Source: http://cen.acs.org/articles/94/i2/Chemical-Outlook-2016-Region.html
The U.S. chemical industry faced plenty of economic headwinds in 2015. A strong dollar hampered exports. Trade partners Brazil, Japan, and Russia flirted with recession while growth in China slowed. Yet output increased by a healthy 3.8% last year, thanks in large part to consumers, according to the American Chemistry Council (ACC).
This year, output will continue to expand, though the growth pace will slow a bit to 3.1%, ACC forecasts. “Consumer spending remains strong as further improvements in the labor market and rising confidence support growth,” says T. Kevin Swift, ACC’s chief economist.
Such continued recovery from the 2008 recession will boost demand for autos, construction materials, and business equipment, Swift says. Sales of light vehicles are expected to edge up with hiring and better availability of credit. Basic chemicals, synthetic rubber, and specialties will top the list of growth segments.
Chemical companies will likely see prices continue to slide in some product areas, but “even with the fall in oil prices, the U.S. industry still has a favorable competitive position with regard to feedstock costs as natural gas prices have fallen as well,” Swift suggests. Low prices for agricultural commodities as well as oil and gas have dampened demand for chemicals used in those industries, though ACC anticipates crop prices may rebound later this year.
But whereas this year’s economic drivers will be similar to those of 2015, the U.S. chemical industry will certainly feel different for those who work in it. The once-unimaginable merger of Dow Chemical and DuPont will be under way, and businesses—particularly in agriculture—will need to be cast off to satisfy antitrust regulations.
Last month, DuPont said it will cut 10% of its global workforce, or about 5,300 positions. That and other streamlining moves could negate earlier expectations of a slight increase in U.S. chemical employment, ACC says.
DowDuPont will break into three businesses for materials, specialty chemicals, and agriculture, kicking off a flurry of spin-offs, snap-ups, and portfolio reworkings. The only firms looking to get bigger, though, are likely to be agriculture rivals girding to compete with the new giant, according to investment bank Grace Matthews.—Melody Bomgardner
Few people have a better sense of where the chemical industry is headed in Asia than Sanjeev Gandhi, BASF’s top manager for the region. The giant chemical company runs manufacturing and R&D centers in China, India, Japan, South Korea, and Southeast Asia. From his well-informed position, Gandhi expects business conditions will start to improve in 2016.
Companies across nearly all business sectors in Asia have been affected over the past two years by a slowdown in China, the region’s largest market. Whereas, for the past few decades, the Chinese economy expanded by at least 8% annually—and much more in some years—the Asian Development Bank expects that China managed less than 7% growth in 2015 and will not do any better this year.
But Gandhi is confident the worst is over for the chemical sector in Asia. “We see steady improvement in demand—nothing too exciting—across all of our businesses in the region,” Gandhi says. Producers of commodity chemicals will go through a particularly slow recovery, he expects. “It will take up to seven quarters for commodity prices to recover.”
For years now, Chinese chemical producers have struggled with overcapacity. But the outlook is improving, Gandhi says, especially for specialties. In particular, the construction sector, where China’s slowdown had been particularly sharp, is showing signs of life. This could stimulate demand for the myriad building materials supplied by chemical companies such as BASF.
Gandhi’s guardedly optimistic outlook is in tune with much of the economic news coming from Asia. In Japan, the December “Tankan” business confidence survey conducted by the Bank of Japan revealed a mood of cautious optimism. During the first half of the fiscal year that will end on March 31, Japanese chemical companies delivered solid profits .
Meanwhile, India, Asia’s third-largest economy, is roaring, and its economic growth is expected to pass that of China in 2016. The country’s biggest chemical producer, Reliance Industries, achieved its most profitable six months during the first half of the fiscal year that will end on March 31.
Gandhi expects 2016 will be an even better year than 2015 for India’s economy. One reason is that the sales tax system will be reformed to lower and simplify the cost of transactions. In addition, the monsoon in 2016 will likely be better than last year’s because India rarely experiences two bad monsoons in a row. The rains matter to the economy in a country where two-thirds of the population is rural and dependent on agriculture.—Jean-François Tremblay
