Most leading indicators of global industrial production suggest further recovery albeit at a diminished pace. As the worldwide expansion continues, global output should rise by more than 5% in both 2011 and 2012. During the next two years the most rapid growth should occur in the developing nations of Asia-Pacific, Africa and the Middle East, emerging Europe and Latin America (Figure 3) — most notably China, India and Brazil. Korea, Singapore and Taiwan also should present good prospects through 2012. Growth in the chemical industries of emerging nations should exceed 12% in 2010, with average gains of about 8% in 2011 and 2012.
In contrast, after the cyclical rebound of 2010, the chemical industries of developed nations should average only 3% growth during 2011–2012 due to headwinds from rising production capabilities in emerging markets in addition to anemic growth in domestic demand. Among the developed nations, the United States should benefit from low natural gas prices. Ireland also should achieve stronger growth than most other developed nations. Other developed countries face more-muted prospects, although Germany and a number of other large exporting nations currently are experiencing strong gains.
U. S. CHEMICALS OUTLOOK
For the chemical industry in the United States, the steep and sudden drop in spending caused massive inventory imbalances going into 2009. Demand for many chemistry-intensive items (light vehicles, construction goods, appliances, furniture, carpeting, etc.) plunged. As a result, inventories surged throughout the supply chain. Much of 2009 was spent working these inventories down. As a result, chemical production was weak as were shipments and most other indicators of industry activity.
A recovery emerged in mid-2009, fueled by stronger export demand bolstered by an improved competitive position with regard to feedstock costs. The upswing continued into 2010, boosted initially by restocking among downstream customers. After the 1st quarter, though, domestic demand slowed and in some markets even declined, thus increasing the importance of export markets. Indicators of industry activity all went up during 2010. Production of chemicals excluding pharmaceuticals should rise 5.2% in 2010.
Basic chemicals — inorganic chemicals, petrochemicals, plastic resins, synthetic rubber and man-made fibers — were hardest hit in the recession, having suffered sharp falls in demand from important customer markets such as light vehicles and housing. This segment, however, reached a trough first and has experienced the strongest cyclical recovery. Downstream customers remain cautious about building inventories but have largely depleted their stocks; improvements in final demand will necessitate replenishing once caution is overcome. Many downstream customers still face credit and liquidity issues. As is typical in cyclical rebounds, adhesives, coatings and other specialties should lag basic chemicals, experiencing a more-nominal gain initially but stronger ones in 2011 and 2012 (Figure 4).
Leading indicators of manufacturing activity are pointing to slowing demand. U.S. chemical industry growth should rise 3.0% in 2011, buoyed particularly by pharmaceuticals; excluding pharmaceuticals the chemical industry will experience a 2.7% gain in 2011. Nonetheless, the gains should be broad-based and more sustainable growth is likely.
The strong projected 2010 year-on-year growth rates for most segments must be viewed in the context of the exceptionally sharp declines seen in 2008 and continuing into 2009. It may take years for activity to recover from these steep drops to reach past peaks. The industry is sensitive to a number of risks, most particularly high and volatile energy costs. A double-dip in the U.S. economy and industrial activity would dampen domestic demand further while a weak world economy would adversely affect exports. Another downside risk might arise if significant output from new capacity in the Middle East and East Asia finds its way into traditional U.S. export markets and even North America.