U.S. chemical production continues its gaining streak on a monthly basis with output rising in February on higher production in all seven chemical producing regions – according to the latest monthly report from the American Chemistry Council ("ACC").
The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") edged up 0.2% for the reported month following a 0.5% increase a month ago and a 0.4% rise in December. The U.S. CPRI, which is measured using a three-month moving average, was created by Moore Economics to track chemical production in seven regions nationwide. It is comparable to the Federal Reserve’s industrial production index for chemicals.
Per the ACC, activity for the U.S. manufacturing sector – the largest consumer of chemical products – went up 0.2% in February after remaining flat in the previous two months. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods.
Within the manufacturing sector, production rose in several chemistry end-user markets in February including food and beverages, appliances, motor vehicles, construction supplies, fabricated metal products, computers, semiconductors, rubber products, paper and furniture.
The February reading showed a rise in chemical output across the board. All seven chemical producing regions (Gulf Coast, Midwest, Ohio Valley, Northeast, Mid-Atlantic, West Coast and Southeast) racked up a 0.2% gain in the reported month.
By segments, chemical production was mixed in February. Gains across manufactured fibers, adhesives, other specialties, organic chemicals, plastic resins, pharmaceuticals and pesticides were neutralized by lower production of inorganic chemicals, synthetic rubber, fertilizers, pesticides, coatings, consumer products and industrial gases.
Overall chemical production also went up 2.3% year over year in February with all regions scoring gains.
The U.S. chemical industry, a more than $800 billion enterprise, is heavily linked to the overall condition of the nation’s economy. It has been consistently leading the U.S. economy’s business cycle due to its early position in the supply chain. The industry is clawing its way back after being shaken by the global economic crisis.
The ACC envisions domestic chemical production to rise 2.9% in 2016 and 4.4% in 2017. The trade group also sees the momentum to continue through the second half of the decade riding on new capital investments and capacity additions.
The shale gas boom and ample supply of natural gas liquids has been a huge driving force behind chemical investment on plants and equipment in the country and have provided the U.S. petrochemicals producers a compelling cost advantage over their global counterparts. The ACC expects this competitiveness to drive new capital investment in the country.
The shale bounty has incentivized a number of chemical makers to pump in billions of dollars to ramp up capacity in the country. Chemical producers including Dow Chemical DOW, LyondellBasell Industries LYB, Eastman Chemical EMN, Westlake Chemical WLK and Celanese CE are investing heavily on shale gas-linked projects to take advantage of abundant natural gas supplies.
While the chemical industry still faces headwinds from a slowdown in China, sluggishness in some parts of Europe, soft agriculture market fundamentals and weak demand in the energy space, the industry’s recovery momentum is expected to continue this year, helped by continued strength in the automotive space, positive trends across the construction markets and significant shale-linked capital investment.