BMI's Executive Summary

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The North American chemicals industry was hit by a downturn in demand from the construction and automotive industries in Q107. Their poor performance had a significant negative impact on chemicals output, with growth losing momentum, according to BMI's latest US Petrochemicals Report.

Petrochemicals performance in 2007 will continue to be determined by the automotive and construction sectors, which in turn are affected by consumer trends. BMI expects the economy to experience a relatively sharp deceleration this year, with growth set to slow to 2.5%. Most evidence suggests that the housing market is currently experiencing, and will continue to experience, a stagnation and perhaps even contraction over the course of the year. Housing prices across the states have eased their climb, construction has slowed, and houses are remaining unsold for longer as the imbalance between supply and demand is widening. Consequently, growth in the petrochemicals sector is likely to remain subdued, if not stagnant.

US production of major plastic resins totalled 7.0bn lbs (3.5mn tonnes) in April 2007, an increase of 4.8% y-o-y, according to the American Chemistry Council (ACC). In the first four months of 2007, production was 27.4bn lbs (13.7mn tonnes), a 1.9% y-o-y increase. Low density polyethylene (LDPE), polystyrene (PS) and polyvinyl chloride (PVC) output fell 2.3%, 6.5% and 4.9% respectively, while linear low density polyethylene (LLDPE), high density polyethylene (HDPE) and polypropylene (PP) output rose 3.1%, 6.4% and 8.0% respectively. Sales and captive use of major plastic resins totalled 7.1bn lbs (3.55mn tonnes) during April 2007, an increase of 3.8% y-o-yLDPE, LLDPE and HDPE sales were up 3.9%, 3.7% and 9.2% respectively, while PP sales rose 8.1%. However, PS and PVC sales dropped 2.9% and 2.4% respectively.

In April 2007, Chevron Phillips Chemical signed a non-binding memorandum of understanding with Dow Chemicals for a 50:50 joint venture involving their polystyrene and styrene monomer assets in the Americas. The joint venture (JV) is due to be confirmed in H207 following government and regulatory approval. The JV will create synergies, with the two companies' operations complementing each other and proving stability in styrene feedstock supply and sales. Dow's tie-up with Chevron Phillips, with its large refining capacity, creates an entity that could compete on a global basis.

In May 2007, Saudi Arabia's Sabic managed to get a foothold in the US petrochemicals industry with the acquisition of GE Plastics from General Electric in a deal worth US$11.6bn, well above the estimated US$8-10bn price and beating a number of other bidders including Basell. GE Plastics grossed US$6.6bn in sales in 2006. The deal makes Sabic a major world force in plastics and packaging with gross revenues likely to exceed US$30bn as a result of the takeover. The closing of the transaction is subject to customary conditions, including the receipt of regulatory approvals, and is targeted for Q307.