North American Chemical Industry Prepares for Third-Quarter Construction Starts

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Researched by Industrial Info Resources (Sugar Land, Texas)--As we inch closer to starting the second half of the year, the North American Chemical Processing Industry (CPI) acknowledges that construction starts are expected to be much lower during the third quarter than they were last year. Based on active projects currently being tracked as part of Industrial Info's North American Project Database an estimated 250 capital and maintenance projects are expected to begin construction during the third quarter of this year with a value estimated at just more than $1 billion. The extreme slowdown of economies across the world have impacted the petrochemical and plastic sectors of the CPI more than most, as they are so closely tied to consumer spending and confidence.

More than two-thirds of the projects expected to begin construction during the third quarter are planned maintenance turnarounds, representing a total investment value (TIV) of $380 million, nearly one-third of the total spending of the quarter. "We have witnessed capital spending slow each month this year and there seems to be little doubt that the third quarter could be among the slowest this year," said Trey Hamblet, Industrial Info's Vice President for Chemical Processing Research. "Despite maintenance budgets also being squeezed this year, for many plant owners these projects are of an increased priority as there are few or no dollars to replace worn or inefficient equipment."

During the third quarter of 2008, the number of CPI projects that began construction was substantially less at 206, although the TIV was nearly three times higher. The CPI was still moving along swiftly last summer despite the beginnings of an automotive meltdown, housing industry slump and financial market crisis. Although the TIV was drastically bigger, this largely was due to a small number of very large projects including a couple of grassroot plants valued at nearly $500 million each. During the third quarter of this year the largest individual project expected to begin construction reaches only $60 million. The large difference in major project spending has made a noticeable difference in the future project spending landscape. The average capital project TIV for the upcoming quarter is $7.3 million compared with more than $17 million in the same quarter last year even after removing the few large exceptions.

Despite all of the bad news there are still more than 1,300 active projects still in some phase of planning or development that have the potential of beginning construction in the CPI over the next several years. The industry will once again bounce back to a healthy level of spending, but when that will happen is the big question. The unfortunate answer is that it will likely follow a sharp increase in the manufacture of consumer goods by many months.

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.