Market and product

Recovery for chemical makers should continue with global and U.S. production set to increase 5% in 2011, according to ACC’s 2010 Year-End Situation and Outlook. “Globally, recovery in chemicals has shifted to expansion,” says Kevin Swift, ACC chief economist and managing director. “The prior peak has been breached for global chemical shipments, but the U.S. is lagging and still in recovery mode.”

Global chemical production will grow at a more reasonable pace in late 2010 and through 2012, Swift says. “Overall activity in the $3.4 trillion global business of chemistry improved 8.8% in 2010 as the global economic recovery extended into its second year,” Swift says. “As the global expansion continues, a 5.4% gain in global output is expected in 2011, and a 5.1% gain is expected in 2012.”

U.S. shipments are expected to reach $734 billion in 2010, up 8.8% from a year ago but still below the 2008 peak. As recovery gains further traction in 2011, shipments are expected to gain 5.1% and exceed the previous peak. U.S. chemical shipments are forecast to expand a further 5% in 2012, ACC says. Unemployment, weak consumer spending and poor housing markets have contributed to slower recovery in the U.S., Swift adds.

The most positive development in the U.S. has been soaring exports, aided by strong global demand and the improved cost position for U.S. chemical makers. “The growth in export markets in the story of the year,” Swift says. Lower prices and greater availability of natural gas and natural gas liquids (NGLs) such as ethane, a key petrochemical feedstock material, has improved the cost position of North American producers. U.S. natural gas reserves have risen by one-third in the past five years due to greater shale gas exploration, lowering gas and NGL prices.

U.S. chemical exports will likely be up by 17% in 2010, shifting the trade balance for the industry from a $100 million deficit last year to $3.7 billion surplus, the best performance in ten years. “Shale gas extraction has been a ‘game changer’ for America’s chemical manufacturers, enabling us to remain highly competitive in a global market,” says ACC president and CEO Cal Dooley said. “We want to ensure that the appropriate regulatory policies are in place to capitalize on this energy source, while ensuring protection of our water supplies and the environment.”

Chemical production volumes increased across all regions of the U.S. in 2010. The largest gains have occurred in the Gulf Coast and Ohio Valley regions, boosted by export demand for basic chemicals and plastics. “Output is expected to grow moderately in all regions in 2011 and continue to improve through 2012,” ACC says.

With a slow recovery of volumes, U.S. chemical operating rates rose 3.1 percentage points to an average of 74.1% in 2010. “Further modest gains in chemical industry production volumes suggest slowly improving operating rates in 2011, but with further reduction of capacity and strengthening production volumes, capacity utilization could stabilize and improve to 78.5% by 2012,” ACC says.

Industry R&D spending has been maintained through the downturn, ACC says. “With improving margins, spending likely rose 2.8% to $50.8 billion in 2010, ACC says. “R&D spending is expected to increase 3.3% to $52.5 billion in 2011.”

Capital investment has stabilized after sharp drops in 2008 and 2009. Capital spending on chemicals likely fell 1% in 2010, to $25.1 billion, following declines of 9% each in 2008 and 2009. “By 2011, the industry investment cycle will likely reengage, with U.S. spending rising 6.6% and accelerating to a 9.1% gain in 2012,” Swift says.