Chemical Output Seen Rising In Coming Year

Chemical production will increase in both the U.S. and Europe in 2015, according to three major industry associations, but the U.S. will easily be the stronger of the two regions.

In the U.S., oil and gas are in oversupply, reducing the cost of energy and raw materials for chemical producers. “Increased domestic supply of unconventional oil and gas is helping to drive oil prices down,” says T. Kevin Swift, chief economist at the American Chemistry Council, the U.S. chemical industry’s main trade association.

The low prices are creating a virtuous cycle in which “manufacturing costs are reduced, production is stimulated, inflation restrained, and consumer confidence, along with purchasing power and spending, is boosted,” Swift adds.

On the strength of that assessment, ACC predicts that U.S. chemical output, excluding pharmaceuticals, will increase 4.0% in 2015, compared with this year’s growth of 2.4%. ACC originally predicted a 2.6% increase in output this year.

The fall in oil prices “is like a tax cut for consumers,” Swift notes. Auto sales will continue to rise in 2015 as pent-up demand, improving employment prospects, and increased credit availability foster growth, he notes. Chemicals valued at about $3,500 go into each auto produced, according to ACC studies.

Housing construction is also likely to benefit from an improving U.S. economy and the jobs growth it brings, Swift points out. Each new housing start means $15,000 in chemical sales.

Aside from consumer spending, the business of chemistry will also benefit from an uptick in manufacturing and exports in 2015. “The wind is back in our sails,” Swift says.

Europe does not have the benefit of the U.S.’s growing supply of shale-derived raw materials, especially natural gas. Despite low world energy prices, European chemical production will rise a mere 1.0% in 2015 after also growing just 1.0% this year, according to CEFIC, Europe’s dominant chemical industry association.

“Monthly data point to continued anemic growth, with energy-intensive petrochemical output falling further,” says Hubert Mandery, CEFIC’s director general. “We need an energy policy in Europe that addresses the need for competitively priced energy.”

Officials at VCI, which represents chemical companies in Germany, acknowledge the benefit of lower oil prices but note that the strength of the U.S. dollar, the standard for oil sales, against the euro is muting the benefit. The price of naphtha, an oil product that is the German industry’s most important raw material, declined just 2% in 2014, VCI notes. Germany is Europe’s largest chemical maker.

VCI officials also complain that Germany’s plan to reduce carbon dioxide emissions places an unfair burden on the country’s chemical producers. The group’s president, Marijn E. Dekkers, is calling for agreements at the upcoming United Nations climate change conference in Paris that include restrictions for all major country emitters. If such negotiations fail, “persistent deindustrialization will progress in Europe, mainly against the backdrop of low energy prices in the U.S.A.,” Dekkers says.

Despite the dire predictions, German chemical production is set to increase 1.5% in 2015, the group says, an improvement over this year’s 0.5% decrease. Last year, VCI had predicted a 2.0% increase in output for 2014.

Dekkers says he doesn’t expect production improvements to come until 2015 is well under way. Reasons for his guarded optimism include expectations that stable demand from German customers will continue and that demand from other European countries and the U.S. will rise.