A major rebalancing of supply and demand is driving the favorable growth outlook for chemical production in North America and creating clear targets for investment:
• On the supply side, the availability of low-cost natural gas and natural-gas liquids (NGLs), driven by the shale boom, is improving the fundamental economics of U.S. chemical production relative to the rest of the world. From 2010 through early 2015, announced capital investments in U.S. chemical production relating to shale gas amounted to more than $130bn.
• On the demand side, the chemical industry will benefit from the revitalization of manufacturing industries in the U.S. This trend toward reindustrialization - encouraged by cheap energy and attractive productivity-adjusted labor rates - will increase domestic demand for chemicals as inputs into other sectors of the economy by at least $10bn to $21bn.
• The industry’s segments will not benefit uniformly from this rebalancing. A few segments (such as commodity polymers) will enjoy benefits relating to both supply and demand. In other cases, the advantages will be mainly on the supply side (bulk petrochemicals, for example) or the demand side (polyurethane, for example). Some segments (such as pharmaceuticals) are unlikely to be affected.
The recent plunge in crude oil prices is not likely to alter these market dynamics or eliminate the feedstock advantages enjoyed by North American companies.
The industry’s revitalization will have significant implications for corporate portfolios and the industry’s structure during the next five years. Companies will restructure their portfolios and make deals to, for example, increase specialization, focus on their core businesses, or expand their presence across the value chain.
What will set apart the winners from the rest in this era of abundant opportunities? The best-performing chemical companies in North America during the next decade will be distinguished by their ability to anticipate the challenges and prepare to capture value in this revitalized landscape.
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