Capital spending by the chemical industry is on the rebound as per global engineering and construction (E&C) companies. Projects are in progress in Asia and the Middle East, as well as in USA, where shale-gas exploitation has changed the economics of production. However, given the current global political and economic uncertainty, risks are intensifying and projects are proceeding with greater deliberation. Chemical capital spending in Western Europe slipped from US$54.9 bln in 2008 to US$45.1 bln in 2009, recovering marginally to US$46.3 bln in 2010, as per American Chemistry Council (ACC). Chemical capital spending in North America fell from US$33 bln in 2008 to US$29.1 bln in 2009 before increasing to US$31.6 bln in 2010, while in Japan figures dipped from US$8.6 bln in 2008 to US$7.9 bln in 2009 and increased to US$8.3 bln in 2010. During the global recession many chemical projects were either postponed or canceled. In the past few quarters, the chemicals industry has seen a strong turnaround, as demand and production increase.

Two factors driving chemicals segment's demand growth are low-cost abundant feedstock and the desire to convert lower value products into higher value goods. Activities focused on high value chemical projects are very high on the Gulf Coast, in the Middle East and in Asia. Competitive pressures are particularly high in the Middle East, the site for many of the largest E&C opportunities. Countries there are increasingly eager to access the higher margins available downstream in value-added petrochemical markets. Chemical capital spending in the region (including Africa) has consequently doubled since 2005. In 2008, it totaled US$18.8 bln, barely dipped to US$18.7 bln during 2009, and rebounded to US$20.6 bln in 2010. The Al Jubail petrochemical complex, a joint venture between Saudi Aramco and Dow Chemical, illustrates the trend. The US$20 bln project will have a world-scale cracker and 25 other units for manufacturing isocyanates, polyether polyols, propylene oxide (PO), propylene glycol, elastomers, linear low-density polyethylene (LLDPE), low-density polyethylene (LDPE), glycol ethers, amines and other products. Projects such as Al Jubail contribute to the continuing shift of chemical production away from the US, Europe and Japan. Projects for commodity chemicals continue to move to developing markets, where capital and production costs are lower. Asia, particularly China, has been the primary beneficiary. Chemical capital spending in the region (excluding Japan) has risen every year in the past decade - even during the recession - from US$249 bln in 2008 to US$291 bln in 2009, and US$338 bln in 2010 - more than three quarters of the global total of US$464 bln. The chemicals market in China is growing at a phenomenal rate. Though Vietnam is seen as a future market, it may never achieve the growth rate of China. The market is expected to have good growth for years ahead due to the sheer size and scope of China, with the continued rising middle class population.

Chemical companies are still making capital investments in the developed economies. Much of the work is focused on upgrading facilities, debottlenecking, meeting regulatory requirements and increasing efficiency. However, new opportunities are emerging in green chemistry and sustainability. Alteast two to four domestic ethylene plants are expected to be active in the next 24 months in the United States for major expansions or grassroots plants. However, uncertainty is suppressing growth, and decision-making has become more protracted worldwide. Delays continue by way of clients awarding contracts or delay releasing the next stages of work. Also adding to delays are client concerns about the macro environment, specifically political and economic uncertainties. The large scale projects have associated problems with getting board approvals multiple times. Chemical capital spending continues to move forward, as client determination to proceed with prospects shows momentum, especially with projects that have been dormant and that are now starting to resurface.
[Source: ICB]