As per current data, the US chemical industry is on a growth trajectory once again after a few years of negative growth. A large part of the positive outlook can be attributed to the abundance of shale gas. Not only is this being used extensively in-house, but ethane exports from the US are changing the global trade game altogether.There was growth across all production indicators for 2016, as well as a significant jump in the export numbers of chemicals and its feedstock.
Three major themes playing a major role in US export growth are Asian economic growth, M&As in the market driving synergies and the availability of abundant cheap feedstock. Many investors have been positive about US performance for 2017, and even Moody’s has changed its outlook for the industry from negative to stable. The upward revision for the chemicals industry can be mainly attributed to the above-average performance of the specialty chemicals industry and the commoditization of several bulk chemicals. The US chemicals industry remained flat in 2015 as the industry was still recovering from the oil market’s cyclicity. However, 2017 and 2018 is expected to witness growth of around two and three percent respectively. Inexpensive and copious amounts of gas supplies in the US will continue to support the growth story in a large way. Domestically, the industry to poised to do well – agrochemicals, specialty chemicals and high-performance chemicals will be the major sub-sectors driving the industry.
As of 2016, exports of chemicals from the US accounted for more than 15% of its overall exports with Canada and Mexico being the top two destinations. More than 80 million metric tons of new capacity is being planned in the US across the value chain, with more than 70% of them directly or indirectly driven by shale gas. A large chunk of the new capacity will be around plastics, expected to make the US a net exporter in the coming years. Not only would there be a significant increase in exports, but also the total imports of some commodities are expected to drop substantially as the US moves towards the path of self-sufficiency.
Commodities expected to be impacted in a positive way are caustic soda, methanol, fertilizers, bulk solvents and petrochemical feedstock such as propylene/ethylene and plastics. An increase in the domestic ammonia production will certainly have an impact on domestic fertilizer production, thus reducing imports from South America in a large way. Capital investments in new projects in the US have been massive since 2012, and are expected to soar in the coming years. Although Asia is seeing massive growth across a wide range of sectors, US manufacturing continues to bounce, especially on the back of favorable policies with the Trump government encouraging domestic production. Differentiated and specialty chemicals producers will continue to see healthy earnings while the commoditized and bulk chemicals industry will achieve self-sufficiency and serve other markets in a large way.
Such massive increases in the domestic market are going to impact procurement positively. Not only does it make the commoditized chemicals industry into a buyer’s market, but it also gives end user markets across different geographies a cost competitive option to look at the US rather than China for its needs. Also, this is expected to drive the demand for logistics in a major way, resulting in large investments focused across key ports, terminals and infrastructure as the demand for shipping continues to grow. The period of robust M&A will continue into 2018 across specialty and differentiated segments, driving value across the value chain. With the slowdown in China continuing to be a major talking point on the back of overcapacity, bearish private investment, increasing corporate debt and a weakening export sector, the US can see this as the perfect opportunity to re-establish itself as one of the major players in this space.