Growth in the Chemical Industry Stalls as Feedstock Prices Rocket

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Until recently, the price of natural gas had become very affordable, enabling many producers to enjoy profits that had not been seen in the chemical industry for a number of years. With increased natural gas prices (See related article: High Oil and Natural Gas Prices Shine Spotlight On Alternate Reliable Energy Supply Sources), as well as increases for feedstocks such as aromatics, propylene, butadiene, and others, chemical producers are being forced to increase future contract prices, creating uncertainty regarding the amount of available capital dollars for the remaining quarters of 2003.

"A very large portion of the operational chemical plants located in the U.S. were built many, many years ago and based on technologies and efficiencies that made them profitable with natural gas prices in the two or three dollar per thousand cubic feet (cuft) range. With natural gas now trading significantly above that, this immediately impacts producers that depend on natural gas as its primary feedstock, influencing chemical and commodity contract prices for upcoming months," commented Trey Hamblet, Chemical Group Manager with Industrialinfo.com.

The chemical industry is unique in that it depends on so many different industries to provide it feedstocks ranging from petrochemicals produced in refineries such as propylene, to pigments mined and produced in the Metals & Minerals industry. Changes or volatility in just about any industry affect the price of chemical commodities almost immediately. The large number of chemical plant consolidations and closures that have been seen over the last two or more years are proving to be timely moves by many producers as excess capacity during this time of economic uncertainty would certainly only worsen the current situation.

As mentioned in a recent article published on Industrialinfo.com Chemical Plant Maintenance Turnaround Spending in Second Quarter Nears $300 Million, maintenance spending will continue to rise in coming months and years as chemical plant owner's focus on projects that improve the efficiency and reliability of existing plant operations. According to Industrialinfo.com's 2003 Industrial Outlook the chemical industry is expected to see an approximate 1.7% increase in capital spending during 2003 over 2002. "It's still early in the year and I believe that despite the price of feedstocks, and mounting war rhetoric, the chemical industry still has a good chance to realize a positive growth curve for 2003," Mr. Hamblet added.

For more on this topic, join Crazy Al of Industrialinfo.com Radio and Trey Hamblet on the "Industry Today" radio program Monday, March 10, 2003 at 7:30 am (CST) for a half hour discussion on upcoming spending trends in the chemical industry and highlights from Industrialinfo.com's forecast of capital and maintenance for the Chemical Processing Industry (CPI).