Observers of the global chemicals industry are bracing for an unpredictable year with rising geopolitical tensions like the trade war raging between the United States and China, looming overcapacity concerns, and anticipated shifts in chemical manufacturing.
“Weakness in global manufacturing and uncertainty in trade policy will further moderate U.S. chemicals output growth in 2020,” the American Chemistry Council (ACC) wrote in the “Year-End 2019 Chemical Industry Situation and Outlook” report. “On the other hand, output from new capacity linked to the shale gas advantage will provide tailwinds.”
To provide our audience with a view of what’s coming in the year ahead for American chemical companies, Powder & Bulk Solids surveyed available chemical industry forecasts and outlooks for 2020 and beyond. Take a look at some of the biggest issues domestic chemical manufacturers face in 2020.
Trade War Woes
Most observers expect the trade war between the United States and China will continue to place pressure on the chemical industry during 2020. Tariffs are currently impacting some 1,500 chemicals from China worth $26.5 billion and over 1,000 chemicals made in America valued at $11 billion, according to the American Chemistry Council (ACC). The situation could result in American firms buying less chemicals from China due to higher prices and China lowering its imports of U.S.-made chemicals.
While domestic firms have an edge among global competitors because of cheap and ample feedstocks from domestic shale sources, the ACC said U.S. chemical exports will decline by 2.5% this year to $137 billion. In 2020, exports are forecast to rebound somewhat with an increase of 1.1% to $138 billion. At the same time, China is on the verge of an economic slowdown, with its GDP growth projected to slip from 6.3% in 2019 to 6.0% next year and 5.9% in 2021. American firms may feel the effects of this because the country is one of the largest consumers of U.S. made chemicals. Over the next decade, China may further develop its production capabilities to reduce its reliance on chemical imports from the United States and other parts of the world. China is expected to generate about 50% of sales in the global chemicals market by 2030.
As companies look at the turbulent horizon, professional services firm Deloitte suggests that some companies may temper their expansion plans in the United States and even relocate planned petrochemical facilities to other global locations.
“In the face of such uncertainty, it will be important for chemical companies, especially those with the United States as their base manufacturing location, to be prudent in planning new capacity expansions,” Deloitte said in its chemical industry outlook for 2020. “Only time will tell if these companies will move their announced U.S. petrochemical projects to a different location, like the Middle East, South Asia, or the Far East.”
Oversupply Challenges Ahead
The U.S. chemical industry is expected to face overcapacity in 2020, resulting from a wave of plant openings in the country – particularly along the U.S. Gulf Coast – and a dip in rates of plant utilization to 85%, Deloitte wrote in its “2020 Oil, Gas, and Chemical Industry Outlook.” New crude-oil-to-chemical technologies coming to market could also contribute to oversupply in the next year.
Firms have invested some $204 billion in about 340 capital projects in the United States since 2010, according to the American Chemistry Council (ACC). While the total chemical production volume in the United States is only forecast to increase by 0.4% in 2020, the trade association predicts the growth rate will jump to 2.3% in 2021. Domestic production of basic chemicals is expected to rise by 0.7% in the coming year and 3.1% during 2021.
New assets coming online paired with economic turbulence could create some issues for the industry next year. “In markets such as paraxylene, capacity additions will overwhelm demand growth even under strong growth conditions,” business intelligence firm IHS Markit wrote this March. “If new capacity growth combines with a slowdown in demand growth, the resulting oversupply scenario will significantly affect industry profitability.” For example, the market for ethylene and ethylene derivatives may be weak in 2020 because of new capacity, bond credit rating firm Moody’s said this September.
To counter the oversupply issue in the first years of the 2020s “efforts should be directed toward driving higher process efficiencies and enhancing cost savings across the chemical value chain with the help of digital technologies,” Deloitte suggested in the outlook. “Increasing downstream synergies might also be explored with integrated oil and gas and commodity chemical companies venturing further into the specialty chemicals space with bolt-on acquisitions to weather the downturn.”
Chemical Manufacturing by 2030
The way chemical plants collect and use data, deploy human personnel, and optimize assets is expected to change dramatically over the next decade. Global management consulting firm McKinsey & Company forecasts that chemical firms will work to improve data management at the plant-level in the coming years, with the construction of on-site data lakes to improve the speed of data transfer and data security and the implementation of a tailored optimization model for each facility. As data is generated throughout their production networks, companies will use the information to reduce failures and improve services.
Automation and other digital technologies are expected to continue to influence how chemical firms staff their facilities and how those employees are utilized in the operation. “40–60% of value-adding field operator time can be saved through automation and applied toward more critical tasks that require humans,” McKinsey wrote. “The limiting factor for reducing resources will be safety regulations.”
While plant maintenance tasks aren’t expected to shift significantly over the next 10 years, the technology and methods used to perform these duties likely will. The management consultant expects that maintenance staff will use digital-workflow apps to plan and manage the performance of their activities, boosting efficiency and productivity by 2030. Control-room operators will remain at their posts in 2030, but their tasks will shift from controlling processes to improving them.
McKinsey anticipates that the basic design of assets will not change much in the next 10 years, but robotics, digital, and advanced analytics (AA) will play a greater role in the way that assets are used and improved. The consultant projects that AA technology will be used in chemical plants to optimize yield-energy-throughput, improve the reliability of predictive assets, and for digital performance management.
“Every chemical company should already be using digital technologies across its business. Digital technologies can bring huge efficiency gains to operations,” global management consulting firm BCG said this October. “They also give chemical companies a way of interacting with customers that customers may prefer, and they enable new business models.”