Competitive Domestic Firms

Less expensive raw materials and good export opportunities will position the U.S. chemical industry to make the most of a bad economic situation this year.

In the U.S., growth in chemical output, excluding pharmaceuticals, is expected to dip to 1.6% in 2012, compared with an estimated 3.8% gain in 2011, according to the American Chemistry Council. Basic chemicals, which rebounded early in the recovery in 2010 and then saw zero growth in 2011, will pick up a bit of speed with a 0.7% increase in output.

The prognosis for specialty chemicals, 3.4% growth, is more robust, driven by demand from markets such as light vehicles and electronics, ACC says. Consumer products and synthetic rubber are also likely to grow faster than the average for chemicals.

“A global soft patch has emerged and has been centered in manufacturing,” the primary customer base for chemistry, reports T. Kevin Swift, ACC’s chief economist. Still, Swift reports, “leading indicators of manufacturing activity are not yet pointing to a recession.”

Key export markets in Europe and China have weakened, ACC says. The silver lining is that U.S. manufacturers should see profit margins expand “due to a relatively low dollar and reliance on low-cost ethane supplies boosted by shale gas development.” The advantage of cheaper natural gas feedstocks has attracted investment in new U.S. chemical plants that will supply both domestic and overseas customers in the coming years.

For example, Dow Chemical CEO Andrew N. Liveris told investors in October that his firm will use its access to large quantities of cheap shale gas to bring new ethylene capacity on-line. Meanwhile, Dow’s massive Sadara chemicals project in Saudi Arabia will help it supply demand from Asia.

For specialty and batch chemical manufacturers, 2012 will be a year of expansion, says Lawrence D. Sloan, president of the Society of Chemical Manufacturers & Affiliates. He has spoken with leaders of performance chemical and custom pharmaceutical firms who say they are planning significant capital expenditures. Some member companies—particularly those that sell to oil and gas drillers—even anticipate earnings will grow. “Commodity prices have stabilized, and oil prices still encourage drilling and exploration, meaning that the market will be strong this year,” Sloan says.