Chemical Industry Growth Slows in 2011 as Economy Sputters

Global economic uncertainty to impact volume gains through 2012; shale gas seen as potential 'game changer.'

The chemical industry faces more moderate production increases in 2012 after a strong post-recession recovery, the American Chemistry Council reported in its year-end report Dec. 12.

Europe's debt crisis, high unemployment in the United States and other economic factors slowed global chemical industry output this year to an expected 3.5% increase over 2010. That was down from 10% volume gains in 2010.

U.S. chemical output is expected to increase 3.8% in 2011 before slowing to 1.6% next year and rising again to 2.1% in 2013.

Despite the slowdown, ACC economists say they don't believe the United States is headed for another recession and that chemical industry growth will pick up in 2013. But the European debt situation along with other economic factors could pose significant risks for continued recovery.

Asia and other emerging markets will continue to lead the world in volume gains, with China and India showing the most significant increases, ACC reports.

Chemical manufacturers in emerging markets are expected to show 5.4% production increases in 2011, 6.2% in 2012 and 7.5% in 2013.

Declines in manufacturing output also have impacted recovery in the chemical industry. The manufacturing sector is the largest consumer of chemicals. Increasing demand from the oil and gas industry was offset by weakness in other industries, such as the housing sector, textiles and paper and declining foreign demand.

Shale Gas Impact

The rush to develop shale gas resources in the United States could have a major impact on the chemical industry, which is a major consumer of natural gas.

The expansion of shale gas development has created a competitive advantage for U.S. chemical producers, according to the ACC report.

Capital spending in the U.S. chemical industry rose 7% in 2011 to $29.4 billion and is expected to reach $31.5 billion, surpassing the most recent peak.

Following a peak level in 2007, chemical industry capital spending fell 9.3% in 2008 and dropped another 9.2% in 2009 to $25.3 billion.

ACC economists partly attribute the gains to lower raw material costs. U.S. chemical producers primarily use ethylene and other natural gas liquids as feedstocks.

"A strong recovery in profits and the shale gas revolution will lead to further investment in innovation and plant and equipment," said Kevin Swift, ACC's chief economist and managing director.

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