CHEMICAL INDUSTRY NEWS

The American Chemistry Council (ACC) US Chemical Production Index was flat in September following no growth in August. Chemical production fell in all regions except the Gulf Coast and the Ohio Valley regions, which posted gains. Compared to September 2011, total production in all regions was down by 0.5%, a worsening year-over-year comparison. Comparing the first nine months of 2012 with the same period a year ago, chemical production was up 0.2% nationally.

The ACC’s Chemical Activity Barometer (CAB,) for November showed a drop of 0.5% over the previous month. This followed four consecutive monthly increases in the CAB. The chemicals industry generated about $760 billion last year.

Cytec Industries will sell its coating resins subsidiary to private equity firm Advent International for $1.03 billion. Advent will assume $118 million of liabilities associated with the unit, bringing the total value of the deal to $1.15 billion. It is expected to close in the first quarter of 2013.

BASF, the world’s largest chemical company, is breaking up its plastics division and splitting the operations into consumer and commodity lines in order to help market tailored products to the automotive and apparel markets.

Methanex obtained federal and state environmental permits to relocate its Chilean methanol plant to Geismar, LA and to operate it. The move was initiated in order to take advantage of low cost natural gas.

The Department of Health and Human Services has asked a federal judge to dismiss the American Chemistry Council’s lawsuit which seeks to obtain disclosure of documents that explain how HHS staff decided to list formaldehyde in its most recent report on carcinogens. The ACC claims that HHS has ignored its requests through the Freedom of Information Act.

Jubail Chemicals Storage and Services, the joint venture of SABIC and Vopak, awarded the engineering and construction contract for its Saudi Arabian chemical terminal to China National Chemical Engineering. The $400 million facility will have an initial capacity of 250,000 cubic meters when completed in 2015.

US chlor-alkali operating rate for October was reported at 80% of capacity, down 1% from September, down from the August rate of 86%.

The House of Representatives voted on November 16 to take a step toward normalizing trade relations with Russia, disposing of one of the last remains of cold war era policy. The US Senate is expected to pass the bill. A proviso is attached to the legislation that seeks to punish Russians who are involved in human rights abuses, so that the US could deny visas to Russian officials who are deemed abusers and freeze their assets. The Russian Foreign Ministry called the move “flagrantly unfriendly.”

Russian petrochemical producer Sibur and Belgium’s Solvay have agreed to form a joint venture for the production of surfactants and oilfield process chemicals in Russia. The company will be known as Ruspav and is expected to come on line in 2015.

More than a quarter of German companies have said that they would likely be cutting jobs in 2013. The Cologne Institute for Economic Research found that 30% of businesses said that their position was worse than the previous year.

German engineering giant Siemens is quitting its solar energy business in favor of wind and hydropower. Siemens will sell Solel Solar Systems, which it acquired for $418 million in 2009, and the photovoltaic business of its solar and hydro division.

Unemployment in the eurozone rose to a new high of 11.6% in the third quarter. Spain and Greece were reported at more than 25%. The lowest unemployment rates were recorded in Austria (4.4%), Luxembourg (5.2%), Germany and the Netherlands (5.4%). The UK rate was 7.9%

The EU failed to reach a seven year budget agreement at its Brussels summit in late November.

China’s exports decreased in October to $177.5 billion, from a record monthly level of $186.4 billion in September.

Chinese manufacturing accelerated in November as a non-official index jumped to a 13 month high, indicating that the Chinese economy gained momentum.

Following China Petrochemical Corp.’s (Sinopec) $1.5 billion investment in Canada’s Talisman Energy Inc. the state controlled Chinese company said it was already exploring ways to widen the partnership, emphasizing China’s eagerness to secure more energy resources. Sinopec owns 49% of UK North Sea oil and gas assets owned by Talisman.

The International Warehouse and Logistics Association has created a cross-border protocol for the warehousing of chemicals. It sets standards regarding best practices in the US and Canada.

Auto sales in China were up 6.4% in October, after a decrease of 0.3% in September and a September increase of 5.3%.

The Association of American Railroads announced that carload traffic on major US railroads for the week ending 11/17 declined 4.9% week to week, but was up 2.4% year over year.

The American Trucking Association reported that tonnage decreased 3.8% in October, after falling 0.4% in September. Year-to-date, tonnage was up 2.9% compared with the same period last year.

Shale Oil and Gas-related:

The International Energy Agency has stated that natural gas will overtake oil as the most-used fuel in the US by 2030 as supplies increase. The IEA foresees the US as an exporter starting in around 2018.

Senators Ron Wyden (D-Ore.) and Lisa Murkowski (R-AK) said that they plan to collaborate on a bill that would balance environmental protection, job generation and economic development spurred by the oil and natural gas boom.

Royal Dutch Shell anticipates spending over $20 billion on natural gas projects through 2015.

The CEO’s of Phillips 66 and Marathon Petroleum recently said that they expect President Obama’s second term to bring a wave of regulation on their industry. They cited that new and expanded federal regulations including the Renewable Fuel Standards and the Corporate Average Fuel Economy standards have cost their companies billions to date.

Former General Electric CEO Jack Welch told CNBC that the US hydrocarbons industry is poised to boom the way the internet sector did in the 1990’s, although regulations are preventing it from taking off.

Nick Vafiadis, global director of plastics for IHS Chemical recently stated that massive planned expansions for ethylene feedstock could lead to almost 15 billion pounds of lower cost polyethylene capacity in the US and Canada.

The natural gas industry has expressed frustration with New York State’s continuing review of hydraulic fracturing (fracking) with one trade group saying that its trust in state government has been exhausted. The Independent Oil and Gas Association of New York has sent a letter to Governor Andrew Cuomo urging that he have the Department of Environmental Conservation (DEC) release its long-awaited final report on large scale fracking and to move ahead with issuance of permits. The letter came in advance of a November 29 regulatory deadline, which if missed, would require the DEC to re-open its proposed regulations to public comment. The DEC report was first launched in July, 2008.

Occidental Chemical (OxyChem) has commissioned CB&I for the basic engineering design of a proposed cracker that will produce 1.2 billion lbs/year of ethylene. Feedstock will be from domestic shale gas.

THE ECONOMY

Federal Reserve Chairman Ben Bernanke said that an agreement on ways to reduce long-term federal budget deficits could remove an impediment to growth, while failure to avoid the so-called fiscal cliff would pose a “substantial threat” to the economy. Bernanke identified the threat of $607 billion in automatic tax increases and spending cuts scheduled to take place in 2013 as one of the impediments as companies hold back on hiring and investment.

      The Congressional Budget Office reported that the federal government incurred a budget deficit of $1.1 trillion for fiscal 2012, the fourth consecutive year with a deficit above $1.0 trillion. It was $207 billion less than the deficit recorded in fiscal 2011 because revenues rose by $147 billion while outlays dropped by $61 billion. The US Treasury Department reported that on November 24, the federal debt was $16.28 trillion. It was $5.7 trillion in 2001.

The US government debt held by foreign entities is a record $5.4 trillion, with China holding $1.16 trillion of it, or slightly more than 21% of all the debt owned by foreign entities. In January 2009 the US government owed $3.07 trillion to foreign entities. China remains the top creditor, with Japan a close second.

The Bureau of Economic Analysis reported the advance estimate of third quarter 2012 Gross Domestic Product growth at an annual growth rate of 2.0%, that is, from the second quarter to the third quarter. In the second quarter, real GDP increased 1.3%. In the fourth quarter of 2011, real GDP increased 3.0%. Current-dollar GDP, the market value of the nation’s output of goods and services, increased at a rate of 5.0% or $190.1 billion in the third quarter to a level of $15,775.7 billion. In the second quarter current dollar GNP increased 2.8%. or $107.3 billion.

The Conference Board’s Leading Economic Index increased 0.2% in October to 96.0 (2004=100) following a 0.5% increase in September and a 0.4% decrease in August.

The Conference Board Consumer Confidence Index which had increased in September, improved again in October. It stands at 72.2 (1985=100) up from an adjusted 68.4 in September.

The Institute for Supply Management’s Manufacturing Index expanded in October for the second consecutive month following three straight months of contraction. The index for October registered 51.7%, an increase of 0.2% from September’s reading of 51.5% indicating growth. A reading below 50% indicates that the manufacturing economy is generally retracting. The Non-Manufacturing Report for October was 54.2%, 0.9% lower than September’s 55.1%, but still indicating continued growth.

In October, retail and food services sales adjusted for seasonal variations were $411.6 billion, a decrease of 0.3% from September and 3.8% above October 2011. Total sales for the August through October 2012 period were up 4.7% from the same period a year ago.

According to the trade group International Council of Shopping Centers, major retailers reported robust post-Thanksgiving sales. Wal-Mart reported its best ever sales on “Black Friday.”

Privately owned housing starts in October of 894,000 were 3.6% above the revised September estimate of 863,000 and were 41.9% above the October 2011 rate of 630,000. Single family housing starts in October were at a rate of 594,000 or 0.2% below the revised September figure of 595,000. New home sales increased 5.7% in September, to a seasonally adjusted annual rate of 389,000, and were 27.1% above the September 2011 figure of 306,000. The Census Bureau adjusted estimate of new houses for sale at the end of September was 145,000, representing a supply of 4.5 months at current sales rates.

The National Association of Realtors reported that sales of existing homes increased 2.1% in October to a seasonally adjusted annual rate of 4.79 million from September’s adjusted level of 4.69 million. The national median existing home prices rose in October, up 11.1% from a year earlier.

US foreclosures and short sales accounted for 24% of October sales, unchanged from September. They were 28% in October 2011.

New orders for manufactured durable goods in September, up four of the last five months, increased $19.5 billion or 9.8% to $218.2 billion. This followed a 13.1% August decrease, which was the largest decrease since January 2009.

September unfilled orders for manufactured durable goods, up for three of the last four months, increased $1.7 billion or 0.2% to $981.0 billion. This followed a 1.7% August decrease.

Consumer Price Index for all urban consumers increased 0.1% in October on a seasonally adjusted basis, following a 0.6% increase in September. The US Bureau of Labor Statistics reported that over the last twelve months the all items index increased 2.2 % before seasonal adjustments. The shelter index rose 0.3%, its largest increase since March 2008. The energy index, which had risen sharply in August and September, declined slightly in October.

The Producer Price Index for finished goods declined 0.2% in October, seasonally adjusted, following an increase of 1.1% in September and 1.7% in August. On an unadjusted basis, prices for finished goods increased 2.3 % for the twelve months ended October 2012, the largest advance since a 2.8% increase for the twelve month period ended March 2012.

Interest rate: Prime at 3.25%, unchanged since 12/16/08.

Inflation: Inflation rose in September by 2.2%. The September rate was 2.0% and the August rate was 1.7%. Average rate of 2.0% is projected for 2012.

Industrial production declined 0.4% in October, after having increased 0.2% in September, and fallen 1.4% in August. Hurricane Sandy, which held down production in the Northeast at the end of October, is estimated by the Federal Reserve to have reduced the rate of change in total output by nearly one percentage point. The largest estimated storm-related effects included reductions in the output of utilities, chemicals, and food. At 96.6% of its 2007 average, total industrial production in October was 1.7% above its year-earlier level. Capacity utilization for total industry decreased 0.4% to 77.8%, a rate 2.5% below its 1972 – 2011 average.

Unemployment: The October 2012 rate was virtually unchanged at 7.9% from 7.8% in September as reported by the Bureau of Labor Statistics. The number of planned layoffs by US firms increased 41% in October to the highest level in five months, although the number includes more than 10,000 jobs in US-owned auto plants in Europe. According to the BLS, Hurricane Sandy had no discernible effect on the October employment/unemployment data. The BLS stated that the long-term unemployed, i.e., jobless for 27 weeks and over was little changed at 5.0 million from the 4.8 million reported in for September. Those individuals accounted for 40.6% of the unemployed. North Dakota continued to lead the nation with the lowest state unemployment rate in October of 3.1%, and Nevada was again reported the highest at 11.5%.

Trade Deficit: For September 2012 the goods and services deficit decreased to $41.5 billion from a revised August figure of $43.8 billion as exports increased more than imports.

Crude Oil: Present WTI spot price ~$87/bbl and holding, compared to ~$90+/bbl a year earlier.  OPEC has reported that world oil demand is expected to decline in 2013. Prices have seen an increase of ~$1.00/bbl as a result of the Israeli-Palestinian conflict in Gaza.

Natural Gas:  Henry Hub spot price closed on November 20 at $3.62/MMBTU. December contract reported up at $3.76/MMBTU. Working natural gas in storage is greater than last year and remains above the five year average. Residential and commercial consumption is increasing as the temperature drops.

The US dollar trading at 82.4 Japanese yen; $1.30 = euro. The British pound sterling = $1.60. Canadian dollar trading at US$.99

Current US gold price quoted at $1729.50/ounce compared to the record price of $1920/ounce in September, 2011.

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