chemical,sector,poised,for,gai business, insurance US chemical sector poised for gains in 2016
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“Looking to 2016, improvements in global markets will boost demand for US chemicals, though the higher dollar will remain a headwind for exporters,” said Kevin Swift, chief economist at the ACC.“US consumer spending remains strong as further improvements in the labour market and rising confidence support growth. Auto sales are expected to edge higher and stronger gains in housing are expected as household formation accelerates,” he added.After rising 3.6% in 2015, overall US chemical production is expected to gain another 2.9% in 2016, before surging by 4.4% in 2017 and 4.8% in 2018.Excluding pharmaceuticals, US chemical production rose by 3.8% in 2015, and is projected to increase 3.1% in 2016, 4.7% in 2017 and 5.3% in 2018.“In the long term, the US chemical industry will grow faster than the overall US economy,” said Swift. US GDP is expected to rise just 2.6% annually in 2016-2018.The strength of the US economy, or lack thereof, was front and centre on the first trading day of 2016, with the ISM Manufacturing PMI (Purchasing Managers’ Index) indicating contraction for the second consecutive month in December 2015. The reading of 48.2 for December weakened from 48.6 in November. Anything under 50 indicates contraction in the manufacturing economy, with over 50 indicating expansion.Meanwhile, basic chemical volumes are “intensifying” and significant capacity is expected to come on stream in 2016-2018, much in the form of plastic resins, Swift noted.For US basic chemicals, output growth in 2016 is expected to rise 3.6% following a 3.2% gain in 2015, before jumping to 5.5% in 2017 and a robust 6.7% in 2018.“The US chemical industry continues to build momentum as announced investments in new chemical capacity persist. These investments will capitalise on the profound and sustainable competitive advantage enabled by shale gas,” said Swift.Shale gas projectsAround $158bn in over 260 individual chemical projects in the US related to shale gas have been announced or completed since 2010. Only around 8% have been completed, while 34% are either completed or under construction, noted Martha Moore, senior director, policy analysis and economics.Among these US projects, 64% represent foreign direct investment (FDI): either foreign-owned companies or foreign-partnered, she added.A wave of polymers capacity, primarily polyethylene (PE), is being built, and around half of that new resin capacity will be targeted for export. That compares with a current level of 20% of the major US thermoplastic resins – PE, polypropylene (PP) and polyvinyl chloride (PVC) – being exported today, said Moore.US chemical sector capital spending is projected to rise from $39.6bn in 2015, to $55.3bn by 2020, gaining 7.5% in 2016, 8.0% in 2017, 7.0% in 2018, followed by gains of 6.3% in 2019 and 5.8% in 2020, according to the ACC.It is the driving force of overall US manufacturing construction activity, noted the ACC economists.“The US chemical sector represents over half of total US manufacturing construction spending, even as it accounts for just 15% of overall manufacturing,” said Moore.In specialty chemicals, there was a slowdown in production growth in 2015 to 3.1% versus 6.8% in 2014 with weakness in oilfield chemicals and coatings, but the sector is expected to rebound to 3.5% in 2016, 4.1% in 2017 and 3.9% in 2018, according to the ACC.One concern in the US economy is an inventory imbalance in manufacturing, partly caused by the high US dollar, and the downturn in the oil and gas sector impacting areas such as steel and oilfield equipment, noted Swift.However, the economist views this imbalance as transitory.“Despite the current weakness in manufacturing, a tipping point in downstream customer industries is being reached and will lead to strong domestic demand, which aids specialties,” said Swift.China outlookAs for China, the driver of commodities demand, the economists see a slower growth trajectory for multiple years ahead.“The years of double-digit GDP growth are over. We see this really decelerating by the end of the decade. China faces demographic headwinds, as the number of people in the labour force is peaking,” said Swift.By 2020, China’s GDP growth is projected to slow to 6.0% versus 6.8% in 2015, with a further slide to an average of 5.1%/year in 2021-2025, according to the ACC.
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