All too often the usual rhetoric of doom and gloom surrounds growth and the economy in all matters, not just the petrochemical world. However, following a release of the latest US petrochemical growth figures from the American Chemistry Council we can see that there might yet be some light at the end of the tunnel!
For 2015, the American Chemistry Council (ACC) has forecast 4% growth for the chemical sector (this figure excludes pharmaceuticals). This is quite a jump from previous growth rates where the ACC has given lower and less optimistic forecasts – 2.4% for 2014, 2.7% for 2013 and 1.9% for 2012. The reasons for this optimism, says the organisation, is because the overall US economy will also grow over the year thus spurring on the petrochemical industry. The IMF predicts that US GDP will grow by 3.6%; a higher estimate than the ACC’s 3.2%.
The key reasons for these predictions are linked to higher consumer spending due to higher wages, employment and lower fuel prices: ‘The overall net [effect] of a virtuous cycle is going to kick in’ says a senior ACC policy director. Naturally, these factors contribute to growth through increased consumer demand but there is also expected to be growth in the house building and automobile markets both of which are key chemical end user markets.
This is all very upbeat stuff and will help inject some energy into the Specialised Products markets which will no doubt come as a relief. That said, we need to look at this a little more objectively and recognise the US petrochemical industry will still face challenges this year. Chief among these challenges is that of the falling oil price which have fallen dramatically and caused a sharp decline in rig counts which in turn has caused lower demand for oilfield chemicals. Oil prices have also caused prices for downstream chemicals to fall which led to some companies destocking at the end of 2014, although ICIS reports that these same companies have now stopped this. However, oil related threats remain including being stuck with high inventory levels, being locked into long term contracts obligating companies to buy fuel and feedstock at earlier higher prices and the erosion of margins for some products such as naphtha. Naphtha prices have fallen with oil thus reducing costs for foreign producers who rely heavily on the feedstock. The only area not affected (for now!) by the falling oil prices are the whole raft of projects related to shale gas, as mentioned in this report before: No company planning on building large petrochemical plants has announced any cancellation with the exception of one gas to liquids project, but this was a fuel project rather than a chemical one.
So with these reasons it is possible to see why the ACC has predicted such strong growth. There is no doubt that low oil prices with inject some much needed stimulus into the economy thus boosting GDP and demand for chemicals. In the long term, the future looks brighter but it may be a rocky road in the short term which leads us to coin the phrase once more that the overall outlook is one of ‘cautious optimism’ for the US and Specialised Products markets.