The US chemicals sector performs well, but the energy and fuel/oil subsector is in trouble, mainly affecting smaller and regional players in this segment.
- The US chemicals industry accounts for about 15% of global chemicals output and employs more than 800,000 people. Chemicals is a broad ranging sector and an ingredient in a variety of products, touching around 95% of manufactured goods in the US, and is therefore highly exposed to the broader economy and manufacturing activity.
- US chemicals production grew 3.5% in 2015, and is expected to increase 1.4% in 2016 and 3.5% in 2017. The US has moved from being a high-cost producer of key petrochemicals and resins to being the world’s second lowest cost producer. However, the strong US dollar hurts US chemicals exports.
- The industry as a whole benefits from lower operating costs resulting from cost restructuring, generally high cash balances, and improved debt maturities profiles compared to a few years ago. Banks are generally willing to provide loans to the industry.
- US chemicals businesses’ profit margins are generally stable, and the amount of protracted payments in this sector is low. On average, payments in the chemicals industry take between 30 and 90 days. After decreasing in 2015, chemicals insolvencies are expected to decrease further or to level off in 2016.
- Our underwriting approach to the chemicals sector remains generally positive to neutral. As the sector is highly fragmented and dependent on the broader economy and input costs, we scrutinise single subsector trends and end-markets.
- That said, our underwriting approach is more cautious for the energy and fuel/oil subsector, especially for smaller and regional players in this segment. Since the decrease in oil prices started in Q4 of 2015 we closely monitor liquidity and business outlook for public and private buyers in this subsector.
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Market Monitor July 2016
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