ACC Reports Mid-Year Status & Outlook for 2024

The American Chemistry Council has come out with its Mid-Year Outlook for 2024. Overall, the industry is seeing growth yet subtle changes are expected into 2025.

While Q1 GDP came in weaker than expected, it was softer net exports and inventory investment that offset stronger activity in the domestic economy. Inflation unexpectedly accelerated in Q1 before resuming its downward trend and expectations for interest rate cuts have likely been pushed back toward the latter part of the year. ACC expects GDP to rise 2.4% in 2024, before slowing to a 1.7% gain in 2025.

Consumer spending has remained relatively resilient so far in 2024 due to rising real wages and confidence in the labor market. Consumer spending is expected to slow, however, as households deal with higher borrowing costs, slowing wage gains, and the exhaustion of accumulated pandemic savings. The composition of consumer spending also remains tilted toward services rather than goods, with important implications for goods-producing sectors, like chemicals. Following a 2.2% gain in 2023, ACC expects growth in consumer spending in 2024 of 2.3%, before slowing to a 1.7% pace in 2025.

Business investment, motivated, in part, by recent legislation (e.g., Inflation Reduction Act, CHIPS Act), rose 4.5% in 2023. With higher borrowing costs and tighter credit conditions, growth in business investment is expected to slow to 3.1% in 2024 and 2.7% in 2025.

Job growth has slowed as one of the tightest labor markets in recent history and starting to loosen. Wage growth, which drives income growth for most Americans has slowed and is expected to continue to ease as the labor market rebalances.

Mid-Year Outlook

The global economy is expected to grow by 2.7% this year. The expansion will be supported by persistence in the US economy. Global GDP is forecast to increase at a steady 2.8%-2.9% pace through the end of our forecast period (2032).

ACC shares that industrial activity globally has been weak. This year, however, should see a modest recovery. Global industrial production growth is forecast to increase by 1.4% this year before accelerating to 3.0% growth in 2025.

The majority of basic and specialty chemicals are consumed by the industrial sector and the outlook for industrial production, while improved compared to 2023, remains weak. Overall industrial production rose just 0.2% in 2023 and a similar modest gain is expected in 2024 before rising by 1.7% in 2025. Led by a recovery in consumer goods and investment gains, industrial production is expected to expand more during the second half of the year.

Following 16 months of consecutive contraction, US manufacturing expanded in March according to the ISM Manufacturing PMI but fell back into contraction in April and May. Performance in the industrial sector has been uneven. ACC expects a turnaround this year with 12 of the 18 key chemistry end-use industries we track expanding in 2024. Industries tied to automotive, aerospace, and electrical/electronics fare the best, while industries linked to housing and industries in structural decline (textiles, apparel, etc.) are expected to continue to struggle for the rest of the year.

The past year was a tough one for chemical producers as an unprecedented destocking cycle curbed production, which was down 1.3% in 2023. With inventories in a more balanced position and nascent signs of firming demand in several end-use markets, we expect chemical output volumes to grow by 2.2% in 2024 with gains across all segments. Output is expected to grow 1.9% in 2025. Within the US, the largest gains are expected in the Gulf Coast and Midwest regions.

ACC anticipates output of basic chemicals in the US to rise 2.5% in 2024 with gains in petrochemicals and organic intermediates, inorganic chemicals, and plastic resins. Plastic resins output will continue to grow, up 2.9% in 2024, in part due to stronger exports. Specialty chemical output is also expected to rise in 2024, though at a more modest 0.4% reflecting the slow recovery in end-use markets. Output of agricultural chemicals is expected to rise 2.6% with gains in both fertilizers and crop protection chemicals. Production of consumer products, which grew strongly last year, will continue to expand at a slower 2.5% this year. In 2025, the organization expects both basic and specialty chemical output to rise by 2.1%. Agricultural chemicals and consumer products will also continue to expand by 0.9% and 1.5% respectively.

Long-Term Outlook

The longer-term outlook for US chemistry is positive with the natural gas liquids feedstock advantage continuing to favor US production for the foreseeable future. Capacity expansions in customer industries motivated by recent legislation will create demand for US chemistry. In addition, shortening of supply chains and the impact of Section 301 tariffs have motivated new investment in Mexico and the re-/near-shoring of manufacturing that will strengthen the North American manufacturing base. Because Mexico and Canada are the industry’s largest trading partners, expansion in Mexican manufacturing bodes well for US chemical.

US chemicals exports are projected to rise 3.1% this year (2024) following a decline over 2023. Imports will also rise this year, growing by 7.1%. Chemical imports growth is expected to cool to a solid 4-5% annual pace of growth over our forecast period. The US continues to maintain a trade surplus in chemicals throughout the forecast horizon. Trade expansion is vulnerable to policy risks.

Prospects for US chemistry remain positive with competitive energy fundamentals and the resurgence in US manufacturing from once-in-a-generation legislative initiatives to promote clean energy, infrastructure, and a strong domestic manufacturing base.

One of the largest risks to this outlook is the rising regulatory impact on the chemical industry in the US that could undermine competitive advantages in energy and opportunities provided by the manufacturing expansion. If left unchecked, the dramatic rise in regulations focused on the chemical sector could incentivize companies and production to move offshore, potentially to parts of the world where chemical production is more carbon intensive.

Federal policy missteps, such as keeping rates higher for longer, new or escalating geopolitical conflicts, unexpected financial volatility, and/or external shocks (i.e., weather, cyberattack, etc.), could also disrupt the outlook.