A Renaissance for U.S. Manufacturing - and, by Extension, Specialty Chemicals

Posted on 5/17/2017 12:13:26 PM By Dan Murad

With over 35 years of experience in the specialty chemicals industry in verticals such as adhesives & sealants, paints & coatings, and plastics, I am observing three major trends that are converging in favor of the U.S. specialty chemicals industry. Topping the list is a shift in U.S. manufacturing: More than 300 companies have reshored in the past 6 years, with many returning from China (see Figure 1 for recent reshoring cases).

The renaissance in U.S. manufacturing is revitalizing the chemical industry and enhancing global competitiveness of energy-intensive manufacturing sectors such aluminum, steel, plastics, glass, and transportation. An 8.5% uptick in automotive & light truck sales, which is partly attributable to pent-up demand as the U.S. economy continues its post-recessionary recovery, has been buoyed by low fuel costs. This is especially true regarding the increased demand for pick-up trucks, SUVs and crossovers – a real boon for all of the energy-intensive manufacturing sectors (see Figures 2 and 3).

Figure 1: Segment Breakdown of Recent Reshoring
Source: Reshoring Initiative, NIST, University of Michigan

Figure 2: U.S. Auto Sales (2007–2016) 
Source: U.S. Census Bureau

Figure 3: U.S. Auto Sales by Vehicle Type (2007–2016) 
Source: U.S. Census Bureau

Over the past 10 years, the net effect of the manufacturing renaissance and growing demand for passenger vehicles is that the average value of specialty chemicals in North American light vehicle manufacturing has jumped from $2,219 million in 2005 to $3,079 million in 2015 (representing a 39% increase).  In particular, plastics are in high demand, as shown in figures 4 – 6.

Figure 4 & 5: Chemistry Breakdown for Auto OEM (2015)
Source: ChemQuest, ACC

Figure 6: Plastics vs. Other Chemistries in Auto OEM (2015)
Source: ChemQuest, ACC

To comply with lightweighting standards (most notably the joint Corporate Average Fuel Economy (CAFE) standards set by the NHTSA and the U.S. EPA) automotive OEMs have substituted conventional steel with metal alloys, plastics and composites in an effort to meet the average fuel efficiency requirement of over 50 miles-per-gallon for the U.S. passenger vehicle fleet by 2025.  CAFE compliance–in turn–is driving the increased use of adhesives and sealants in lightweight joining applications. Conventional steel as well as high- and medium-strength steel are the dominant materials in light vehicles. Combined, they account for 51% of vehicle weight. However, high- and medium-strength steel, aluminum, magnesium and plastics have been grabbing share away from conventional steel. Similarly, iron castings and other types of steel have lost share due to the lightweighting trend.

In 2015, all iron and steel (including castings) accounted for slightly over 60% of average vehicle weight. The light weight vehicle industry, valued at $361 billion, represents an important market for plastics & composites: In 2015, the 14 million light vehicles assembled in the U.S. & Canada required 4.8 billion lbs. of plastics & composites – an average of 4,013 pounds/vehicle – amounting to 9.2% of total vehicle weight.  See Figure 7.

Figure 7:  Average Material Content Breakdown by LB (2015)
Source: ChemQuest, ACC

In a trifecta of industry wins, the U.S. chemical industry has enhanced its relative position in the world as the result of dramatically lower energy and feedstock costs:
  • From 2005–2013, supply of energy shifted with a huge increase in domestic production creating robust supplies of natural gas and natural gas liquids (NGLs) that due to market conditions lowered natural gas prices by 75%. 
  • Offshore chemicals producers still depend on oil-based feedstocks. Yet 88% more ethane can be produced through gas processing than crude oil, as shown in Figure 8.

Figure 8: Natural Gas vs. Crude Oil Processing 
Source: ChemQuest, ACC

Consequently, the U.S. is enjoying a sustained opportunity for low feedstock costs due to vast new NGL supplies that are generating historically low prices for U.S. ethane. Natural gas supplies provide a windfall cost reduction of “up to” 60% in raw materials for adhesives, sealants, paints &coatings and plastics making natural gas and NGL (in particular, Marcellus Shale gas) a game-changer for the specialty chemicals industry.