Chemicals and Materials industry will be impacted if the US goes into recession

Chemicals and Materials Industry Market Analysis (2023 - 2030)

In the first half of the calendar year 2022, aggressive monetary policy tightening, high inflation, low consumer confidence, and the geopolitical environment have all negatively impacted market sentiment. Most analysts predict that the US economy will enter a recession by the end of 2022, with the US Federal Reserve likely to adopt a more aggressive attitude in light of the most recent inflation reading of over 9%. They believe that most international markets will experience the effects of a recession in the biggest economy in the world during the coming several months. A modest recession in the US beginning in Q4 2022 is anticipated due to the economy's quickly declining growth momentum and the US Fed's commitment to restoring price stability.

The American chemical industry grew in 2021 despite obstacles like the pandemic, problems with the global supply chain, and bad weather on the Gulf Coast, although the latter two did limit production. The post-lockdown spending boom increased demand for goods and minerals, including chemicals. Many end-use markets with a high concentration of chemicals experienced a surge in demand as a result of surplus savings, government stimulus, and changing consumer demand trends for commodities.

The recovery that started in the United States in April 2020 is still growing. However, because supply couldn't keep up with demand, activity in the third quarter notably slowed down in comparison to growth in the first half of the year. Supply and demand are now gradually realigning. Backlogs at the ports are beginning to decrease, and a robust job market will encourage more people to join the workforce. The reduction of fiscal stimulus will be somewhat compensated by increased employment, which will also sustain ongoing high levels of consumer expenditure. Numerous signs currently indicate ongoing growth through 2022.

As businesses resume production and restock stockpiles, supply chain bottlenecks now seem to be reducing, and momentum is increasing. The global economy still faces uncertainties, but the U.S. chemical industry is well-positioned going into 2022.

American GDP increased by 5.6 % in 2021 compared to a 3.4 % decline in 2020, but it is expected to decline to 4.2 % this year. Tempered by the continuing health crises and supply chain problems, the global economy continues to recover but its growth also should decline, from 5.7 % in 2021 to 4.4 % in 2022.

According to the American Chemistry Council, the global chemical industry's output growth will decline from 3 % in 2021 to 2.3 % in 2022 in all subsectors, with consumer chemicals growing from 2.3 % in 2022. Agrochemicals will rise from 3 % in 2021 to 2.3 % in 2022. Basic chemicals will decrease from 6.1 % to 4 %, inorganic chemicals will decrease from 6.6 % to 3.9 %, bulk petrochemicals and organic chemicals will decrease from 5.8 % to 3.8 %, plastic resins will decrease from 6 % to 4.3 %, synthetic rubber will decrease from 7.6 % to 6.3 %, and specialty chemicals will decrease from 5.2 % to 4 %.

Petrochemical costs have decreased significantly from their peak in 2021. The reduction is a sign of demand destruction and, as a result, a slowdown in important industries like electronics, automobiles, and real estate.

Consider the material ethylene, which is made from oil or natural gas. Everything from fabricated plastics to antifreeze to insulations uses the industrial chemical. Within a year, ethylene prices in the US dropped by approximately half. In just one year, from April 2021 to April 2022, it dropped from 61 cents to about 30 cents per pound.

To avoid running out of chemicals for their factories, chemical purchasers were overordering a year ago due to raging inflation and supply chain problems. If other ingredients for an end product weren't readily available, some customers might have stopped buying specific chemicals. The price volatility of chemicals and the businesses related to them has been influenced by persistently high energy costs as well as the conflict in Ukraine.

With an average cost of almost $3,200 per car, light automobiles are a significant market for chemicals. Despite escalating demand, production is being hampered by chronic chip shortages. Only 15.3 million automobiles were sold in the United States in 2021 (as opposed to 17.0 million in 2019), and this number should increase to 16.0 million in 2022 as long as supply chain problems are anticipated to persist this year.

In May, the number of light vehicles decreased from 14.5 million seasonally adjusted annual units to 12.7 million units. Since the automotive industry has been hampered by ongoing shortages of semiconductors and other essential resources, this speed was down 25% from a year ago.

Chemical producers are currently dealing with a twin whammy of declining demand and loan availability. As many nations descend into a risk of recession, the chemical industry's main clients, particularly the automotive and construction sectors, appear to be particularly vulnerable.

Chemical use in the housing industry is very significant. As a result of historically low mortgage rates, distant work and schooling, and geographic dispersion of households away from city centers, housing starts increased during the epidemic. Starts increased to 1.58 million in 2021 (the highest number since 2006). Despite continued robust household formation, job, and income growth as well as limitations on labor, building materials, and land use in addition to rising affordability issues will short-term restrain expansion. In 2022 and 2023, housing starts should marginally decline to 1.56 million.

Inflation is predicted to decline in 2022, but economists are concerned about the ramifications if it doesn't. The biggest threat to the world economy may no longer be a new slowdown brought on by new viral outbreaks, but rather rising inflation brought on by a limited supply of products and increasing wage pressure.

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