Strong Chemical Output Forecast For The U.S. In 2015

Three major industry associations say chemical production in the U.S. and Europe will increase in 2015 after failing to live up to expectations this year.

Lackluster economic growth has created a scenario in which oil is in oversupply, reducing the cost of energy and raw materials for U.S. chemical producers. “Increased domestic supply of unconventional oil and gas is helping to drive oil prices down,” says 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 will increase 4.0% in 2015, above this year’s 2.4% growth. ACC originally predicted a 2.6% increase in output this year.

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 petrochemicals 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 Dekkers, is calling for agreements at the upcoming United Nations climate change conference in Paris that include restrictions against 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 optimism include expectations that stable demand from German customers will continue and that demand from other European countries and the U.S. will rise.