Observers of the global chemical industry are preparing for an unpredictable year, with growing geopolitical tensions, such as a growing trade war between the United States and China, looming concerns about overcapacity, and a shift in expectations for the chemical manufacturing industry.
“The weakness of global manufacturing industry and uncertainty of trade policy will further slow down the growth of us chemical production in 2020,” the US chemical Council (ACC) wrote in the report “situation and outlook of chemical industry at the end of 2019”. “On the other hand, new capacity related to shale gas advantages will help.”
In order to provide our audience with the perspectives of American chemical companies for the coming year, the powder and bulk solid surveys can be used to predict and prospect the chemical industry for 2020 and beyond. Let’s look at some of the biggest problems facing domestic chemical manufacturer in 2020.
Trade war crisis
Most observers expect the trade war between the US and China to continue to put pressure on the chemical industry in 2020. According to the United States chemical Commission (ACC), tariffs currently affect about 1500 chemicals from China, worth US $26.5 billion, and more than 1000 chemicals from the United States, worth US $11 billion. This situation may cause us companies to reduce the purchase of chemicals from China due to rising prices, and China will also reduce the import of chemicals made in the United States.
Although U.S. companies have an advantage among global competitors due to the cheap and abundant raw materials provided by domestic shale resources, ACC said that U.S. chemical exports will drop by 2.5% this year to $137 billion. By 2020, exports are expected to rebound, up 1.1% to $138 billion. Meanwhile, China is on the verge of an economic slowdown, with GDP growth expected to fall from 6.3% in 2019 to 6.0% next year and 5.9% in 2021. U.S. companies may feel the impact because the United States is one of the largest consumers of chemicals made in the United States. In the next decade, China is likely to further develop its production capacity to reduce its dependence on imported chemicals from the United States and the rest of the world. It is estimated that by 2030, China will account for about 50% of the global chemical market sales.
As chemical manufacturer see turbulent prospects, Deloitte, a professional services firm, suggests that some companies may adjust their expansion plans in the US or even move planned petrochemical facilities to other parts of the world.
Deloitte, in its chemical industry outlook for 2020, said: “in the face of this uncertainty, it is very important for chemical manufacturer, especially those based in the United States, to be cautious in planning new capacity expansion.” “Only time will tell if these companies will move their announced US petrochemical projects to other places, such as the Middle East, South Asia or the Far East.”
The challenge of oversupply
Deloitte wrote in its oil, gas and chemical industry outlook 2020 that the U.S. chemical industry is expected to face overcapacity in 2020 due to the wave of opening factories in the United States (especially along the Gulf Coast) and the decline of factory utilization to 85%. “The new crude oil chemical technology to be launched may also lead to oversupply next year.
Since 2010, U.S. companies have invested about $204 billion in 340 capital projects, according to the U.S. chemical Commission (ACC). Although total US chemical production is expected to grow by only 0.4% in 2020, the Industry Association expects the growth rate to jump to 2.3% in 2021. It is estimated that the domestic output of basic chemicals will increase by 0.7% in the next year and 3.1% in 2021.
New assets on-line, coupled with economic turmoil, may bring some problems to the industry next year. “In markets such as p-xylene, even with strong growth, capacity growth will overwhelm demand growth,” IHS Markit, a business intelligence firm, wrote in March “If the growth of new capacity is combined with the slowdown of demand growth, the resulting oversupply will significantly affect the profitability of the industry. For example, Moody’s, a bond credit rating company, said in September that the ethylene and ethylene derivatives markets could be weak in 2020 due to new capacity.
In order to deal with the oversupply problem in the first few years of the 1920s, Deloitte suggested in outlook that “efforts should be made to promote higher process efficiency with the help of digital technology, and improve the cost saving of the whole chemical value chain.” In addition, the integration of oil and gas and commodity chemical companies can further enter the field of special chemicals by strengthening acquisitions, so as to cope with the economic downturn and enhance downstream synergy. “