Manufacturers Face Pressure From Chemical Costs

May 11, 2007
Can't pass along price increase to customers.

Manufacturers will shift 25% of production abroad if the issue of chemical pricing and supply isn't solved, according to a report from AMR Research. In a survey of 165 manufacturers AMR found that:

  • Domestic chemical supplies are a vital raw material to most manufacturers in the United States. Overall, 55% have significant, direct dependence on chemicals for their production.
  • 90% of companies see chemical costs as rising, with 62% calling the increase "substantial." And 43% see domestic chemical capacity decreasing, against only 20% that see it increasing.
  • On average, manufacturers will shift 25% of production abroad if chemical issues of pricing and supply are not solved. This could cause a ripple effect from large companies down to small companies as plants close or are downsized and as local suppliers lose their large company customers.

Chemical supply represents a hidden backbone of U.S. manufacturing since much of what is manufactured depends on upstream chemical content, explains AMR Tony Friscia CEO Tony Friscia and Kevin O'Marah, head of market development. The American Chemistry Council estimates that 96% of all manufactured goods have some chemical component.

While some of this movement offshore of capacity is an inevitable and understandable result of globalization, the report argues that allowing this trend to go too far can lead to economically and socially harmful results. The authors point out that the resilience and competitiveness of U.S. manufacturing is put at risk since domestic capacity to provide food, medicine, shelter and other essentials may be compromised by an over-reliance on chemical and other offshore suppliers.

From the perspective of smaller manufacturers price pressure is even more detrimental, said the study, as they are both less able to relocate production offshore and likely to see reduced demand for their products as their big-company customers close domestic plants.

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