Exports fuel chemical, plastics growth in 2010

U.S. chemicals and plastics have overcome weak domestic sales in 2010 thanks to emerging market demand and low natural gas prices. Growth in emerging markets will be "a defining feature of economic developments during the next 10 years," according to the year-end economic outlook for the global chemical industry from the American Chemistry Council (ACC). Those emerging markets are importing chemicals and plastics from the U.S. at a time when only the Middle East offers a better cost position to the Gulf Coast.

The $3.43 trillion global chemistry business grew 8.8% in 2010, compared to a 3.3% decline in 2009, riding a "V"-shaped recovery since the March 2009 trough. Production volumes exceeded their previous peak in the fourth quarter of 2009, the ACC noted, as "the recovery evolved into an expansion."

The global economic recovery has not followed a similar path. Three years after the recession began and 18 months after it ended, U.S. gross domestic product (GDP) remains below its past peak. GDP is expected to increase by 2.7% in 2010, which is a historically low rate of growth compared to levels typically seen at this point in a recovery.

U.S. GDP will moderate to 2.4% in 2011, then increase to 2.8% in 2012. Global GDP is expected to grow by 2.5% in 2010 and 3.0% in 2011, before recovering to a 3.4% gain in 2012.

Housing market remains a drag

The lower growth rates in the U.S. can be attributed in part to continued weakness in housing, with any residual boost from inventory restocking having "played out." Housing starts are expected to recover to 600,000 in 2012, up from 560,000 in 2009, but well below the 2.1 million built in 2005. In 2011, they are forecast to improve to 780,000, with an acceleration in 2012 pushing it back above 1 million. Spending on residential construction fell by 60% from a peak of $614 billion in 2005 to an estimated $245 billion in 2010.

Vehicle sales have rebounded strongly, boosting plastics in automotive. Vehicle sales are expected to rise to 12.7 million units in 2011 and 14.4 million in 2012, recapturing the previous peak.

Emerging markets as growth markets

Chemical industries in emerging nations are forecast to grow at rates of 12.2%, 8.4%, and 7.7% from 2010-2012. Over that same time, developed nations will average growth of only 3.1%. Growth will be led by China, India, and Brazil, with some additional input from Korea, Singapore, and Taiwan.

Natural gas fuels export machine

After U.S. chemical exports contracted 12.2% and imports fell by 14.8% in 2009, exports rose by 16.8% to $169.9 billion with imports up 14.1% to $166.2 billion, resulting in a $3.7 billion surplus. Exports are forecast to grow by 9.7% to $186.4 billion in 2011 and  8.6% to $202.5 billion in 2012, while imports grow by 7.8% to $179.2 billion in 2011 and 10% to $197.1 billion in 2012. 

Much of that growth is due to proven U.S. natural gas reserves having risen by one third since 2005. Over that time, average natural gas prices have fallen from $7.33 to $3.65/mmBtu in 2009.

When the ratio of oil's price to natural gas is more than 7, Gulf Coast-based petrochemicals firms have a distinct cost advantage. More than 70% of U.S. ethylene comes from natural gas liquids, while in Western Europe, more than 70% comes from naphtha, gas oil, and other light distillate oil-based produces.

That ratio recently expanded over 22:1 and is "very favorable for U.S. competitiveness and exports of petrochemicals, plastics, and other derivative." How favorable? The U.S. Gulf Coast region now only trails the Middle East in cost position, helping lift exports by 15%.