Despite a challenging economy, the U.S. downstream sector will continue to expand as global demand for plastics remains strong ahead of the world's largest downstream event's return to Houston in June 2020.
"Growth rates in U.S. chemistry over the next five years are expected to surpass average growth over the previous 20 years," said Martha Moore, senior director of policy analysis and economics at the American Chemistry Council (ACC). "Provided that access to export markets remains open to our producers, expanding global demand will be met by shale-advantaged chemistry sourced from the U.S."
The U.S. chemical industry is set to grow further in 2020 and beyond, in spite of a challenging world economy, according to ACC's "Mid-Year 2019 Chemical Industry Situation and Outlook." Growth is expected to be spurred by strength across major chemical end-user markets and significant shale gas-linked investment in capacity expansion.
Yet the industry faces headwinds from slowing global growth, escalating trade tensions, and a slowdown in manufacturing and chemical exports. With slowing growth prospects across much of the globe and rising trade tensions, chemical exports are not performing as well as expected a year ago. Manufacturing also appears to be slowing.
The U.S.-China trade war is altering supply chains, with U.S. chemical exports to China down 20-25 percent year-on-year and U.S. imports of chemicals from China off by 25-30 percent, according to ACC.
"There has never been a more pressing need for the entire downstream community to come together and share ideas, make new connections and inspire the next generation," said Bridget Robinson, project director at Petrochemical Update (Reuters Events), the team behind the Downstream 2020 event.
More than 10,000 downstream professionals within process engineering, engineering and construction, reliability and maintenance, shutdowns and turnarounds, and supply chain and logistics will meet at the Downstream 2020 event June 10-11 at the NRG Center in Houston to tackle core challenges with world-class experts, hear about the latest disruptive technology, and meet and form partnerships with new and existing suppliers.
On the plus side, U.S. exports are finding alternate routes. In addition, chemical inventories are in a more balanced position. Housing is expected to ease before continuing its slow recovery, and the automotive sector is expected to stay at elevated levels. Housing and automotive markets are important end-use demand drivers for petrochemicals.
Rising business investment will continue to drive U.S. GDP growth, though at slower rates than the previous two years. Growth in consumer spending, while moderating, is also making a positive contribution. GDP is projected to rise by 1.9 percent in 2020 and 1.8 percent in 2021.
The chemical industry will be a source of strength, with a growth of 3 percent in 2020. In fact, chemical industry growth will exceed that of the U.S. economy through 2024, ACC said.
"The United States remains an attractive destination for chemical industry investment," the outlook notes. "Since 2010, petrochemical producers have announced significant expansions of capacity in the U.S., reversing a decades-long decline."
To date, 334 chemical and plastics projects cumulatively valued at $204 billion have been announced, with 53 percent of the investment completed or underway and 40 percent in the planning phase.
America's plentiful and affordable supplies of natural gas and NGLs -- a key feedstock for chemical makers -- are driving the new investment. Further gains in capital spending are anticipated, increasing by 4.9 percent in 2020.
The ACC expects output gains will be strongest in organic chemicals, inorganic chemicals and other specialty chemicals. For basic chemicals, ACC Chief Economist Kevin Swift sees volumes rising 4.75 percent in 2020 before tapering off as major projects are completed. Specialty chemicals volumes are expected to gain 2.5 percent in 2020.
ACC: Capital spending will reach $43 billion by 2024
The U.S. chemical industry trade surplus continues to grow, but potential expansion is limited by reduced external demand due to slower global growth and rising trade barriers.
The U.S. chemical industry was expected to post a $37 billion trade surplus in chemicals in 2019 as exports rose 5.9 percent to $149 billion and imports rose 2.4 percent to $112 billion, ACC said.
Two-way trade between the U.S. and its foreign partners was expected to reach $260 billion in 2019, a 4.4-percent expansion over 2018, though trade growth has slowed considerably as a result of trade conflicts.
Continued gains in chemical employment are expected. Growth in output and continued expansion of capacity will generate demand for more workers, with more than 17,000 additional jobs expected through 2024, according to ACC. Because these jobs pay well above average, growing payrolls will strengthen local economies.
Several news outlets have warned investors a recession is imminent. At the tail end of the 2019 third quarter, ACC said an economic recession in the U.S. is unlikely in the next year-and-a-half.
Image source: American Chemistry Council
"Of course, a lot can happen, including shocks to the system. But the consumer economy is doing very well with strong job creation, rising wages and the lowest unemployment since 1969 -- two generations ago," Swift said. "The pace of job growth has moderated, but that's primarily a supply issue with the retirement of baby boomers. When you ask CEOs their No. 1, 2 and 3 concerns that keep them up at night, one of them is always recruiting and talent retention."
A manufacturing slowdown is evident worldwide, including in the U.S., and the Treasury yield curve has briefly inverted, with short-term debt (typically the two-year Treasury) yielding more than long-term debt (10-year Treasury).
However, this is not enough to trigger a recession. "An inversion of the yield curve has to be a steep inversion and for a prolonged period. We haven't seen that yet," Swift said.
Similarly, ACC's Chemical Activity Barometer (CAB) would have to show a deeper and prolonged downturn of 3-4 percent over three months.
The CAB, a leading indicator of U.S. economic activity, fell just 0.1 percent in August 2019 on a three-month moving average basis, following four months of gains and a similar drop the month prior. Year-on-year, it was flat.
Downstream 2020
Against the backdrop of the downstream industry's incredible growth, the market must address these core challenges amid a new consumer focus on the circular economy and sustainability.
The Downstream Conference & Exhibition has become the largest and most valuable meeting point for petrochemical, chemical, LNG and refining decision makers in terms of both lessons learned and networking opportunities.
The speaker lineup includes some of the biggest names in the industry who will tackle issues across the entire downstream value chain, sharing insights into industry challenges and possible solutions.
Attendees can look forward to keynote talks and panels by key industry experts, including: Alan Gelder, downstream global subject matter expert and vice president (VP) of Refining, Chemicals & Oil Markets, Wood Mackenzie; Tim Sutherland, general manager -- Pasadena Refinery, Chevron; Thomas Abel, senior VP of Projects, Borealis AG; Walter Pesenti, global petrochemical operational excellence manager, BP; and Roger Guenther, CEO, Port of Houston.
Downstream 2020's program includes five tracks serving the entire value chain: Engineering & Construction; Reliability & Maintenance; Shutdowns & Turnarounds; an all-new Process Engineering & Technology track; and Supply Chain & Logistics, with relevant content for every attendee's entire organization.
Speaking to more than 3,000 of North America's most influential operators, refiners and EPCs, new and returning expert presenters will deliver the latest case studies, allowing delegates to develop world-class projects immediately.
On both days of the event, there will be an expanded workshop program (with discipline- specific technical sessions), roundtables, industry-leading panels and case studies designed to cover every key job role and competency from journeymen to the most senior executives.
Featuring 450 exhibitors and free content theaters, the event will showcase the industry's latest and greatest, delivering cutting-edge technical content from industry partners, associations and major working groups. Major players will showcase the latest technology with hands-on demonstrations.
"As the world's largest downstream event, we take pride in catering to the full value chain under one roof," said Robinson. "Across our five tracks, we serve your plant from conception to customer. Our dedicated tracks will provide business-critical insight, innovation and solutions. Join us to serve all your teams' needs in just two days!
"Downstream 2020 truly is the place where downstream professionals meet to learn, network and do business. There is no excuse not to attend -- and the good news is that owner-operators and technical EPCs get complimentary tickets."
For more information and to secure your tickets, visit www.downstreamevent.com.
