A sharper focus on de-carbonisation strategies
The US chemicals industry currently faces a more difficult domestic market environment, due to lower economic growth, continued high inflation and rising interest rates. Higher oil prices have put pressure on margins, in particular in the basic chemicals segment. However, many businesses could increase their sales prices in order to offset higher input costs. After the outbreak of the war in Ukraine, the US fertilizer segment has seen increased demand, leading to higher sales prices and margins.
The US chemicals sector currently outperforms most other regions. In particular European chemical businesses struggle with record high gas prices since Russia´s invasion in Ukraine. In contrast, US producers can rely on relatively cheaper domestic shale gas. This competitive advantage supports exports, expected to grow by 7% in 2022, and has led to a rising trade surplus (forecast USD 26 billion in 2022).
Payment duration in the US chemicals sector is about 80 days on average. The amount of non-payments and insolvencies has been low in 2021 and 2022, and we expect no deterioration in 2023. Mergers and acquisitions across the industry have led to increased levels of debt, but in most cases with long maturity. The sector has good access to capital markets and bank loans in order to fund operations.
We currently assess the credit risk situation of the US chemicals industry as “Fair”, given the satisfying profit margin situation, low number of business failures and good access to external financing. Future opportunities for the industry include increasing exports to emerging markets (Asia-Pacific, Africa, Middle East) and rising demand for alternative fuels. Challenges for chemicals businesses are the smooth integration of acquisitions in order to reach synergies, as well as the need to onboard new revenue sources.
Another major task ahead comes with the need to reduce greenhouse gas emissions in order to meet tighter environmental requirements. In 2023 and beyond the US chemicals industry is likely to have a sharper focus on de-carbonization strategies, in order to meet increasing demand from shareholders and comply with regulatory changes. At the same time, government schemes to boost emission reduction will increase demand for chemicals used in insulation materials, solar panels etc.