Gulf Coast Chemical Producers Increase Project Activity While Tightening Investment Totals

---

Researched by Industrial Info Resources (Sugar Land, Texas)--The health of the Chemical Processing Industry (CPI) in the Gulf Coast region of the United States is often used as a barometer to measure the general health of the CPI across the country, even North American industry in general. So far, the year is offering a relatively steady outlook for CPI plant owners in the region, with the number of capital and maintenance projects increasing from 2009 by more than 35%. While greater in number, the downside is that these additional projects are much smaller in total investment value (TIV). In 2009, the average CPI capital project value was in the region of $23.9 million, while this year the average CPI project value is only about $16.6 million. Contributing to the sizeable average project values last year were several very large CPI projects that got under way in the region despite the economic troubles that plagued the entire industrial market.

The big increase in project activity this year can be seen in both capital and maintenance projects. Maintenance turnaround projects are expected to increase 29% from last year and equal more than 190 individual unit or plant turnarounds during the year, with total spending exceeding $700 million. This increase in maintenance activity is partially attributable to an increase in operating rates as plant owners begin to increase run times and restock inventories as markets improve. The increase in maintenance spending is also a result of plant owners embracing maintenance programs that offer increased equipment life and avoid costly replacements during a time when capital dollars are difficult to come by.

The number of capital projects expected for the region this year has almost doubled, with almost 100 projects expected to get under way with a combined estimated TIV of $1.6 billion. While the size of these projects is substantially less than previous years, the increase in activity is a welcome change for everyone in the region. A great deal of these investments is targeted at technology improvements that can offer greater reliability or increased efficiencies. Capital budgets are being intensely scrutinized, and justifications for smaller, more incremental capacity increases are much simpler to get approved. For this reason, many short-term expansion plans have been divided into smaller projects that can be implemented over a longer period of time.

Traditionally, many of the chemical giants such as Dow Chemical Company (NYSE:DOW) (Midland, Michigan), BASF (OTC:BASFY) (Ludwigshafen, Germany), Bayer (OTC:BAYRY) (Leverkusen, Germany) and others have viewed down cycles in the CPI as an opportunity to invest in the upward trends that are sure to come. This type of investing is driven by the desire to capitalize on the availability of resources and reduced cost of materials during a depressed market. If plant owners along the Gulf Coast region succeed in justifying and moving forward with the increased activity currently planned for 2010, this could be the start of a very aggressive spending trend for the region, building an even better outlook for 2011.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy-related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.