closing_session_swift_acc.pdf

8/14/2019 closing_session_swift_acc.pdf

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Economic Outlook for theChemical Industry: Wheresthe Growth?

2013 Responsible Care

Conference & Expo8 May 2013

Dr. T.K. SwiftChief Economist & Managing Director


2/27

Outlook for the Economy


3/27

2012 Year to forget as austerity in developed nations,

China slowdown, and uncertainty hindered growth Where are we now?

Most European economies are in recession and threat of EuroArea crisis lingers

Growth is improving in China and other emerging markets showsigns of recovery

Having avoided/postponed the fiscal cliff the US economy isstuck in a slow growth mode but higher taxes taking a toll

Industrial cycle beginning to slowly turn upwards

Inflationary pressures are easing

Monetary policy around the world is accommodative

A global recession is unlikely in absence of risks but welive in a period of extreme uncertainty

2013: A Year of ImprovingFundamentals?


4/27

Global Trade and Industrial ProductionLosing Momentum

0

20

40

60

80

100

120

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

US Recession Global Industrial Production Global Trade

Index of Volumes (2007=100)


5/27

Global Economic Outlook Summary Recession in Europe and Japan with

pronounced slowdown in global

trade Another year of low inflation and

easy monetary stance but tightfiscal policy

Around the world:

US fundamentals are improving Euro Area weak in north and negative

in the south

Improving Japan outlook withsignificant stimulus

China regaining momentum

Other emerging market show signs oflife and offer good prospects

Risks will be more balanced with apick-up in growth but continueduncertainty

All regions face structuralchallenges

-15

-10

-5

0

5

10

15

20

98 00 02 04 06 08 10 12 14 16

GDP Trade Industrial Production

% Change in Real GDP


6/27

80

85

90

95

100

105

07 08 09 10 11 12 13

Real PersonalIncome lessTransferPayments

Real Business

Sales

IndustrialProduction

Non-FarmPayrolls

Status of Indicators of USEconomic Processes: One Year AgoIndexed where December 2007 =100


7/27

80

85

90

95

100

105

07 08 09 10 11 12 13

Real PersonalIncome lessTransferPayments

Real Business

Sales

IndustrialProduction

Non-FarmPayrolls

Status of Indicators of USEconomic Processes for this CycleIndexed where December 2007 =100


8/27

US Housing Finally Starting toMend

Source: Census Bureau, ACC analysis

0

250500

750

1,000

1,2501,500

1,750

2,000

2,2502,500

98 00 02 04 06 08 10 12 14 16

Permits Starts

Thousands of Units (3MMA)


9/27

as are Light Vehicle Sales

Source: Bureau of Economic Analysis, ACC analysis

0

2

4

6

8

10

12

14

16

18

2022

98 00 02 04 06 08 10 12 14 16

Millions of Units (3MMA)


10/27

0

2

4

6

8

10

12

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

% of Labor Force

Source: Bureau of Labor Statistics

Unemployment Will Slowly TrendDown


11/27

What is the Chemicals ActivityBarometer (CAB)?

Based on 100 years of business cycle research

The CAB is derived from: Production data on a group of chemical products Average weekly hours worked in chemicals Chemical prices and input costs Chemical company equity prices Several broader economic leading economic measures (building permits, new

orders, and inventories) High frequency data such as chemical railcar loadings , equity prices and other

prices are used to extend the CAB for the current month

A composite index is built from these, and found to lead turning

points in industrial production, non-farm employment, real(i.e., inflation-adjusted) personal income (less transferpayments), and real business (manufacturers, wholesalers andretail( sales

The CAB leads overall business cycle peaks by eight months,and troughs by three months


12/27

Chemical Activity Barometer vs.Industrial Production Index: 1919-2013

0

20

40

60

80

100

120

19 24 29 34 39 44 49 54 59 64 69 74 79 84 89 94 99 04 09

Recession IndustrialProduction ChemicalActivityBarometer

Indexwhere2007=100(3MMA)

Sources: Federal Reserve Board and ACC analysis


13/27

Chemical Activity Barometer vs.Industrial Production Index: 1919-2013

40

30

20

10

0

10

20

30

4050

19 24 29 34 39 44 49 54 59 64 69 74 79 84 89 94 99 04 09

Recession IndustrialProduction ChemicalActivityBarometer

%ChangeYearoverYear(3MMA)

Sources: Federal Reserve Board and ACC analysis


14/27

April Outlook from the CAB: Gain in CAB reading in April was the 9th

consecutive gain (3MMA basis)

Comments on CAB Components: Production-related indicators slightly rose:

Flattening activity in construction-

related plastic resins, coatings, pigments

and other chemistry suggests the

recovery in housing will slow Plastic resins used in consumer and

institutional applications continue to

expand, suggesting further gains by the

consumer but at a moderated pace

US exports still soft Equity prices declined

Product prices rose

Inventory and other broader economicindicators were generally more positive

In summary, the CAB continues to signal aslowly-expanding US economy into mid-2013

Type of Indicator Status

Production

Equity Prices

Product / Selling Prices

Inventories/Other Indicators

During April the variouscomponents of the CAB:

Where is continued growing activity; ~ is flator insignificant growth in activity; and is

slowing or negative growth (declining activity).

Note: The CAB reading for Marchwas revised upwards by 0.1points.


15/27

US Economic Outlook Overseas weakness and higher

dollar dampened exports

Very high uncertainty in 2nd half2012; businesses were cautiousand cut-back capital spending

But housing activity and assetprices are moving higher and with

deleveraging largely over andemployment improving,consumers are spending

Furthermore, we are in the midstof an oil and gas boom

Continued modest growth (2.0% in2013; down slightly from 2012) ismost likely with risks of recessionreceding (and upside potential)

Loose monetary stance but offset

by contractionary fiscal policy

-4

-3

-2

-1

0

1

2

3

4

56

98 00 02 04 06 08 10 12 14 16

% Change in Real GDP


16/27

Outlook for the Chemical

Industry


17/27

1st

Quarter Status of US Chemistry bySegment

% Change Year-over-Year

-10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

Total

Pharmaceuticals

Chemicals (excluding Pharma)

Agricultural Chemicals

Consumer Products

Basic Chemicals

Inorganic Chemicals

Organic Chemicals

Plastic Resins

Synthetic Rubber

Man-Made Fibers

Specialty Chemicals


18/27

US Lagging Global Chemicals*Production Recovery

50

60

70

80

90

100

110

120

89 91 93 95 97 99 01 03 05 07 09 11 13

United States Global

Production Volume Indices where 2007=100 (3MMA)

Source: Federal Reserve Board, ACC *ExcludingPharmaceuticals


19/27

But US Chemicals* ProductionGrowth is Converging

-25

-20

-15

-10

-5

0

5

10

15

20

89 91 93 95 97 99 01 03 05 07 09 11 13

United States Global

Year-over-Year (Y/Y) % Change (3MMA) in Production Volumes

Source: Federal Reserve Board, ACC *ExcludingPharmaceuticals


20/27

$0

$20

$40

$60

$80

$100

$120

BrentOil($bbl) WTIOil($bbl)

2005-12: US Energy Prices Fallingin Either Absolute / Relative Terms

$0$1

$2

$3

$4$5

$6

$7

$8$9

NaturalGas HenryHub

($/000CF)

WTInowatadiscount

toBrent

Source:EIA


21/27

Global Ethylene Supply Curve(Petrochemical Production Costs by Country/Region)

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

0 73 136 172 247 307

Pr

oduction

Cos

ts($/pound)

Global Supply (Cumulative in billions of pounds)

2005

2012MiddleEast

Middle East

UnitedStates

UnitedStates

China

Western EuropeChina

WesternEurope

Other Northeast Asia

OtherNortheast

Asia


22/27

US Chemical Industry Capital Investment:Incremental Due to Shale Gas

$0

$2

$4

$6

$8

$10

$12

$14

$16

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

LowCase High

Case

Billionsof2012Dollars The$7282billiontotal

investment

is

spread

over

10

years.

Thepeakyearforinvestment

spendingis2015.


23/27

Incremental US Chemical IndustryInvestment

InorganicChemicals

4%

Fertilizers

15%

BulkPetroche

micals58%

PlasticResins23%

OhioValley13%

Midwest8% Other1%

Gulf Coast

78%

Investment by Industry Segment Investment by Region


24/27

Bottom Line: US Chemical IndustryGrowth Outpaces Western Europe

60

70

80

90

100

110

120

130

1990 1995 2000 2005 2010 2015 2020

United States Western Europe

By 2020, USchemical output is21% higher than

Chemicals excl. Pharmaceuticals - Volume Index of Production (2007=100)

Sources: Eurostat, FRB, ACC analysis


25/27

Concluding Thoughts on US Chemistry Shale gas has been a game changer in US natural gas markets

with US first mover advantages

Shale gas has improved the competitiveness of the USmanufacturing, especially chemicals About 100 major chemical industry projects (valued at $72 billion)

have been announced

Location of shale gas will foster new greenfield investment,generating new business, jobs, and tax revenues

with reaccelerating growth and US capturing global market share

In summary, a promising future!

With global integration and renewed competitiveness, exports

gain as share of output In addition to shale gas, new materials (e.g., nanotechnology)

and processes (e.g., bio-based chemistry) will also lead toenhanced growth

But HR and other challenges remain...


26/27

Questions?

Telephone: 202.249.6180

Email: [email protected]


27/27

% change on pr evi ous

year

(unless otherwi se not ed)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

GDP -0.3 -3.1 2.4 1.8 2.2 2.0 2.8 3.1 3.0 3.0

Consumer Spending -0.6 -1.9 1.8 2.5 1.9 2.2 2.7 2.8 2.7 2.7

Business Investment -0.8 -18.1 0.7 8.6 8.0 5.0 5.6 7.1 5.6 5.1

Industrial Production -3.5 11.4 5.4 4.1 3.8/ 2.8 3.5 3.5 3.1 2.8

Light Vehicle Sales (mm) 13.2 10.4 11.6 12.7 14.4 15.3 15.8 15.9 16.1 16.0

Housing Starts (mm) 0.904 0.554 0.587 0.612 0.782 0.973 1.267 1.496 1.555 1.566

Consumer Prices 3.8 -0.3 1.7 3.1 2.1 1.9 2.0 2.1 2.1 2.1

10-Year T-Notes (%) 3.67 3.26 3.21 2.79 1.80 2.08 2.56 3.20 3.96 4.62

Unemployment Rate (%) 5.8 9.3 9.6 9.0 8.1 7.7 7.0 7.0 6.5 5.9

$/ 1.47 1.39 1.33 1.39 1.29 1.29 1.25 1.24 1.28 1.31

US Economic Outlook (Consensus)

Source:April2013SurveyofForecasters

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