Chemical Industry News – February 2014

The American Chemistry Council (ACC) US Chemical Production Index rose by 0.8% in December, following a gain of 0.3% in November. The gain was seen to be driven by increases in the Gulf Coast and Ohio Valley regions. Production increased in all seven regions of the US for the second consecutive month. Compared to December 2012, total chemical production in all regions increased by 1.4% year-over-year, following a gain of 1.5% in November. Comparing twelve months of 2013 to those of 2012, total chemical production rose 1.2% nationally.

The ACC’s Chemical Activity Barometer (CAB) rose by 0.2% in January. The CAB has shown a gain for nine consecutive months and it is up 2.6% over a year earlier.

A House Energy and Commerce subcommittee hearing in early February was expected to discuss chemical testing and reporting under the Toxic Substances Control Act. Work continues on a bipartisan bill from Sens. David Vitter, R-LA and the late Frank Lautenberg, D-NJ. Senator Vitter is also hopeful that a revised version of the Chemical Safety Improvement Act will be introduced soon and will clear Congress this year.

The European Commission has determined that the use of high molecular weight phthalates in certain toys and child care products poses no risk to infants. The decision was in line with the conclusions presented last August by the European Chemicals Agency (ECHA).

Dow Chemical reported a net income or $963 million for the fourth quarter of 2013 compared to a net loss of $761 million for the same period a year earlier.
BP and the Chinese Academy of Sciences have formed a joint venture to build two methanol plants in the State of Washington. Each facility is expected to cost $1 billion. The plants will be used to process natural gas into methanol for export to China.

The Celanese-Mitsui joint venture methanol plant start-up may be delayed until the third quarter of 2015, instead of the planned second quarter because of delayed EPA approval.
BASF entered into a joint venture with Sinopec to produce isononyl alcohol (INA) in Maoming, China. The plant is expected to start up in 2015.
BASF has announced a reduction, based on decreased demand, of 120,000 MT/year latex capacity for paper production. The company also plans to build a world-scale methylglycinediacetic acid (MGDA) plant at Evonik’s facility in Theodore, AL. The $90 million project is expected to start up in the second half of 2015.
SABIC is discussing possible investment in the U.S. shale gas industry, and is expected to enter the market this year. No estimates of size or type of investment were given.
US chlor-alkali average operating rates declined to 84% in December 2013 from November’s 85%.
The EPA notified oil industry groups on January 23 that it would reconsider its target for advanced ethanol made from grasses and trees, as producers struggle to produce it. The industry had petitioned the EPA to reconsider a mandate of 6 million gallons based on capability of one million gallons.

European countries dependent on Russia for natural gas are forming a group to lobby Washington in an effort to loosen export restrictions so that they can buy the fuel from the US. Most of the countries involved are in Eastern Europe. Their efforts are supported by America’s Natural Gas Alliance and the American Petroleum Institute.

The EPA published re-proposed carbon dioxide limits for new power plants on January 8, setting separate standards for coal-fired and natural gas-fired generating units. The rule revised an April 2012 proposal, in which the EPA had intended to set a single standard for both types of plants. According to the EPA, modern natural gas plants are essentially able to meet the new standard. The rule will make it very difficult for new coal-fired plants to be built in the US; utilities will only be able to build them if they are able to capture 20 to 40% of the carbon they emit and store it underground. The technology to do this is carbon capture and storage (CCS). Members of Congress and fossil fuel industry leaders are on record as saying that the CCS technology needed to meet the standard isn’t ready for commercial use. A 60 day comment period was established on the proposal. Legal challenges from industry are expected.

A Wall Street Journal report on California’s new Ivanpah solar energy plant noted that costs are approximately four times as much as a conventional gas-fired plant, but will produce less electricity. There are concerns about wildlife with dozens of dead birds being reported at the site. The project cost is estimated at $2.2 billion. It covers a desert area over roughly five square miles.

Legislation introduced in the Rhode Island House of Representatives intends to extend the life of the state’s central landfill by redirecting food waste for the production of energy and compost. The measure would phase in a requirement that all non-residential food waste be separated.

The US Postal Service lost $354 million in the financial quarter ending December 31 but was far less than the $1.3 billion loss in the comparable quarter for the previous fiscal year. The cost of a first class stamp was increased from 46 to 49 cents on January 26. The Postal Service lost $5 billion in the past fiscal year, down from $15.9 billion in 2012. Congress continues to work on fixing the agency’s financial problems.

The latest information available indicated that Russian production of chemicals and petrochemical products increased 3.3% year over year in the first half of 2013.
China’s economy grew by a healthy 7.7% in 2013, although signs of a slowdown emerged late in the year. This reflected a cooling in economic growth from the double-digit rates reported in the past.
China’s producer price index in December was 1.4% lower year to year and was viewed by some as a sign of slowness in the manufacturing sector.
China’s consumer price index increased at an annual rate of 2.5% in December down from 3.0% in November.

China’s exports rose an unexpected 10.6% from a year earlier in January, while imports increased 10%, resulting in a trade surplus of $31.9 billion.

Germany indicated that it is preparing a third rescue package for Greece provided that Greece implements austerity measures. The new loan would be worth between €10 and €20 billion. The IMF has been at odds with Germany and other lenders over the need to write off Greece’s debt.

Germany’s business climate continued to grow, but slightly, in January. Munich-based Ifo, an economic research group, reported that its monthly business climate index for Germany rose to 110.6 in January from 109.5 in December. The survey represents responses from firms in construction, manufacturing, wholesaling and retailing.

Unemployment across the seventeen European Union countries that use the euro was reported unchanged at 12.0% for December. It was 11.9% a year earlier. The lowest rates among member states were Austria at 4.9%, Germany at 5.1% and Luxembourg at 6.2%. The highest rates among member states were Greece at 26.1% and Spain at 25.8%. However, during the same period sales rebounded 1.6% versus a year ago.

Inflation in the Euro zone was reported at 0.8%, down from 0.9% in November. This was less than half of the European Central Bank’s ceiling, which indicated economic weakness in parts of the region.
The Railway Supply Institute Committee on Tank Cars has called on the US Department of Transportation (DOT) to consider new safety measures for tank cars carrying crude oil and ethanol. The committee proposed additional safety requirements on newly-built railway tank cars, a prohibition on other older cars. It was estimated that it will take ten years to modify many existing tank cars.

The National Transportation Safety Board has recommended rules that it said will protect people and the environment along routes where trains haul crude oil.
Total carload rail volume for January increased 0.4% overall compared with January 2013. Intermodal volume was up 1.3% compared to the same period in 2013 and was highest weekly average for any January on record. Petroleum products shipments were up 10.4%.

The American Trucking Association reported that seasonally adjusted for-hire truck tonnage increased 0.6% in December after surging 4.7% in November. The index was 6.2% higher year to year. Trucking serves as a barometer of the US economy, representing 68.5% of tonnage carried by all modes of domestic freight transportation.

 

SHALE OIL & GAS RELATED

According to a report from the IHS Cambridge Energy Research Associates, thanks to shale production, natural gas prices in North America will remain in the range of $4 to $5 per thousand cubic feet for at least twenty years.

Hess Corp. said that it plans to spend $2.85 billion for exploration and production on unconventional shale resources, primarily in North Dakota’s Bakken area.
ExxonMobil Corp plans to move up to 100,000 barrels per day of Canadian oil sands crude using a new rail terminal in Alberta that should be running by 2015.
Great Britain’s Prime Minister David Cameron has approved a move to encourage hydraulic fracturing. He predicted that developing the country’s shale reserves will cut energy costs, create 74,000 jobs, and boost investments by more than $4 billion.

The continuing Keystone XL oil pipeline issue cleared a major hurdle on January 31 when the State Department reported no major environmental objections to the proposed $7 billion project. The report stopped short of recommending approval. Canadian tar sands are likely to be developed regardless of U.S. action on the pipeline, with China the most probable customer. President Obama still wants to hear from other federal agencies before making his decision. Former Interior Secretary Ken Salazar has said that the pipeline is a ‘win-win” project and would be in the national interest. The White House has denied claims from former Energy Secretary Steven Chu that the decision is a political one.

Replacing the Keystone XL pipeline with freight trains could result in an average of six additional rail-related deaths per year, according to a State Department report. The fatality and injury estimates were based on data from both the Federal Railway Administration and the Pipeline and Hazardous Material Safety Administration.

 

THE ECONOMY

The Congressional Budget Office estimated that the federal government incurred a budget deficit of $184 billion for the first four months of fiscal year 2014, $107 billion less than the shortfall reported for the same period a year ago. If lawmakers pass no additional legislation affecting spending/revenues, the federal government will end fiscal year 2014 with a deficit of $514 billion compared with a $680 billion deficit in fiscal year 2013. The US Treasury Department reported that on February 10, 2014 the federal debt was $17.262 trillion. The national debt has increased an average of $2.40 billion per day since September 30, 2012.
The CBO reported on February 4 that the economic effects of the Affordable Care Act (Obamacare) will result in a bigger reduction in working hours than previously estimated. The report said that by 2017, due partly to smaller companies reducing worker hours to avoid requirements that full time workers be offered health insurance, there will be the equivalent of 2 million fewer full time equivalent workers. In 2011 the CBO had estimated that the law would cause a reduction of 800,000 full time equivalent workers.
Personal income in December increased $2.3 billion or less than 0.1% according to the Bureau of Economic Analysis. In November, personal income increased 0.2 % or $29.8 billion.

The Bureau of Economic Analysis “advance” estimate showed an increase in Gross Domestic Product of 3.2% in the fourth quarter of 2013, that is, from the third quarter to the fourth quarter. It was noted that all the growth came from private spending and investment. In the third quarter real GDP increased 4.1%, in the second quarter, real GDP increased 2.5% and first quarter data showed an increase of 1.1%.

Current-dollar GDP, the market value of the nation’s output of goods and services, increased 4.6% or $189.6 billion in the fourth quarter to a level of $17,102.5 billion. In the third quarter current dollar GDP increased 6.2% or $251.9 billion to a level of $16,912.9 billion.
The Conference Board’s Leading Economic Index increased 0.1% in December to 99.4 (2004 = 100), following a 1.0% increase in November, and 0.1% increase in October.

The Conference Board Consumer Confidence Index which had increased in December, increased again in January. The index now stands at 80.7 (1985 = 100) up from 77.5 in December. November was reported at 72.0.

The Institute for Supply Management’s January Manufacturing Index registered 51.3%, a decrease of 5.2% from December’s seasonally adjusted reading of 56.5%, which was 0.3% below the November reading of 57.3%. This was after seven consecutive monthly increases. The Non-Manufacturing Report for January was 54%, an increase of 1.0% over December’s 53%, which was a decrease of 0.9% from November’s 53.9%.

In January, retail and food services sales adjusted for seasonal variations were $427.8 billion, a decrease of 0.4% from December but 2.6% above January 2013. Total sales for the twelve months ending January 2014 were up 3.4% from a year earlier.

Privately owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 986,000, which was 3.0% below the revised November rate 1,017,000, but is 4.6% above the December 2012 figure of 943,000.3.1% Single family authorizations in December were at a rate of 610,000, which was 4.8% below the revised November figure of 641,000.

Sales of new single family houses in December were at a seasonally adjusted rate of 414,000. This was 7.0% below the revised November rate of 445,000 but is 4.5% higher than the December 2012 number of 396,000.

The National Association of Realtors reported that total sales of existing homes increased 1.0% in December to a seasonally adjusted annual rate of 4.87 million from a downwardly revised November rate of 4.82 million and were 0.6% below the December 2012 rate of 4.90 million. The national median existing home price for 2013 was 11.5% above 2012. Distressed homes, foreclosures and short sales, accounted for 14% of December sales, at no change from October and November. They were 24% in December 2012.
New orders for manufactured durable goods in December decreased $10.3 billion or 4.3% to $229.3 billion. This decrease, down two of the three last months, followed a 2.6% increase in November.
December unfilled orders for manufactured durable goods increased $3.9 billion or 0.4% to $1061.5 billion. This number has increased for ten of the last eleven months.
Consumer Price Index for all urban consumers was increased 0.3% in December on a seasonally adjusted basis. The US Bureau of Labor Statistics reported that over the last twelve months the all items index increased 1.5% before seasonal adjustments. Food index rose 0.1% and has not posted a monthly increase larger than 0.1% since June 2013. The gasoline index increased 3.1% and fuel oil and electricity rose as well, accounting for a 2.1% increase in the energy index.
The seasonally adjusted Producer Price Index for finished goods increased slightly 0.4% in December. Prices for finished goods declined 0.1% in November, 0.2% in October and 01% in September. On an unadjusted basis, prices for finished goods increased 1.2% for the twelve months ended in December 2013, compared with a 1.4% increase in 2012.
Interest rate: Prime at 3.25%, unchanged since 12/16/08.

Industrial production increased 0.3% in December, for a fifth consecutive monthly increase. For the fourth quarter of 2013, it increased at an annual rate of 6.8%, the largest quarterly increase since the second quarter of 2010. The November gain was the largest since November 2012. Capacity utilization rate for total industry increased 0.1% to 79.2%, a rate 1.0% below its 1972 – 2012 average.
Unemployment: The January unemployment rate was little changed at 6.6% from the December 2013 rate of 6.7% as reported by the Bureau of Labor Statistics. The number of unemployed persons was reported at 10.2 million. Since October, the jobless rate has decreased by 0.6%. The long-term unemployed, i.e., jobless for 27 weeks and over was reported at 3.6 million in January, a decline of 232,000. Those individuals accounted for 35.8% of the unemployed. The number of long-term unemployed has declined by 1.1 million in the past twelve months; part of the decline has been attributed to people dropping out of the labor force. In December, North Dakota continued to lead the nation with the lowest state unemployment rate of 2.6%; Rhode Island and Nevada were highest at 9.1 % and 8.8% respectively.
The US Census Bureau and the Bureau of Economic Analysis through the Department of Commerce announced on February 6 that total December exports of $191.3 billion and imports of $230.0 billion resulted in a goods and services deficit of $38.7 billion, up from the November figure of $34.6 billion.

Extremely cold weather continued to drive up natural gas pricing. Henry Hub spot price rose on February 5 to $7.90/MMBTU an increase of $2.70/MMBTU. This was the highest Henry Hub has been since September, 2008. Regional price variations were pronounced and fluctuated with temperature shifts. March futures declined to the $5.00/MMBTU range. Working natural gas in storage at the end of January decreased and was 28.8 % lower than last year at that time, and 22.4% lower than the five year average.
Crude Oil: WTI trading at ~$100/bbl, little changed from a year earlier.

Inflation: Inflation rate for the twelve months ended in December reported at 1.5%; November was reported at 1.3%, October was reported at 1.0%, September at 1.2%. A rate of 1.8% for 2014 is foreseen by some economists. An average rate of 2.1% was reported for 2012.

U.S. Dollar: Trading at 102.6 Japanese yen; $Canadian 1.09; $1.36 = euro; The British pound sterling = $1.66.

Current U.S. Gold Price: Quoted at $1292.00/ounce. The record price of $1920/ounce was recorded in September, 2011.