Chemical Cost & Supply Pressures A Driver For Offshoring

One in four companies surveyed by the National Association of Manufacturers and AMR Research reported that if cost and supply pressures continue, they would move some operations offshore.

The increasing costs and shrinking supply of chemicals are posing a threat to U.S. manufacturing—one that may force companies to outsource operations—according to research by the National Association of Manufacturing (NAM) and AMR Research.

The report was based on a survey of 165 manufacturing companies in the U.S., ranging in size from 100 employees to over 50,000 employees.

One in four companies surveyed indicated that they will move, on average, 32 percent of their production offshore if chemical cost and supply pressures continue.

Over half, 55 percent, of participants said they have a significant and direct dependence on chemicals for production. Seventy-three percent of food, medicine and other process manufacturing operations have a direct dependence on chemicals.

Two-thirds of the companies reported that they depend directly or indirectly through suppliers on chemicals as raw materials.

While 50 percent indicated that they cannot replace chemicals in their processes, 40 percent said they could, but noted the high cost of finding replacements.

For the future outlook, 90 percent see chemical costs rising, with 62 percent saying the increase will be “substantial.” Forty-three percent also see domestic chemical capacity decreasing.

“Chemicals are a critical link in the supply chain for two-thirds of U.S. manufacturers, but America’s chemical industry is threatened by rising domestic natural gas costs. At stake is not only the future health of chemical manufacturing firms, but also the thousands of companies that use their chemicals to make everything from crayons to computers.  America needs a robust energy strategy to ensure affordable supplies, future development and greater efficiency,” said NAM President and CEO John Engler.

“Domestic chemical supplies are a vital raw material to most manufacturers in America, but rising natural gas prices are forcing U.S. chemical manufacturers to consider moving offshore,” said Kevin O’Marah, senior vice president, AMR Research.  “Many of the large manufacturers that source those chemicals say they will follow them in order to remain competitive.  Smaller manufacturers will be affected, as they are less able to relocate production offshore and likely to see reduced demand for their products if their big-company customers close domestic plants.”

The study suggests that domestic energy costs, when compared on a global scale, have impeded investments in new large scale chemical plants in the U.S. Due to competition from overseas, U.S. manufacturers are at a disadvantage because they are unable to pass cost increases on to customers.

To view the report, click here.

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