Intellectual Thoughts by Sanjay Panda: Chemical Industry on a path of muted recovery

Chemical Industry on a path of muted recovery

Chemical makers have grown more confident that the global economy and industry demand are pulling out of one of the deepest dives since at least the early 1980s. Second-half economic forecasts issued recently by ACC and German chemical industry association VCI (Frankfurt) called an end to demand declines but warned of slow recovery. While the surge in energy and stock prices from early 2009 levels would seem to signal a strong rebound, chemical makers appear to be bracing for a slow recovery.

European petrochemical sector shows that the market has stabilized but producers acknowledge the need for further rationalization. For operating rates to come back to good levels, some capacity will have to shut down in Europe, claims leading producer . The same is true for the U.S. Dow Chemical announced earlier this month that it would end styrene production at Freeport, TX as it continues to trim North American olefins and styrenics production to match underlying demand and reduce its exposure to basic chemicals.

Industry challenges like overcapacity, weak demand, and broader economic concerns arising from high levels of unemployment and a still-fragile financial system are likely to mute recovery. The question is whether this development is a sustainable one and long lasting basis.There are still unsolved issues caused by the financial crisis and the chemical industry is not yet on a solid growth path at least as of now.

ACC’s recently released third-quarter outlook shows that conditions have stabilized but notes that 2009 activity will fall well below year-ago levels. U.S. chemical industry output is expected to fall 10.7% in 2009, before posting a gain of about 1.5% in 2010. Demand is clearly moving off the bottom but chemical makers could face a slow path to full recovery.

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