State of the Chemical Industry

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State of the Chemical Industry STATE OF THE CHEMICAL INDUSTRY Chemical Processing Webinar June 2021 Dr. Thomas Kevin Swift Chief Economist & Managing Director Mid-Year 2021 Situation & Outlook • The Covid-19 pandemic resulted in the most severe yet shortest recession since the 1930s, touching virtually every corner of the globe. • China was the first affected and first to emerge from the downturn and with extreme fiscal/monetary stimulus, rapid roll-out of vaccinations, and a rapid shift of resources the US economy should fully recover by the end of Q2. • In most of the rest of the world, vaccination is key and a resurgence in Covid-19 cases is delaying or slowing recovery as economies struggle to contain outbreaks • Recovery will proceed apace despite downside risks • Most notable is significant risk of inflation pick-up in United States with more modest threat elsewhere Global Macroeconomic Outlook • Following worst downturn since the Depression, the world Global Economic Indicators economy is rebounding • Successful vaccination programs in several countries and % Change Y/Y some form of reopening has occurred in many places 10 8.4 • Fiscal stimulus and “excess savings” fueling demand 8 7.2 • Global manufacturing and trade has rebounded 6.1 4.8 6 3.9 4.4 4.6 • But… 3.5 4 3.1 3.1 3.2 2.9 2.4 • Covid cases remain historically high with continued crisis in 1.0 India, Brazil, and many other nations 2 0.9 • Growth remains uneven across economies and sectors 0 • Inflation is showing up in many places -2 • Multiple risks and uncertainties abound -4 -3.6 • We expect global GDP to grow by 6.1% in 2021 and 4.4% in -4.2 2022. -6 • World trade expands 8.4% in 2021 and 4.8% in 2022. -8 • Despite multiple supply chain disruptions, demand for -10 -8.2 goods is fueling production. Global industrial production is 18 19 20 21 22 23 expected to grow by 7.2% in 2021 and 4.6% in 2022. GDP World Trade Industrial Production U.S. Macroeconomic Outlook U.S. Economic Indicators • The economic recovery in the U.S. accelerated during Q1. Federal stimulus, vaccinations, and resilient demand % Change Y/Y are fueling the recovery across multiple segments. 10 Expectations continue to improve. 8.2 8 7.6 • Following a 3.5% decline in 2020, U.S. GDP is expected to 6.4 6.4 6.2 rebound in 2021, up by 6.4% and continue to grow by 6 4.3% in 2022. 4.34.3 4 2.9 3 2.9 2.32.6 2.6 • Accounting for about 70% of the U.S. economy, consumer 2.1 1.9 spending is expected to rise 7.6% in 2021 and 4.3% in 2 2022. 0 • Business investment declined 5.2% in 2020 with expected growth of 8.2% in 2021 then 6.2% growth in -2 2022. -4 -3.5 Job market improving, but slack remains especially in -3.9 • -5.2 certain industry segments. Unemployment rate expected -6 to continue to ease, averaging 5.4% in 2021 and 4.2% in 18 19 20 21 22 23 2022. GDP Consumer Spending Business Investment Outlook for End-Use Sectors Housing Starts • Vehicle sales fell to 14.4 million in 2020, but Vehicle Sales (million) (million) despite key material shortages creating 17.5 1.65 production constraints, sales are expected to 17.2 17.0 17.0 17.2 1.60 average 17.0 million in both 2021 and 2022. 17 16.9 1.55 16.5 1.59 1.56 • Record-low mortgage rates and remote work 1.50 resulted in surging demand for housing in 2020 16 1.45 that has persisted into 2021. Housing starts 1.40 15.5 1.40 climbed to 1.4 million in 2020 and are expected 1.35 15 1.34 to rise to 1.59 million in 2021 (highest level since 1.3 1.30 14.5 the start of the housing crisis) and ease slightly to 1.25 14.4 1.25 1.56 million in 2022. 14 1.20 18 19 20 21 22 23 Vehicle Sales Housing Starts Outlook for U.S. End-Use Industries 2018 2019 2020 2021 2022 2023 • As consumer spending shifted from services Motor Vehicles & Parts 4.3 -2.4 -24.3 19.7 5.2 3.7 to goods, manufacturing rebounded quickly Aircraft & Parts -1.7 2.3 -19.2 12.2 5.4 4.0 after lockdowns ended. Appliances -0.6 -3.5 1.9 9.4 1.8 2.2 Iron & Steel 6.0 0.2 -15.6 8.4 3.4 1.5 • Industrial activity started rebounding in Q3 Petroleum Refining 1.7 -1.8 -15.9 7.5 1.4 0.4 2020 and has been accelerating. Rubber & Plastic Products 1.9 -1.7 -7.8 7.0 3.6 3.0 • Supply chain disruptions from weather, Semiconductors & Electronics 9.1 4.2 5.8 5.9 5.4 3.4 logistics, etc. have provided headwinds in Furniture -0.1 -0.2 -9.9 5.0 1.8 2.2 several industries, however. Fabricated Metal Products 5.0 1.1 -7.5 4.9 1.6 1.6 • In 2021, industrial production is set to Computers 5.3 5.2 1.9 4.7 2.9 2.5 rebound by 5.5% before growing by 4.3% in Construction 3.1 1.4 -3.1 4.2 1.7 1.5 2022 Paper -1.1 -3.1 -2.1 3.9 0.9 0.6 • Most industries will grow in 2021 with the Structural Panels 3.1 -1.0 -1.2 3.6 1.1 1.5 Food, Beverages & Tobacco 1.9 0.0 -1.6 2.7 1.5 1.6 fastest growth in durable goods Apparel -3.5 -12.2 -14.6 2.3 -1.4 -1.4 manufacturing Textile Mill Products -0.9 -7.9 -10.8 2.2 -1.7 -1.5 Oil & Gas Extraction 16.8 10.8 -3.4 -2.2 1.4 0.7 Printing -2.5 -4.0 -10.9 -2.3 -0.3 -0.4 Natural Gas Based Petrochemicals Remain Competitive • Naphtha is a petroleum product whose price is closely tied to oil. Oil-to-Natural Gas Price Ratio • Ethane is a natural gas liquid (NGL) co-produced 45 with natural gas production. Its price is 40 correlated with natural gas prices. 35 • Because competing producers in Europe and Asia 30 More competitive generally use naphtha feedstocks and North 25 American producers generally use ethane and 20 other NGL feedstocks, we look to the relative Less competitive price of oil to natural gas as a proxy measure for 15 U.S.-based petrochemicals competitiveness. 10 • As a rough rule-of-thumb, when the oil-to- 5 natural gas price ratio is above 7, U.S. 0 petrochemicals are relatively advantaged. 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 • When the ratio is below 7, U.S. petrochemicals are less advantaged. Sources: EIA, NYMEX, ICE, Oxford Economics U.S. Chemistry Rebounds from Pandemic Recession Chemicals (exc. pharm) Basic Chemicals % change Specialties Agricultural Chemicals Consumer Products 8 6 4 2 0 -2 -4 -6 -8 -10 -12 2018 2019 2020 2021 2022 2023 2024 2025 U.S. Basic Industrial Chemical and Synthetic Materials Production Outlook by Segment Production Index (2012=100) 130 Synthetic Year To t al Inorganics Organics Materials 120 2018 3.5 1.6 3.8 -0.2 110 2019 -0.4 1.9 -1.5 -3.7 100 2020 -1.3 -1.9 -0.9 -17.8 90 2021 0.5 1.6 0.0 0.1 80 2022 3.4 2.1 4.0 3.5 70 2023 2.1 1.0 2.4 2.4 Total Inorganic Organic Synthetic Materials Sources: ACC U.S. Specialty Chemicals • As end use markets collapsed due to the pandemic, specialty chemical % change Y/Y production was off 10.8% in 2020. 15 10.4 • Rebounding growth in 2021 was 10 tempered by winter storms and 6.9 4.0 4.1 5 3.7 3.2 3.8 material shortages during H1. 2.5 1.7 0.4 • For 2021, coatings expected to be up 0 -0.4 -0.8 by 2.5% before growing 5.5% in 2022. -1.9 -1.6 -2.7 -5 -3.4 • Other specialty chemicals expected to grow by 4.3% in 2021 before growing -10 -8.7 by 3.5% in 2022. -10.8 -15 -14.2 -20 05 07 09 11 13 15 17 19 21 23 Sources: ACC Outlook for U.S. Chemistry • As key end-use markets and export customers for U.S. U.S. Chemical Volumes chemistry recover, U.S. chemistry volumes are expected to expand as well. % Change Y/Y 20 • The oil-to-natural gas price ratio is balanced. The U.S. 15 14.2 will remain a competitive location for petrochemical 12.3 manufacturing. 10.6 10 • As a result, chemical volumes are expected recover 1.4% 6.2 4.8 in 2021 before rising by 3.2% in 2022. 3.8 4.13.5 4 4.0 5 2.6 3.1 1.4 0.6 • Basic chemicals: 0.5% in 2021, 3.4% in 2022 0.6 • Specialty chemicals: 3.8% in 2020, 4.1% in 2022 0 • Shipments are expected to rise 8.1% in 2021 to $526 -5 billion and by 8.2% in 2022 to $569 billion. -10 • After falling by 14,800 (2.7%) in 2020, employment is -9.3-8.9 expected to recover by 6,000 (1.1%) in 2021 and by 1.3% in 2022.
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