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ACC: US basics production to snap back this year

3:12 PM MDT | July 7, 2014 | —Clay Boswell

After three years of flat to negative growth, US basic chemicals production, powered by rising domestic demand and increasing export opportunities, will ramp up this year and remain strong into the next decade, says Kevin Swift, chief economist at ACC. Specialty chemicals production, meanwhile, will continue growing at a healthy pace, he adds.

Swift assessed the midyear situation and outlook for the US chemical industry during a conference call on 24 June.

US basic chemicals production has been in the doldrums. In 2010, production rebounded from the lows of 2008–09, Swift notes, but it quickly lost momentum when Europe fell back into recession and exports stalled. Basics production dropped 2.4% in 2011, grew only 0.3% in 2012, and stagnated in 2013.

However, the economic outlook promises renewed growth. Unusually cold weather resulted in a poor first quarter, but Swift expects the US economy to continue expanding, supported by improved balance sheets, gains in employment and income, and resurgent consumer spending. The result will be a 2.1% gain in US basics production this year, he projects, followed by a 3.9% gain in 2015.

The pace will pick up as new capacity comes onstream, Swift says. He projects US basics production will grow 4.5% on average during 2015–19 and 3.3% during 2020–24.

The specialty chemicals sector has fared better during the recovery. Production growth has averaged 6.4%/year since the recession, and Swift projects about 4.0%/year in 2014 and 2015.

Key end markets are trending upward, Swift says. He expects housing starts to exceed 1 million units this year and continue improving. “Inventories are very low,” he explains. “Housing prices have begun to appreciate from supply shortages. Credit conditions appear to be repairing. We are seeing some job growth, and that will lead to household formations, particularly among young people.”

Sales of light vehicles will also increase in 2014, Swift projects, surpassing 16 million for the first time in six years. “There’s a lot of pent up demand,” he explains. “The average age of a light vehicle on the road is 11.4 years. That’s the highest since [records began in] the 1930s.” Industrial output, which accounts for 85% of US basic and specialty chemicals consumption, is growing more quickly than services for the sixth consecutive year, he adds.

North America’s oil and gas boom drives the growth, Swift says. The favorable conditions have drawn a wave of chemical investment that now totals over 180 capital projects valued at $117 billion, with 62% from foreign companies, he says.

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