ACC: Trade Tensions, Manufacturing Weakness to Weigh on US Chemicals Growth
2019-12-11    []

Continuing trade tensions between the US and China, and a related pronounced slowdown in manufacturing, are taking some of the wind out of US chemicals output growth, according to ACC’s Year-End Situation and Outlook. Nevertheless, growth is forecast for both 2019 and 2020, with shale gas providing a major boost and broader economic growth underpinning demand. ACC forecasts US chemicals output to rise by 0.6% in 2019, and 0.4% in 2020.

These figures are down from 4.1% growth in 2018. “Definitely, a slowdown is occurring,” says Kevin Swift, chief economist at ACC.

Still, the risk of an outright recession is low. ACC expects world GDP to grow by 2.6% in 2019 and 2020, down from 3.1% global growth in 2018. For the US, GDP is expected to grow by 2.3% in 2019 and 1.8% in 2020, down from 2.9% growth in 2018. ACC’s chemical activity barometer (CAB), a leading economic indicator, is still signaling growth despite some weakening. “CAB is nowhere near signaling a recession,” Swift says. “It’s still just a slowdown.”

Trade issues

The US–China trade conflict has taken a toll on the manufacturing economy overall, and on the chemical industry. GDP growth is currently “below potential,” Swift says. “Trade tensions have certainly played a role.”

Total US chemicals trade is expected to fall by 3%, to $242 billion, in 2019, before rising by 1% in 2020, ACC says. Last year, US chemicals trade grew by 10%, to $249 billion. Exports and imports are both expected to fall this year, although the industry retains a positive trade balance.

ACC has revised its expectations on chemicals trade downward since its previous outlook report in June. “As a result of increased trade barriers and moderation in demand-side conditions over the course of the second half of 2019, US chemicals trade growth expectation have been downwardly revised,” ACC says.

Trade and demand are related, as the trade conflict has interfered with supply chains and reduced business confidence. “It’s disrupting supply chains,” Swift says. “It’s hard to plan. CEOs can deal with risk, but uncertainty is different.”

Industrial production growth overall is trending downward. US industrial production is expected to grow by 0.9% in 2019 and 0.5% in 2020, after posting 4.0% growth in 2018, according to ACC. Global industrial production is forecast to rise by 0.8% this year and 2.2% in 2020, after posting 3.1% growth in 2018.

Shale boost

Low-cost feedstocks due to shale gas continue to drive the US chemical industry’s competitiveness, making it grow faster than other manufacturing sectors. “American chemistry is expanding as shale-advantaged investments come online and additional capacity additions are planned,” says Martha Moore, senior director/policy analysis and economics at ACC.

Despite this, soft demand is cutting into growth for basic chemicals. US basic chemicals output is expected to rise by 0.6% in 2019 and 0.7% in 2020, following 3.5% growth in 2018. Capital expansion, which has been driven by basic chemicals, continues, as well. Chemical capital spending is expected to total $34.8 billion this year, rising to $36.5 billion in 2020. “Growth will ease in 2021 as many projects reach completion,” ACC says.

Output growth in specialty chemicals is expected to be stronger this year, but a contraction is expected next year. In 2019, ACC expects specialties output to grow by 2.6%, before declining by 0.4% in 2020. In 2018, specialties output expanded by 4.0%. Lower end-use market demand is a key reason for next year’s forecast decline, ACC says.


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