THE United States chemical industry has stalled and entered a period of uncertainty, but prospects are good for 2013 due to industry expansions that are coming online, according to Ron Beeson, global logistics manager for The Lubrizol Corporation. He delivered that assessment October 18 during the 2012 Intermodal Bulk Liquid Symposium in Kemah, Texas.
“You look at what's transpired in the last year, and we're still in a state of uncertainty, although we're one year closer to prosperity,” Beeson said. “When we look at it from a raw materials standpoint, being a specialty chemical manufacturer, we get a lot of feedstocks, so we've seen price stability and we've seen ample availability come aboard.
“Coming out of the recession, there was a lot of capacity taken out of the system. We saw tremendous variability in raw material costs. There were rising costs, and that had a trickle effect throughout the industry. With every disruption in supply, it created one-off issues where we couldn't get enough supply. That was frustrating. We're in a much better position now. Part of that is due to relatively soft demand and capacity being at stable levels.”
There are warning signs, though, he said.
“Growth in the rail volume has stagnated,” he said. “There are no signs of tremendous growth. There is growth in chemicals but it's offset by a decline in coal shipments. We've had declining rail growth in each quarter of 2012. It's really been flat comparing 2012's month-on-month numbers to 2011.
“Last year, we were talking about, ‘What is 2012 going to be like?’ There was talk that we couldn't be overly optimistic, but there was light at the end of the tunnel. There's still light at the end of the tunnel, but we've seen softness and we continue to see uncertainty out there.
“There's been a steady decline in capacity utilization. That's not necessarily an alarming trend. In 2008, capacity in the chemical industry was very stressed. There were a lot of outages that caused supply shortages for buyers downstream of those particular commodities. We're in a pretty good position now with supply and demand.”
The positive signs:
North American intermodal volume is up 4.6% year-over-year.
North American truck volumes are up 3.7% year-over-year.
The US chemical industry has a positive outlook long term because feedstocks remain cheap.
Earnings remain strong although growth has slowed.
US refining capacity expansion plans have been announced, including 30 chemical projects expected over the next five years.
“Growth projections for US petrochemical capacity are 27% over the next five years,” he said. “That's pretty phenomenal when you look at a 45% annual increase in capacity when these projects come on line. That bodes well. It's something we can get excited about for the first time since '81-'82, when you talk about those kind of growth projections.
“We've announced a plant expansion in Deer Park (suburban Houston). It's on a smaller scale than Chevron and Shell, but it's a tremendous amount of investment.
“The divergence of oil and gas is what's driving the competitiveness of Gulf Coast manufacturers. There's natural gas competitiveness. There are a phenomenal number of investments in Lake Charles and Houston — a significant investment in the $10-billion-plus range for expansion and grassroots building.”
He said chemical demand for the fourth quarter of 2012 will be near 2011 levels, “but most everyone I speak to is cautiously optimistic about the second quarter of 2013 and beyond.”
“The US chemical shippers' market is healthy and has excellent supply-and-demand balance and prospects are good,” he said. “The global economy is not. Be patient, but prepare for ultimate growth that the US Gulf Coast is going to see, and I think it bodes well for the entire chemical industry. The US chemical industry is positioning itself for significant growth for the next 10-20 years.”
He said everybody is curious about the impact of the Panama Canal Expansion in 2015.
“Who is going to take to advantage of these opportunities of large vessels potentially coming into the Gulf Coast? Houston needs to invest to take advantage of it,” he said. “The Gulf Coast stands to gain, with import/export drayage activity, and they could take advantage of LNG exports.
“But it comes with a price: An infrastructure investment of $15-$30 billion is needed to handle larger vessels. Dredging projects are required. That investment needs to be funded soon, within the next 2½ years. People who can make those decisions are actively involved. It will provide opportunity for expanded use of the intercoastal waterway. It opens up lot of opportunities along the Gulf Coast to move product.
“Most shippers are taking a wait-and-see approach to opportunities for both imports and exports. It's premature to project out how much the Port of Houston and Gulf Coast ports can take advantage of that.
“The negative impacts are port congestion and highway congestion. If you expand and take advantage of full capacity, then road congestion and congestion for your type of equipment is only going to get worse if you load it up with 30% additional truck volume. That is something that concerns me and everybody else who lives in Houston.” ♦
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