Trade war hits industry confidence, slowing capital expenditure pace in chemical industry

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In recent days, industry insiders have said that escalating global trade tensions have hit business confidence and suppressed demand for chemicals. Jim Fitterling, CEO of Dow Chemical, said: "Consumers are buying fewer big-ticket items, such as cars, housing and consumer electronics. This has led to slower economic growth. Capital expenditures will also be adjusted according to market conditions."

Unfavorable economic growth prospects

ACC Chief Economist Kevin Swift said that the global economy is facing multiple unfavorable factors. Europe's economic growth is weak, China's economy has slowed, India's economy is slowing, and Brazil has not yet fully entered economic recovery. Although the ACC Chemical Activity Barometer, a comprehensive indicator of the US economy, has shown strong momentum in recent months, it has brought a glimmer of hope that the situation may improve before the end of the year, but this hope may be short-lived.

He further said: "In terms of trade, the United States is also facing the dilemma of a slowing global economy and reduced external demand for chemicals caused by trade barriers. One of the biggest concerns is that we will get further into a bad trade war. Because tariffs are a blow to both production and consumption."

ACC expects US GDP to grow by 2.5% in 2019, driven by growth in business investment. However, this figure is lower than 2.9% in 2018, and the growth rate is expected to slow to 1.9% and 1.8% in 2019 and 2020 respectively.

The industry looks forward to trade normalization

Although the US tax reform, deregulation and low-cost feedstocks provide favorable conditions for the country's petrochemical producers, trade headwinds indicate that the growth prospects will slow down. Recently, the United States had planned to impose tariffs on all products imported from Mexico. Although the plan was abandoned, it still had an adverse impact on the industry. In addition, there is no sign of an end to the Sino-US trade war. These threats are undermining business and consumer confidence. Jim Fitterling said at the annual meeting of the American Chemical Council (ACC): "The development of the global industry is based on international trade. The United States Mexico Canada Trade Agreement (USMCA) needs to be approved. We need to make more progress on international trade." Increasing trade tensions, the decline in the solvency of European banks, and rising global debt levels are all affecting the overall economic environment. Frank Bozich, CEO of Trinseo, said: "The Chinese and European auto markets continue to be weak, with no signs of recovery. In particular, the weakness of the Chinese auto industry is leading to an oversupply of many major plastic products worldwide. The Chinese market is very important for downstream products. The demand for products such as polycarbonate, ABS and HIPS in the Chinese market has approached or exceeded 50% of the total world demand."

ACC pointed out that US light vehicle sales will drop from 17.2 million in 2018 to 16.8 million in 2019, 16.6 million in 2020, and 16.5 million in 2021. It is clear that the cycle of the automotive industry has peaked.