Weekly Chemistry Outlook

This was a light week for economic reports and those that were released were positive. The Conference Board’s index of leading economic indicators (LEI) also advanced, suggesting continued forward momentum into mid-year. The Survey of Economic Forecasters shows growing momentum into 2014 with upgrades to the outlook for several key economic indicators. These gains will improve even more in 2015.

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This was a light week for economic reports and those that were released were positive. The Conference Board’s index of leading economic indicators (LEI) also advanced, suggesting continued forward momentum into mid-year. The Survey of Economic Forecasters shows growing momentum into 2014 with upgrades to the outlook for several key economic indicators. These gains will improve even more in 2015.

Turning to chemistry, the U.S. CPRI rose across all regions of the country and was ahead compared to last year. Specialty chemical volumes rose strongly, finishing the year on a strong note. Looking at U.S. specialty chemical markets, overall volumes rose and were ahead compared to a year ago. Moreover, of the 28 specialty chemical segments we monitor, 25 expanded. The breadth of the expansion continues.

Our running tab of positive indicators for the status of the macroeconomy was 16 out of 20 this week. Thus, we continue to post a green banner. For the business of chemistry, the indicators bring to mind a green banner for basic and specialty chemicals. 

U.S. SPECIALTY CHEMICAL MARKET VOLUMES
The ACC also reported that US specialty chemicals market volumes rose 1.0% in December. This follows a 1.1% gain in November and a 0.6% gain in October. Of the 28 specialty chemical segments we monitor, 25 expanded in December (up from 23 expanding in November and 19 in October). The remaining three markets experienced decline. During December, large gains (1.0% and over) were noted in 11 segments (this compares to 13 segments in November). The December large gains were in the following segments: adhesives and sealants, construction chemicals, electronic chemicals, food additives, foundry chemicals, lubricant addi-tives, mining chemicals, paint additives, pigments and print-ing ink. Smaller monthly gains occurred in market volumes for antioxidants, biocides, catalysts, coatings, corrosion inhibi-tors, dyes, flame retardants, flavors and fragrances, industrial and institutional cleaning chemicals, oilfield chemicals, paper additives, rubber processing chemicals and water manage-ment chemicals. The overall specialty chemicals volume index was up 4.5% year-over-year (Y/Y) on a three-month moving average (3MMA) basis. The index stood at 106.1% of its average 2007 levels. This is equivalent to 8.19 billion pounds, up from 7.82 billion pounds last December. Year-earlier comparisons for most specialty chemical markets have strengthened since mid-2013 and are still fairly widespread among most market and functional specialty chemical segments and in many cas-es improving. That said December volumes for three seg-ments were down from last year. For 2013 as a whole, overall market volumes rose 3.9%.
 
The data represent the sales volume of various specialty chemical markets indexed where the average 2007 volume is equal to 100. Thus, a current reading of 106.1, for example, implies that the market volume of that segment is 6.1% above the average 2007 volumes. The data include nearly 30 market and functional specialty chemical segments. There is some duplication. For example, pigments (a functional market) are included in paint additives, plastic additives, and other market-oriented specialty chemicals. These specialty chemical market indexes cover the US markets for market and functional specialty chemical segments and are based upon the synthesis of annual market research data and monthly economic data. A spreadsheet (with monthly history back to January 1997) is available for ACC members on MemberExchange. The spreadsheet also contains notes on the methodology.
 
ENERGY
The Energy Information Administration (EIA) reported a 107 billion cubic feet (BCF) withdrawal in natural gas inventories during the week ending 17 January, significantly below the typical build for this week. Stocks were 19.8% lower than last year at this time and 13.2% below the five-year average. At 2,423 BCF, total gas inventories remain well within the five year historical range.
 
With a large drawdown in stocks and continued extreme cold weather in much of the nation, natural gas prices (the benchmark Henry Hub), closed at $5.35 per million BTUs on Thursday. This was the first time prices closed above $5.00 per million BTUs since June 2010. A year ago, the price was $3.55 per million BTUs. Thus, recent prices represent a 50.8% Y/Y rise. During the past week oil prices (Brent) rose slightly to $106.70 per barrel yesterday (Thursday). A year ago, oil was $113.68 per barrel. Thus, recent prices represent a 6.1% Y/Y decline.
 
At 20.0:1, the ratio of oil prices to natural gas deteriorated from 23.4:1 a week ago. One year ago, the ratio was 32.1:1. As a rough rule of thumb, when the ratio is above 7, the competitiveness of Gulf Coast-based petrochemicals and derivatives vis-à-vis other major producing regions is enhanced. As the following chart shows, we’ve been above 7 for several years. In the US, nearly 90% of ethylene, for example, is derived from natural gas liquids while in Western Europe, over 85% is derived from naphtha, gas oil and other light distillate oil-based products. Historically, other factors (co-product prices, exchange rates, capacity utilization, etc.) have played a role in competitiveness as well. The current ratio is favorable for US competitiveness and exports of petrochemicals, plastics and other derivatives.

 

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