Chemical Manufacturers See Rising Cost Pressures & Weak DemandChemical Manufacturers See Rising Cost Pressures & Weak Demand

Chemical manufacturer sentiment declined over the second half of 2024, according to the latest findings from the American Chemistry Council’s (ACC) Chemical Manufacturing Economic Sentiment Index (ESI).

ACC’s index, based on companies’ assessment of their activity level overall (e.g., sales, production, output), turned negative in Q4 as business and economic conditions continued to erode. There is renewed optimism about the year ahead as manufacturers expect demand to improve solidly in the US and modestly in key export markets.

“Recent quarterly ESI readings indicate deterioration across key chemicals business indicators over the last half of 2024. Chemical manufacturers began noting weakened customer demand in Q3 while also reporting that growth for new orders flattened.” said Emily Sanchez, director for Economics and Data Analytics at ACC.

She added that in the recent report, the fall in customer demand and growth of new orders slid further with declines in both foreign and domestic orders. Production levels, which had begun to fall in Q3, continued to decline in Q4. Overall, chemical manufacturers think their company’s activity level deteriorated in Q4.

Most chemical manufacturers (58%) reported volume of order backlogs remained “about the same” while 40% reported a decline. Six months from now, 75% of chemical manufacturers expect the volume of order backlogs to be “about the same” or lower.

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The raw materials inventory levels index was negative in Q4 though most companies (74%) reported levels were about the same as in Q3. Looking ahead six months, raw material inventories are expected to build modestly with 24% of companies expecting gains and 68% expecting levels to remain stable. Similarly, most companies (71%) reported finished goods inventories held steady over Q4. Looking ahead, chemical manufacturers anticipate overall builds in their finished goods inventories and the index rose to a positive reading of 19.0.

Most survey respondents reported supplier delivery times were “about the same” over Q4. Looking ahead, delivery times are expected to increase slightly.

Aside from input/raw materials costs which chemical manufacturers report were slightly lower in Q4, other chemical manufacturing production costs rose. The cost indices for energy (for fuel and power), labor, and transportation all rose over Q4. Looking ahead at six months, chemical manufacturers expect production costs to be elevated — especially for energy, labor and input/ raw materials.

Employment levels were stable over H2 2024 following small gains over Q1 and Q2. However, the future employment levels index declined slightly for the second quarter in a row. For the most part, chemical manufacturers continue to indicate the availability of skilled labor has been “about the same” from quarter to quarter and they are not anticipating significant gains or declines in the short-term.

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Chemical manufacturers have reported higher capital spending for the past six quarters through Q4. Looking ahead six months, capital spending is expected to increase further.

3 Highlights

Dropping Demand

Chemical manufacturers reported overall demand from their company’s major customer markets deteriorated in the second half of 2024. Following gains in Q1 and Q2, chemical producers reported that the volume of new orders declined in Q3 and again in Q4. Looking forward six months, chemical manufacturers expect new business to pick up, led by recovered demand in domestic customer markets.

Inflated Costs

Aside from input/raw material costs (which were reported to be roughly stable in Q4), upward pressure on chemicals production costs increased through Q4. Energy costs (for fuel and power), labor costs, and transportation costs rose through the end of 2024. Manufacturers expect costs to continue rising over the coming six months.

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Regulatory Relief

Mounting regulatory burden in the US has impacted manufacturers, deterring investments and innovation. With the new Administration, chemical manufacturers think there may be relief with respect to regulatory burden (i.e., compliance and opportunity costs). For the first time, the ESI index on future level of regulatory burden growth was negative, indicating that companies do not believe they will be subjected to an increase in new regulations. 

Chemical manufacturers expect improvement in the US economy in 2025, yet their view on the global economic situation continues to be negative.

ACC conducts this voluntary online quarterly survey of more than 100 diversified chemical manufacturers with operations in the United States. Data from this survey will support ACC’s regulatory and legislative advocacy efforts.