Despite a slowdown in the U.S. economic recovery, the outlook for the U.S. chemicals manufacturing industry is more encouraging, according to the American Chemistry Council (ACC).

A “gradual improvement” is expected in the coming year before a “stronger recovery” in the U.S. chemicals sector takes hold in 2013, according to the ACC’s latest “Year-End Situation and Outlook.” Most “major” chemistry end-use markets have recovered in the United States, which has helped to maintain the $720 billion industry’s 26% contribution to U.S. gross domestic product (GDP).

“Key to the domestic chemical industry recovery is access to vast, new supplies of natural gas from previously untapped shale deposits,” the ACC said. “After years of high and volatile natural gas prices, the new economics of shale gas are creating a competitive advantage for U.S. manufacturers, leading to greater investment, job creation and industry growth.”

ACC CEO Cal Dooley said for the first time the chemical industry’s economic outlook “indicates a two-speed manufacturing recovery. Most major end-use markets for chemistry in the U.S. have recovered, though growth has slowed for overall U.S. manufacturing.” Developed nations, constrained by debt and tighter fiscal policies, are likely to expand chemistry production only moderately, while output from emerging markets is expected to rapidly increase.

“The shale gas production boom is moderating natural gas prices and creating more stable supplies, which has allowed U.S. chemical manufacturers to become more competitive with producers abroad,” Dooley said.

Ethane, a natural gas liquid, is used as a feedstock by U.S. chemical companies. Because of stable supplies and competitive costs, affordable natural gas and ethane have given domestic manufacturers an advantage over global competitors that use more expensive, oil-based feedstock, the ACC said.

“Historically, an oil-to-natural gas price ratio of six to one or higher increases the global competitiveness of U.S. Gulf Coast-based petrochemicals and derivatives such as plastic resins. For the last several years this ratio has been above seven to one, but more recently the high ratio of oil to natural gas prices has been over 25 to one, helping to spur capital investment in North America.”

Previously, the ACC estimated that projected domestic petrochemical investments would approach about $16 billion because of “reasonable” increases in ethane supplies. However, after considering “the broader chemical industry, capital investment is expected to exceed $25 billion, further fueling economic and job growth,” the report said.

American Gas Association President Dave McCurdy earlier this month told reporters that chemical industries, “which had fled offshore in the ’90s and early 2000 because of the [high] cost of the feedstock natural gas, are coming back and they’re bringing billions of dollars…” And states have begun “competing” to build ethylene crackers to accommodate the growth (see Daily GPI, Dec. 5).

“Despite the subdued year, most major end-use markets for chemistry have recovered in the U.S., especially those tied to export markets and business investment,” the ACC said. “The boom in oil and gas is creating both demand-side (e.g., pipe mills, oilfield machinery) and supply-side (e.g., chemicals, fertilizers, direct iron reduction) opportunities and this is likely to continue.”

Strength also is seen in light vehicles and aircraft, while “a recovery in construction materials, and industries involved with business investment (iron and steel, foundries, computers, etc.) are still strong.” By contrast, several industries are lagging, including textiles, paper and printing,” which indicates “the emergence of a two-speed manufacturing sector, with about one-half of industries soft and others doing well.”

In addition to “favorable energy dynamics and a weaker dollar, the strong growth overseas will aid U.S. chemical exports in the years to come,” the ACC said. “The outlook for chemicals points to modest growth over the next several years and depends on strengthening domestic demand and an improvement in exports abroad. Exports were up nearly 11% to $189 billion in 2011 and are expected to exceed $230 billion in 2014.”

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