“The appreciation of the dollar, coupled with increased domestic supply of unconventional oil and gas is helping to drive oil prices down,” said Dr. Kevin Swift, chief economist at the American Chemistry Council. “In turn, manufacturing costs are reduced, production is stimulated, inflation restrained and consumer confidence, along with purchasing power and spending, is boosted,” he added.
That boost in spending power has contributed to gains in key end-use markets, including light-vehicle sales ($3,500 of chemistry per unit) and housing ($15,000 of chemistry per start). Light-vehicle sales saw an increase of nearly 5.2 percent over 2013, and production continues to improve, with sales expected to rise further in 2015 as pent-up demand, improving employment prospects, and increased availability of credit foster growth. Though the housing outlook remains cautious, inventories and interest rates remain low. Job growth, a major long-term driver for housing is improving, as seen in the 7.5 percent increase in housing starts between 2013 and 2014. Though activity will remain well below the previous peak of 2.07 million units in 2005, by the second half of the decade, activity will approach the long-term underlying demand of 1.5 million units per year.
Basic chemicals were hardest hit from recessions in Japan and Brazil. Strong growth is now expected in inorganic chemicals, organic chemistry, plastic resins, and synthetic rubber as most export markets revive. In 2014 inventories remained balanced, so any increased demand in 2015 will require new production, Swift explained. “This year’s gains were led by consumer chemistries and specialties, but advances in manufacturing and exports in 2015 will drive increased demand for basic chemicals, especially in those segments in which the U.S. enjoys a renewed competitive advantage,” he said. “The wind is back in our sails. During the second half of the decade, U.S. chemistry growth is expected to expand at a pace of more than 4 percent per year on average, exceeding that of the overall U.S. economy,” Swift said.
U.S. chemical production grew across all major producing regions in 2014. The highest growth was seen in the Ohio Valley and the Northeast regions. As the surge of shale-driven chemical capacity starts to come online in 2017 and beyond, growth will continue to accelerate, particularly along the Gulf Coast. By 2019, American chemistry sales will exceed $1tr.
Though improvements in labor markets and growth in key end-use markets drove solid domestic demand for chemicals, weakness in external markets has limited U.S. chemical exports. Despite the competitive position American chemistry owes to a favorable oil-to-gas price ration, trouble in the economies of major trading partners will delay another trade surplus until 2017. As new investments in the chemical industry come online, basic chemicals export growth will accelerate, with an anticipated chemicals trade surplus of $77bn by 2019.
Swift pointed to more than 215 new chemical production projects valued at over $135bn that have been announced in the U.S., helping capital spending to surge nearly 12 percent in 2014 to more than $33bn.
The business of chemistry is an $812bn enterprise and one of America’s most significant manufacturing industries, accounting for more than 12 percent of all U.S. exports and 15 percent of the world’s chemicals. More than ninety-six percent of all manufactured goods are touched by products of chemistry.
