The past year was a tough one for chemical producers as an unprecedented destocking cycle curbed production, which was down 1.3% in 2023.

With inventories in a more balanced position and nascent signs of firming demand in several end-use markets, we expect chemical output volumes to grow by 2.2% in 2024 with gains across all segments, states American Chemistry Council (ACC). Output is expected to grow 1.9% in 2025. Within the U.S., the largest gains are expected in the Gulf Coast and Midwest regions, ACC adds.

This is consistent with the findings of ACC’s Economic Sentiment Index that found chemical firms felt that overall business activity and major customer demand improved in Q1 and are expected to continue to improve over the next six months. Because of the chemical industry’s early position in the supply chain, we would expect to see a turnaround in chemicals before improvement in the broader economy.

ACC anticipates output of basic chemicals in the U.S. to rise 2.5% in 2024 with gains in petrochemicals and organic intermediates, inorganic chemicals, and plastic resins. Plastic resins output will continue to grow, up 2.9% in 2024, in part due to stronger exports. Specialty chemical output is also expected to rise in 2024, though at a more modest 0.4% reflecting the slow recovery in end-use markets. Output of agricultural chemicals is expected to rise 2.6% with gains in both fertilizers and crop protection chemicals. Production of consumer products which grew strongly last year will continue to expand at a slower 2.5% this year. In 2025, we expect both basic specialty chemical output to rise by 2.1%. Agricultural chemicals and consumer products will also continue to expand by 0.9% and 1.5% respectively.

The longer-term outlook for U.S. chemistry is positive with the natural gas liquids feedstock advantage continuing to favor U.S. production for the foreseeable future. Capacity expansions in customer industries motivated by recent legislation (e.g., IRA, IIJA, CHIPS) will create demand for U.S. chemistry. In addition, shortening of supply chains and the impact of Section 301 tariffs have motivated new investment in Mexico and the re-/near-shoring of manufacturing that will strengthen the North American manufacturing base. Because Mexico and Canada are the industry’s largest trading partners, expansion in Mexican manufacturing bodes well for U.S. chemical.

U.S. chemicals exports are projected to rise 3.1% this year (2024) following a decline over 2023. A stronger global economic environment and higher industrial activity will support our projections for steady, modest expansion in chemicals exports over the coming years. U.S. chemical imports will also rise this year, growing by 7.1%. Chemical imports growth is expected to cool to a solid 4-5% annual pace of growth over our forecast period. The U.S. continues to maintain a trade surplus in chemicals throughout the forecast horizon. Trade expansion is vulnerable to policy risks.

Growth in capital spending is expected to slow to 2.3% as higher borrowing costs dampen investment. Between 2025 and 2028, capex is expected to grow on average by 3.5% per year. While investment continues in shale-advantaged projects, a larger share of capex budgets are dedicated to clean energy and circular economy investments.

Following strong gains in 2022, chemical industry employment eased in 2023 and is expected to continue to drift lower in 2024 (by 1,800) before stabilizing in 2025 at around 553,000.

Globally, chemical production is expected to expand by 3.4% in 2024 with gains across all major regions. The largest gains will be in Asia/Pacific, former Soviet Union economies and Europe. Growth continues into 2025 with global volumes up by 3.5%.

Longer-Term Outlook & Risks

Prospects for U.S. chemistry remain positive with competitive energy fundamentals and the resurgence in U.S. manufacturing from once-in-a-generation legislative initiatives to promote clean energy, infrastructure, and a strong domestic manufacturing base.

One of the largest risks to this outlook, however, is the rising regulatory impact on the chemical industry in the U.S. that could undermine competitive advantages in energy and opportunities provided by the manufacturing expansion. If left unchecked, the dramatic rise in regulations focused on the chemical sector could incentivize companies and production to move offshore, potentially to parts of the world where chemical production is more carbon intensive.

In addition, policy missteps by the Fed (i.e., keeping rates higher for longer) new or escalating geopolitical conflicts, unexpected financial volatility, external shocks (i.e., weather, cyberattack, etc.) could also disrupt the outlook.