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Demand for Basic and Specialty Chemicals Continues to Grow

Healthy growth is expected to be driven by broad-based industrial demand.

Following growth throughout 2018, the chemical industry is expected to see continued healthy demand for basic chemicals throughout this year, with most specialty segments predicted to benefit from growing demand as well, especially in construction markets.

Expansion across a broad band of industrial sectors is supporting American economic growth, observes Kevin Swift, chief economist at American Chemistry Council (ACC) and co-author of the council’s Year-End 2018 Chemical Industry Situation and Outlook.

“Housing, business investment and their supply chains have momentum. Light vehicle sales have likely peaked for this cycle, but remain at elevated levels,” Swift points out. “In 2019, industrial activity will expand, but the slowdown overseas is likely to affect the United States, and rising trade tensions present a risk of economic disruption.”

U.S.-based chemical manufacturing remains advantaged in global markets due to abundant energy and feedstock supplies. Since 2010, a total of 333 projects cumulatively that are valued at $202 billion have been announced. As this investment comes online, production is growing.

Total chemical production volume (excluding pharmaceuticals) rose by 3.1% in 2018 and is expected to grow by 3.6% in 2019 before easing to 3.1% in 2020 and to 2.2% in 2021. Basic chemicals production is expected to increase by 2.1% in 2018, 4.8% in 2019 and 4.3% in 2020.

Stronger export markets and gains in business investment spending have boosted demand in key end-use markets for chemistry, such as light vehicles and housing, according to the ACC report. Light vehicle sales have declined from the robust pace of 2015-16, but the council predicts they will remain elevated at 17.1 million in 2018 and 16.8 million in 2019.

Housing activity is seen improving by ACC, with 1.27 million starts in 2018 and 1.34 million in 2019 before the level returns to its long-term underlying demand pace of 1.5 million units per year by 2023.

Demand for specialty chemicals is expected to grow in line with industrial and construction sector gains in the years ahead, ACC predicts. In the specialties chemicals segment, production will pick up by 3.7% in 2018, and another 2.2% in 2019. Gains in specialty chemicals were led by oilfield and electronic chemicals, coatings, adhesives, cosmetic chemicals, and flavors and fragrances.

The U.S. chemical industry will post a $39 billion trade surplus in chemicals for 2018 as exports rise 10% to $143 billion and imports rise 7.8% to $105 billion, ACC says. Some sectors of competitively advantaged chemicals trade are expanding faster.

Two-way trade between the U.S. and foreign partners will reach $248 billion this year, a 9.1% increase from 2017. Assuming no major trade disruptions, there will be a $69 billion trade surplus in chemicals by 2023. Access to export markets will be critical since export growth will drive industry gains over the next decade, the council stresses.

“American chemistry is set for significant growth in output as new production capacity comes online and demand strengthens in key end-use markets,” predicts Martha Moore, ACC senior director of policy analysis and economics and another co-author of the council report. “In fact, growth rates in U.S. chemistry over the next five years are expected to surpass average growth over the previous 20 years. Provided that access to export markets remains open to our producers, expanding global demand will be met by shale-advantaged chemistry sourced from the U.S.”

Chemistry is a $526 billion business segment and one of America’s most significant manufacturing industries, accounting for more than 10% of all U.S. exports and 12% of the world’s chemicals. ACC notes that more than 96% of all manufactured goods are touched by products of chemistry.

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