Chemistry Council (ACC) recently reported.

In 2010, U.S. chemistry exports were up 17 percent, shifting the trade balance for the industry from a $0.1 billion deficit to a $3.7 billion surplus — its best performance in a decade — according to the ACC's 2010 Year-End Situation and Outlook (purchase required).

Growth in export markets last year also partially offset soft domestic demand for chemistry products.

Domestically, the chemical industry's production volumes increased across all regions of the U.S. in 2010, following steep declines in 2008 and 2009. The largest gains occurred in the Gulf Coast and Ohio Valley regions, boosted by export demand for basic chemicals and plastics, according to the ACC, which expects output to grow moderately in all regions in 2011 and continue to improve through 2012.

The stage is now set for improving operating rates and profit margins, which could lead to moderate increases in new plant and equipment investment in the U.S.

"Last year turned out to be a pretty good year for the chemical enterprise," Chemical & Engineering News (C&EN) recently reported. "After having drawn down inventories to the bottom during the recession, consumers of everything from melamine to mass spectrometers had to buy again. Demand for chemicals rose 5.2 percent in the U.S. and Europe."

However, that restocking effect has "run its course."

"The U.S. chemical industry will have to go beyond restocking its customers' inventories to experience growth in 2011," a separate C&EN report explained. "The sales bump that began in mid-2009, when manufacturers replaced stockpiles whittled down during the recession, has faded."

In its place will be strong export demand, especially from emerging markets, according to the ACC.

Today the $674 billion American chemistry enterprise accounts for more than 10 percent of U.S. exports. Growth in export markets is driven by several factors, including favorable energy costs resulting from shale gas extraction, as well as emerging markets, where recovery and expansion have been strongest.

"Growth in emerging markets, most notably in China, India and Brazil, is increasing demand for chemistry feedstock materials," the ACC explained in an announcement of its annual report. "Production of chemistry products in emerging economies increased by 12.2 percent in 2010, and further gains are expected.

"During 2011, as emerging nations continue to present good growth prospects, trade in chemicals will continue to expand," according to the announcement.

Following the global financial crisis, emerging regional economies in Asia and Latin America, among others, fared better than the U.S. and Europe. While many markets in Central and Eastern Europe contracted in 2008 and 2009, they have recovered and are forecast to grow steadily as fears of a double-dip recession recede.

"The regional performance of the chemical industry has reflected this strong recovery, with many companies matching or exceeding precrisis levels," ICIS Chemical Business said. "A raft of new projects are planned for Asia and Latin America. China's phenomenal growth hardly slowed in the slump and is proving to be the engine of global recovery."

Throughout 2010, companies continued to focus on improving efficiencies, product innovations and research and development. Yet demand volatility and its associated risks are expected to be a major challenge in 2011 and beyond.

"Listening to record profit announcements of the chemical industry around the globe, the economic crisis seems to be overcome faster than anybody imagined only one year ago — but what is the real outlook?" Alexander Keller, global head of the chemicals/oil practice group at Roland Berger Strategy Consultants, recently told ICIS. "Certainly 2011 will become a year of 'calming down,' seeing some growth on a lower basis.

"What's more interesting — and threatening — is 2012 and further on," Keller added. "With basically no manager in the chemical industry not being asked to put investment plans in place to keep pace with the demand, mid- to long-term thinkers see the next slump ahead, this time caused by overcapacities and not economic indicators."

Earlier: Tough Year Ahead for Chemicals


2010 Year-End Situation and Outlook (purchase required)

American Chemistry Council, Dec. 3, 2010

Economic Outlook for U.S. Chemistry Industry Improving...

American Chemistry Council, Dec. 3, 2010

World Chemical Outlook

by Michael McCoy, Marc S. Reisch, Melody M. Bomgardner, et al.

Chemical & Engineering News, Jan. 10, 2011

U.S. Weak Domestic Demand Will Be Offset by Strong Exports...

by Melody M. Bomgardner

Chemical & Engineering News, Jan. 10, 2011

Chemical Industry Growth Fares Better in Emerging Regional Economies

by Will Beacham Anna Jagger and John Richardson

ICIS Chemical Business, Dec. 20, 2010

Chemical Industry Predictions for 2011

by Andy Brice

ICIS Chemical Business, Jan. 3, 2011