Chemical recovery in 2002

Despite the most challenging period in two decades, chemical shipments in 2001 most likely will remain at $460 billion, the American Chemistry Council (ACC) has reported.

In its annual survey of the industry, 'The Business of Chemistry in the USA: Performance and Outlook,' gains were reported in consumer products, specialty chemicals and life sciences. These gains, however, were countered by a decline in industrial chemicals. Soaring energy costs, a high dollar, overcapacity, declining demand from the manufacturing recession, and falling product prices all combined to affect the industry in 2001.

Kevin Swift, ACC's chief economist, said, 'The effects of a slowing global economy and domestic demand in particular are apparent. Most companies in the business of chemistry anticipate that economic conditions will recover by third quarter 2002.'

Swift predicted that despite the high dollar, slowing growth overseas and diminished competitiveness from the high feedstock costs of earlier in the year, exports are expected to rise 4.3% in 2001, reaching $83.3 billion - a new record. On the other hand, imports, largely from Western Europe and a number of Asian nations, rose 11.5%, and the US trade surplus fell from $6.3 billion to $1.3 billion in 2001. This is down significantly from the $20.4 billion peak reached in 1995.

Despite a slowing economy, ACC predicts shipments will expand 2.8%, to $473 billion in 2002. Life sciences offer the best growth prospects while demand for specialties will moderate more in line with that for basic chemicals. On a volume basis, a 1% gain is expected. Exports are expected to reach $87.5 billion in 2002 but will likely be outpaced by imports. As a result, the trade surplus is anticipated to turn into a slight trade deficit, the first on record since the mid-1920s.

The survey indicates that overall investment in the industry's future - spending for research and development (R&D) and new plant & equipment (P&E) - will reach an estimated $60 billion in 2001. The softening of profit margins set the stage for reductions in new plant & equipment (P&E) investment.

Increased spending to replace worn-out plant and equipment for environmental protection and for improving health and safety increased while expansion of capacity for existing products collapsed. Overall spending on research and development also appears to have slowed in 2001, with continued spending gains in life sciences offsetting reduced spending in basic chemicals. More funds will be directed for basic research and for development, while a slight acceleration in total research and development spending is anticipated in 2002.

Employment is expected to decline in both 2001 and 2002 as downsizing and out-sourcing efforts continue, the survey showed. A 3.5% gain in hourly wages in 2002 is expected.