Many chemical industry executives say that the US fiscal cliff and general economic uncertainty are driving increased focus on operational excellence and a strong balance sheet.
Despite economic challenges, executives say the chemicals industry will continue to see strong growth in the US as a result of shale gas developments, according to the results of a poll conducted by KPMG LLP, the US audit, tax and advisory services firm.
According to the KPMG poll, 41% of industry business leaders indicate that in the current macro-economic environment, their biggest concern is the US fiscal cliff. An additional 20% point to a slowdown in emerging markets and 19% say Eurozone debt issues.
“The threat of the fiscal cliff is an obvious concern, leading many companies to focus on improving business effectiveness and maintaining a strong balance sheet,” said Mike Shannon, global chairman of KPMG’s Chemicals and Performance Technologies practice. “Companies that are successful in these endeavors can gain a competitive advantage and be better positioned to capitalize if the economic tide turns.”
According to nearly one-third of executives surveyed, shale gas developments in the US will drive significant growth in petrochemical and downstream manufacturing. Additionally, 37% say US shale exports will force increased competition leading to price and margin erosion in Asia.
Paul Harnick, chief operating officer of KPMG’s Global Chemicals and Performance Technologies practice, added, “Regardless of concerns about the fiscal cliff, US companies should remain focused on long-term investment strategies. To support planned investments in capacity, companies must invest in broadening their supply chain capabilities to ensure that exports get to the high growth markets. These markets will be critical to the growth of the sector, especially in the US where exports of product derived from shale gas are expected to become a critical growth platform.”
According to the poll, however, 28% of chemical industry business leaders say their companies do not currently have an emerging markets growth strategy in place.
“This response is startling because we see emerging markets as a critical growth factor for any large chemical company over the next decade, especially as demand in those regions will only increase,” Harnick said.
The KPMG Global Chemicals and Performance Technologies practice conducted a webcast providing insight into trends that are driving the chemicals industry, as well as a view on current risks and opportunities. During the webcast, a poll was conducted in an effort to gain a sense of market sentiment. The results reflect responses from 87 senior industry executives around the world who self selected to participate in the webcast poll.
Meanwhile, a recent report claims that a US Ethylene boom could be on its way, as a result of a surge in the shale gas revolution.
The ongoing shale revolution will see the US ethylene industry surge in the near future, growing by more than a third by 2017, predicts the latest report from business intelligence experts GlobalData.
According to the new report, US ethylene capacity dropped from 27.089m metric tonnes per annum (MMpta) in 2000 to an estimated 26.137 MMpta in 2012, but increased investments in the industry will see this figure jump to 35.048 MMpta by 2017 – an increase of just under 35%.
In correlation with the recent surge in shale gas output, the production of Natural Gas Liquids (NGLs) has increased significantly. Ethane, a hydrocarbon almost exclusively used in petrochemical production, is a major component of NGLs and is cracked to produce ethylene.
Correspondingly, investors have been keen to be a part of an ethylene industry on the rise, and many of the USA’s major ethylene producers are investigating the possibility of bringing online new plants with capacities of more than one MMpta in the near future.
Strong ethane production has also lowered prices and made the US petrochemicals industry much more competitive than in previous years, says GlobalData’s report. Five years ago, the US was one of the most expensive places to produce ethylene, but the ethane-based US petrochemicals industry is now in a better position than the naphtha-based petrochemicals industries of Europe and Asia-Pacific, and second only to the Middle East in terms of production economy.