Where is the chemical industry going?

Business Economics, Oct, 1999 by T. Kevin Swift

By any measure, the Asian crisis was severe, and it subsequently spread to Russia and many Latin American markets. Much of the world still struggles, but an uneven recovery, is occurring and global chemical industry growth will average perhaps 3/4 of 1 percent this year before recovering to a 2 1/2 percent gain next year. Barring any shocks, 2001 represents the first return to sustained growth, with a 3 1/4 percent gain expected. Weakness will largely be centered in Eastern/Central Europe and Latin America. Western European chemical markets will slow (and even fall in some nations), but the outlook for Asia continues to improve. Our exports to China, India, Indonesia, Korea and Malaysia. for example, have seen some strong gains. Continued expansion of demand in Canada and Mexico are also positive. Recent gains in equity values in some of the Latin American and other overseas markets herald an impending recovery in these markets.

Taken all together, U.S. chemical exports are expected to rebound in the second half of 1999. However, continued first-half weakness implies a lower trade surplus this year. Deficits will continue to occur in organic chemicals, pharmaceuticals, and inorganic chemicals.

Domestic demand in many manufacturing end-use markets declined in 1998 and into 1999. As a result, overall chemicals & allied products production during the first part of 1999 was down about 2 percent compared with last year. The slowdown was most pronounced in basic industrial chemicals. Although some end-use markets remain soft, there are signs of a turnaround. There are increasing indications of a recovery in manufacturing, which accounts for nearly 35 percent of final output. Recently rising prices for plastics and most commodity chemicals confirm the recovery. Some chemical companies are guardedly optimistic about near-term domestic business conditions.

With continued expansion of the U.S. economy, look for overall growth in production volume of 3/4 of 1 percent during 1999, rising to perhaps 2 1/2 percent in the year 2000. At that time, the chemical trade balance will improve as imports soften. In spite of recovery in the manufacturing sector, 1999 will continue to be soft for basic industrial chemicals. This is especially true for organics and synthetic rubber. Somewhat better performance is expected in 2000 for industrial chemicals, with 2001 representing the first year of real sustained growth. Growth will average 3 percent in 2001 and should be across the board. The year 1999 will also be below average for life sciences and other chemical products. Look for stronger growth in 2000 and 2001. Specialty chemicals should also experience somewhat slow growth.

Long-Term Outlook

Turning to the long term, the business of chemistry in the United States is maturing. This is especially true for basic chemicals, where key end-uses in manufacturing have slow long-term growth prospects, as does the farming sector. A few bright spots include applications for basic chemicals in electronics and some further penetration by plastics and elastomers in light vehicles, construction, and other markets for discrete products. Driven by an [TABULAR DATA FOR FIGURE 3 OMITTED] overall need for enhanced competitiveness by American business, the very performance-improving nature of specialties implies more rapid growth.