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Specialty chemical manufacturers cautiously optimistic about 2013
10:49 AM MDT | March 13, 2013 | By LAWRENCE SLOAN, SOCMA PRESIDENT AND CEO
Despite uncertainty stemming from the constant state of crisis imposed on the economy by the federal government, the general economy picked up steam during the latter part of last year. While not overly excited about the current state of the economy, specialty chemical manufacturers are generally optimistic about 2013.
Contributing factors to the fourth quarter upswing include a recovering housing market, historically low interest rates; continued uptick in consumer spending; growth in exports—which helped turn the fourth-quarter GDP from slightly negative to positive—low energy costs aided by shale exploration; and increased signs of reshoring due, in part, to escalating wages abroad and concerns about product quality.
So why the optimism from specialty chemical makers? The business of chemistry is forecast to perform slightly better than the GDP partially because of cost advantages attributed to shale gas.
Results from a survey taken by Socma members in late 2012 indicate that many of our members are expecting modest growth for 2013 for a number of reasons. Capital Resin Corporation (Columbus, OH) says it plans to invest in infrastructure in 2013 to prepare for stronger economic years envisioned for 2015 and 2016. Dixie Chemical’s (Pasadena,TX) projections for modest growth are export driven. And Digital Specialty Chemicals Ltd. (Toronto) is expecting to see significant growth in 2013, particularly in the electronics segment. “Our confidence is, in part, based on the investments we have made over the years in terms of both people and our manufacturing facility,” says Ravi Gukathasan, CEO of Digital Specialty Chemicals.
But Socma members still expect to face challenges in the coming year, especially with the lack of confidence in the domestic marketplace due to the current political climate in Washington. They are also concerned about the current tax policy, as well as regulatory burdens and the significant impact they have on small and medium-size business.
Many of these challenges were cited in a recent survey conducted by the National Association of Manufacturers, which indicates skepticism in the economy for the manufacturing industry as a whole. Consequently, the percentage of respondents characterizing the current business climate as very or somewhat positive plummeted from 89% in the first quarter to only 52% in the final quarter of the year.
Manufacturers responded to the news by hiring fewer workers during the second half of 2012—15,000 versus 138,000 in the first quarter. However, if we look back to 2009, some 520,000 new jobs were added over the past 3 years. The transportation sector added the most jobs—174,000—with the chemicals sector coming in at number 13, with only 5,500 new jobs: not very impressive.
Looking ahead, several Socma members plan to invest in both human and capital infrastructure in 2013, but others said they will only hire a few employees and keep their staff levels steady.
According to the latest US jobs report, unemployment edged down to 7.7% in February, but the skills gap remains alive and well. Jobs exist in many sophisticated manufacturing plants, but there are not enough skilled workers to fill them. Throw in the forthcoming 29 March federal government shutdown, a late spring/early summer deadline on the debt ceiling, unfinished business on corporate tax overhaul—the US corporate tax rate remains at 35%, well above virtually all of our major Organisation of Economic and Co-operation and Development trading partners—and it’s no wonder manufacturers can’t sleep well at night.
The bright spots in the economy continue to be the automotive and residential housing industries, both of which heavily rely on chemistry. Case in point—each new car uses, on average, about $3,650 in chemicals and plastics, an industry publication reports.
Just think what could happen if our elected officials could roll up their sleeves and do the work expected of them—quit manufacturing man-made deadlines that only breed uncertainty, pass tax reform legislation, agree on a new all-of-the-above energy plan, and pass the 2014 budget by 1 October. Now, wouldn’t that be refreshing?