According to a survey of 24 U.S. chemical companies published in *Chemical Engineering News*, the industry generated $126.2 billion in sales during the first three quarters of 2005, reflecting a 12.5% year-over-year increase. Profits reached $10.3 billion, but the fourth quarter saw a decline due to rising costs from hurricanes and raw materials. That year, U.S. chemical producers struggled to raise prices to offset surging oil, natural gas, and electricity costs.
In 2006, the industry faced similar challenges, with high raw material and energy prices persisting. International competition intensified, and trade deficits continued to grow, affecting both U.S. and global markets. Despite these headwinds, analysts remained cautiously optimistic about the outlook for the U.S. chemical sector.
Economic growth is a key factor influencing the industry’s performance. According to the National Association for Business Economics (NABE), the U.S. economy was expected to grow by 3.3% in 2006, slightly lower than the 3.6% recorded in 2005. Personal consumption expenditure, another critical indicator, was projected to rise by 2.9%, down from 3.5% in the previous year.
Fitch Ratings noted that U.S. commodity chemical producers were likely to reach peak profits in the current business cycle. The timing of this peak depends on economic growth and raw material costs. Additionally, supply and demand imbalances in the U.S. chemical market were expected to remain tight in the first half of 2006 due to planned maintenance and low inventory levels. This situation could allow manufacturers to pass on higher costs to consumers through price increases.
Merrill Lynch highlighted that ethylene production in the U.S. would remain constrained, especially in the first half of the year. Planned and unplanned shutdowns were expected to reduce output by 7% of total capacity, similar to the impact of last year's hurricanes. Meanwhile, demand for ethylene was forecasted to rebound by 7% after a 5% drop in 2005, further tightening the market.
The American Chemistry Council (ACC) reported that growing profits would drive increased investment in new equipment and facilities. Last year, U.S. chemical industry investment rose by 11% to $24.1 billion, and it was expected to climb to $26.5 billion in 2006, reaching $28 billion by 2007. These trends suggest a strong long-term outlook despite short-term challenges.
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