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ACC Sees U.S. Chemicals Growth to Top GDP, But Cuts View - Analyst Blog

U.S. chemical production will continue to expand both this year and the next and the American chemical industry will eventually transcend the nation’s overall economic growth – according to the recently published “Mid-Year 2015 Chemical Industry Situation and Outlook” by the American Chemistry Council ("ACC").

The Washington, DC-based chemical industry trade group noted that notwithstanding the slowdown in global manufacturing and oil price volatility, the U.S. chemical industry is seeing production volume gains. 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. A mightier greenback is holding down U.S. exports, reducing their attractiveness in overseas markets.

The ACC now envisions U.S. chemical production to rise 3.2% this year and 3% in 2016. Earlier, the trade group expected a 3.7% growth in 2015 and 3.9% in 2016. Nevertheless, the revised outlook is still higher than 2% growth witnessed in 2014.

The trade group also added that the U.S. economy is growing below its potential as high taxes and debt coupled with regulatory burdens are denting business and consumer confidence. It expects U.S. GDP to rise 2.5% in 2015 and 2.9% in 2016.

The ACC expects the domestic chemical industry to grow at a faster clip than the overall U.S. economy in the long haul and emerge as a long-term economic growth engine as improvements in key end-use industries and emerging markets take hold. It sees 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 chemical industry is also expected to usher in improved job prospects. The ACC sees employment in the industry to grow 0.7% in 2015 with jobs being added through 2020, reversing a decade-long trend in declining employment. The trade group expects the chemical industry to continue adding high-paying jobs through the end of the decade.

The ACC said that although strength in the U.S. manufacturing, an improving job market and expansion in major end-use markets have boosted demand for chemicals, persistent softness in overseas markets has constrained U.S. export sales. A stronger dollar coupled with sluggishness in external markets is expected to restrain trade growth.

The ACC does not expect the U.S. chemical industry to rake in trade surplus until 2018. National chemical exports are expected to rise with the strengthening of overseas demand and the industry is expected to notch up record trade surpluses by 2020.

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 to invest billions of dollars to ramp up capacity in the country. Chemical makers including Dow Chemical DOW, DuPont DD, LyondellBasell Industries LYB, Eastman Chemical EMN, Celanese CE and Westlake Chemical WLK are investing heavily on shale gas-linked projects to take advantage of ample natural gas supplies which is expected to boost capacity and export over the next several years.

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.

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