Chief Economist of the American Chemistry Council believes that raw material and energy costs, slowing volumes & failing end use demand create uncertainty
“US chemical exports rebounded to a record $184 billion in 2022 before easing to $167 billion in 2023. Despite supply chain constraints, nominal US chemicals trade rebounded strongly in 2021 and continued to expand in 2022. In 2023, a broad downturn and the high value of the dollar will curb goods trade, including chemicals,” says Martha Gilchrist Moore, Chief Economist and Managing Director for Economics and Statistics at the American Chemistry Council.
Moore shared her views at the ’12th CME STEM 2023 Economic Outlook Webinar’ on January 12, 2023.
“Global economic growth is slowing, with slowing growth or downturn in Europe, UK, China etc In the US, chemical output was strong in H1 2022 on tailwinds from restocking and resilient manufacturing but weakened sustainability in H2 and into 2023. Recovery continues into 2024 and beyond,” Moore added.
Explaining further, Moore said, “Following several years of weak growth, 2022 has been one of the better years for US Chemicals in a decade due to tailwinds from base effects, restocking resilient US manufacturing in the first half of the year, and competitive exports. Weakness in the latter part of the year and winter storm eroded the strong gains in H1. ACC expects growth across all categories with headline chemical volumes growing by 2.8% in 2022. However, the raw material and energy costs, slowing volumes, and failing end use demand create uncertainty for the near term.”
As per Moore, US natural gas based petrochemicals remain competitive. “Naphtha is a petroleum product whose price is closely tied to oil. Ethane is a natural gas liquid (NGL) co-produced with natural gas production. Its price is correlated with natural gas prices. Because competing producers in Europe and Asia generally use naphtha feedstocks and North American producers generally use ethane and other NGL feedstocks, we look to the relative price of oil to natural gas as a proxy measure for US based petrochemicals competitiveness. As a rough rule of thumb, when the oil to natural gas ratio is above 7, US petrochemicals are relatively advantaged. When the ratio is below 7, US petrochemicals are less advantaged.”
On US basic industrial chemical and synthetic materials production, Moore said, “Despite the competitive advantage, organic chemicals and synthetic materials struggled in 2022 with supply chain disruptions and weak export markets. Inorganic chemicals fared relatively well in 2022, led by industrial gases and miscellaneous inorganic chemicals, including lithium compounds. Slowdown in 2023 will negatively impact chemical production, especially in H1.”
On US Specialty Chemicals, Moore said, “With resilience in US manufacturing and other end use markets and restocking activity, growth in specialty chemicals will rebound in 2022. Specialty chemical volumes up 9.6% in 2022, followed by decline in 2023 and slow gains through forecast horizon. This is in line with a moderate recovery in industrial end-use markets. For 2022, coatings are expected to be up by 12% before moving lower by 1.6% in 2023.Other specialty chemicals up 8.5% in 2022 before falling by 1.0% in 2023.”
On US chemical industry capital spending, she said, “Annual chemical capex expands to more than $38 billion by 2026. Capital spending continues to expand through a pivot towards sustainability investments. Some additional capacity in methanol, olefins and derivatives. Shift to lower GHG emissions technologies and advanced recycling.”
Sharing her views on the US Chemical Industry Outlook in terms of employment, Moore said: “Following a steep contraction in 2020, chemical industry employment rebounded in 2021 to nearly 537,000. As rebound continued into 2022, employment grew by 15,000 (2.8%) to 552,000. A decline in 2023 will be followed by slow gains through 2026. The chemical industry remains a major US employer, paying its workers on average more than $92,000 in 2021.”
On US chemicals trade, Moore said: “Due to the relative strength of the US economy, chemical imports into the US continue to expand to $157 billion in 2022 before easing in 2023. The US chemical industry will maintain its net exporter position, supporting total US goods exports. The trade surplus in chemicals eases to $27 billion in 2022.”
Sharing her outlook for US end use industries, Moore stated, “85% of basic and specialty chemicals are consumed by the industrial sector. Exceptionally strong demand for goods in 2021 has eased as spending pivots to services, but manufacturing has been resilient. Inventories accumulating in some sectors due to earlier supply chain constraints and demand decline. Restocking and investment provided momentum in H1 2022. Growth slowed in H2 2022 and eases into 2023 before picking up in H2. Industrial production expected to rise 4.3% in 2022 before contracting by 0.5% in 2023.”
Keys to the future
Moore believes that American chemistry needs sensible regulatory policies to keep US manufacturing competitive and to regain momentum following the downturn.
Elaborating on the possible solutions, she outlined: “There is a need for strong support to US energy development, including promoting infrastructure investment and permitting reforms. Addressing regulatory bottlenecks in EPA’s chemical management system would support innovative uses of chemistry. Updating the US transportation policies could promote greater access to reliable and competitive freight rail service and improving truck capacity on interstate highways.”
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