Chemical Week • July 3/10 • ACC: US chemicals output to decline in 2023

Chemicals output in the US is expected to decline 1.6% in 2023, as economic growth weakens and industrial production falls year over year, according to the American Chemistry Council Inc.’s (ACC) midyear situation and outlook. ACC expects US GDP to increase 1.3% in 2023, while industrial production is forecast to fall 0.6%

“The pandemic-driven rebound has subsided, and we expect consumer spending to continue to slow,” said Martha Moore, ACC chief economist. “Going into the second half of the year there is tremendous uncertainty, and the risk of recession remains high. In a soft economy, companies will be managing their inventories very carefully and keeping a close eye on the impact of regulatory policies in the U.S.”

Weakness in the US chemical industry “emerged the third quarter of 2022 and accelerated into the end of the year offsetting strong growth earlier in the year,” according to ACC. The trade group’s economic sentiment index (ESI), a quarterly composite index and survey of business conditions, recently “found that chemical firms felt that overall business activity and major customer demand deteriorated in the first quarter, but were expected to improve over the next six months,” ACC added.

Destocking was cited as an issue in the most recent quarter by H.B. Fuller Co., which announced fiscal second-quarter results below Wall Street expectations on June 28, and Ashland Inc., which has cut its full-year forecast for sales and adjusted EBITDA.

ACC expects basic chemical output to decline 3.1% year over year in 2023, with the most pronounced drops in petrochemicals and organic intermediates. Specialties output is forecast to be generally flat, with a gain in coatings offset by declines in other sectors.

Demand growth looks tepid. “Going into the second half of the year, inventory destocking has largely been resolved, but signs of customer restocking have yet to materialize,” ACC said. “Firms throughout the supply chain are cautiously managing their inventories given the uncertain economic environment.”

Major end markets are looking relatively weak, with industrial production declining and housing starts declining slightly from 2023 to 2024, although low inventories could support homebuilding, ACC said. US housing starts are forecast to total 1.32 million units in 2023 and 1.31 million units in 2024.

Automotive production, however, is expected to grow. “Following three years of well below average sales initially due to the pandemic and then semiconductor shortages, assemblies are up and dealer inventories have been replenished,” ACC said. “Pent up demand for vehicles will be tempered, however by higher borrowing costs and uncertainty.” ACC expects US light vehicle sales to total 15.0 million units in 2023 and 15.4 million in 2024.

Capital spending is also expected to rise, by 2.4% in 2023, and average 3%-4% per year through 2026.