U.S. chemical output fell slightly in May with lower production witnessed across all chemical producing regions – according to the latest monthly report from the American Chemistry Council ("ACC").
The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") edged down 0.2% for the reported month following flat growth a month ago and a 0.1% rise in Mar 2015. The U.S. CPRI, which is measured using a three-month moving average, was created by Moore Economics to track chemical production in seven regions nationwide. It is comparable to the Federal Reserve’s industrial production index for chemicals.
Per the ACC, activity for the U.S. manufacturing sector – the largest consumer of chemical products – was flat in May after declining in the previous two months. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods.
U.S. factory activity was essentially flat on a monthly comparison basis in May as a rise in employment was masked by slowdown in new business growth. A stronger dollar is putting pressure on the U.S. manufacturers as it is making American-made products costlier in other nations.
Within the manufacturing sector, production rose in several chemistry end-user markets in May including appliances, motor vehicles, aerospace, rubber products, printing and textile products.
The May reading showed a decline in chemical production across all seven regions. Production in the Gulf Coast, where key building block materials are produced, was down 0.2% on a monthly comparison basis in the reported month. Production also fell 0.2% in Mid-Atlantic and Ohio Valley. Output inched down 0.1% across West Coast, Midwest, Southeast and Northeast.
By segments, chemical production was mixed in the reported month. Gains across pesticides, chlor-alkali, other specialties and synthetic rubber were neutralized by lower production of plastic resins, organic chemicals, adhesives, fertilizers, acids, phosphates, sulfates, manufactured fibers and pharmaceuticals.
Overall chemical production moved up 4% year over year in May with all regions racking up gains.
The U.S. chemical industry, a more than $800 billion enterprise, is heavily linked to the overall condition of the nation’s economy. It has been consistently leading the U.S. economy’s business cycle due to its early position in the supply chain.
The highly cyclical industry is gradually gaining strength after being roiled by the global economic crisis. The industry’s upturn is expected to be backed by strong momentum in the light vehicles market and continued recovery in the construction space.
The ACC sees U.S. chemical production to continue to expand both this year and 2016 and expects the domestic chemical industry to eventually transcend the nation’s overall economic growth. The trade group, in its recently published outlook, said that despite the slowdown in global manufacturing and oil price volatility, chemical production is expected to pick up pace on the heels of new capital investments and capacity additions.
However, the ACC has dialed back its estimates for national chemical production for both 2015 and 2016 factoring in economic softness in the first quarter of 2015 and the impact of a stronger dollar. The ACC now envisions U.S. chemical production to rise 3.2% this year and 3% in 2016. Earlier, it expected a 3.7% growth in 2015 and 3.9% in 2016. The revised outlook is still higher than 2% growth seen in 2014.
The ACC also expects demand for chemicals to grow over the next several years on continued healing across end-use markets, the industry’s sustained competitiveness and the eventual return of global economic growth. Growth in the industry is also expected to usher in improved job prospects.
The shale gas boom and abundant supply of natural gas liquids have provided the U.S. petrochemicals producers a compelling cost advantage over their global counterparts. The ACC expects this competitiveness to drive export demand and new capital investment in the country. New capacity is expected to provide a significant boost to chemical production as these investments come on stream in the coming years.
The shale revolution has incentivized a number of chemical companies including Dow Chemical DOW, LyondellBasell Industries LYB, Eastman Chemical EMN, Celanese CE and Westlake Chemical WLK to invest billions of dollars on shale gas-linked projects to take advantage of ample natural gas supplies. Such investments are expected to boost capacity and export over the next several years.
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