It seems remarkable to think that towards the end of 2013 a US Senate and House led bipartisan committee agreed a two year budget deal to fund the federal government, which was subsequently passed by both houses and signed into law by President Obama. A rare display of common sense in the murky world of Washington politics. But why, you may ask, is this important to shipping markets and the diverse world of Specialised Products? The answer to this question lies in the 16 day US government shutdown in October 2013 that led to many basic government services closing. Whilst this may be on a domestic level the uncertainty it provoked across the globe affected many key commodities markets, in turn affecting sentiment amongst Specialised Products players. If anything, this two year deal is the first sign (of what is hoped to be more) that continued bipartisanship in the world’s biggest economy could be the beginning of wider global economic stability. It is yet again another example of how intrinsically linked our markets are to global events. We cannot anticipate, foresee or accurately quantify international events due to their sporadic nature but what is easier is to look at industry forecasts and reports of regional production centres which may give some signals as to where we may be headed.
Perhaps the best starting point is the US where continued expansion on the back of cheaply derived shale gas will continue to drive growth forward. The American Chemistry Council (ACC) has estimated that US chemical output will grow by 1.6% this year from the 0.1% gain recorded in 2012. It also forecasts that production should increase by 2.5% in 2014 and possibly 3.5% in 2015. This will certainly make happy reading and with investment showing few signs of stopping, the ACC says that capital spending is set to grow by 8% on average through to 2016.
However, other regions do not currently have so rosy an outlook. If we look to Europe, which like the US is recovering from recession, we are beginning to see the green shoots of recovery. Albeit at a more modest rate. CEFIC has already said that overall chemical output is to contract by 1% in 2013 but will then grow in 2014 by 1.4%. The problem is that Europe has a much higher cost base for chemical production which when coupled with a recession and the increasing prominence of the Middle East, US and Asia as chemical producers shows us there is some way to go. As mentioned in a previous article, it is integration that could be the key to revitalising the industry here.
Taking these two cases alone, we can see an upbeat outlook versus a more cautious one. Likewise, the chemicals industry in the Middle East continues to invest in downstream technologies and expansions therefore supporting this opinion. It is China, that remains somewhat of question mark and more difficult to quantify. The new leadership is looking to shift away from exports and to focus on building domestic reliance. Yet the country will continue to be heavily reliant on exports as it builds its capability, despite the slowing volumes seen recently. A report from ICIS suggests that the lacklustre performance seen in 2013 may continue into 2014. Whether this will be the case is not quite so clear.
All of the above however, is at the mercy of global events and the consequences these may have. Back in September 2013, the threat of the Syrian Civil War spilling over into the wider region and possible US involvement threatened the global recovery and sent commodity prices through the roof. All in all, whilst 2013 may have been a slow burner for many, 2014 may just be a year of controlled growth and cautious optimism. The chemicals industry is a force to be reckoned with and many hope that the worse is behind us!