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Economy

US chemical output set to rise in 2019

But trade conflicts and slowing foreign demand could moderate the industry’s prospects

by Marc S. Reisch
December 6, 2018

The US will benefit from strong job growth, moderate inflation, and a good investment climate in 2019, according to the American Chemistry Council, the US chemical industry’s major trade association. Even though it is concerned about rising interest rates and the impact of tariffs, the ACC predicts that US chemical output will rise 3.6% in 2019 following a 3.1% increase this year.

“Expansion across a broad band of industrial sectors is supporting American economic growth this year,” says Kevin Swift, ACC chief economist. Next year, he predicts, US industrial activity will continue to expand, but an economic slowdown now underway in overseas markets, coupled with rising trade tensions, “present a risk of economic disruption.”

20181206lnp2-graphic.jpg
Forecast: US chemical production will rise again in 2019
Source: American Chemistry Council.
Note: Excludes pharmaceuticals.

On the plus side for US chemical producers are surging domestic energy supplies coupled with increased availability of ethane, a key raw material obtained from natural gas. Because of this shale gas revolution, chemical makers have committed $202 billion since 2010 for 333 new chemical plants, 40% of which are still in the planning stage, notes Martha Moore, the trade group’s policy and economics director.

As that production capacity comes online, US exports will surge, Moore predicts. The US will post a chemical trade surplus of $39 billion in 2018 and $69 billion by 2023, she says, assuming no major trade disruptions.

On the domestic front, light vehicle sales have declined from the highs of 2015 and 2016 but are still robust, Moore says. Each vehicle build represents over $3,250 in chemical sales. Home building is on the upswing, she notes. Each new home accounts for $15,000 in chemical sales.

Outside of the US, predictions are less optimistic as the economic situation deteriorates in many countries. In Germany, Europe’s largest chemical maker, production is likely to rise 1.5% in 2019, according to the German Chemical Industry Association. Production this year is on track to increase 2.5%.

Unlike the ACC’s data, the German association’s forecast includes output of pharmaceuticals, which are set to rise 11.5% this year. Excluding pharmaceuticals, Germany’s chemical production will slip 1.5% this year.

Hans Van Bylen, president of the German association and CEO of Henkel, says the trade conflicts among the US, European Union, and China—along with the UK’s approaching Brexit from the EU—threaten the “trade order” in which the German chemical industry operates. He called on European politicians to help preserve “free world trade and fair competition.”

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