Challenges Ahead for the Chemical Industry and Its Suppliers
The chemical industry is not building new plants or expanding existing plants in the United States anymore. There are and will continue to be exceptions, but they are few because overall, the industry has stopped expanding production capacity in the United States. The cost to build a new plant overseas is a fraction of the cost to build a plant in the United States. Once a plant has been built, the cost to operate and maintain a plant in overseas countries is also a fraction of the same costs in the United States. It is widely known that labor rates overseas are a fraction of U.S. labor rates. It does not appear that neighborhood watch and special interest groups have taken to protecting affluent lifestyles from chemical plants in their backyards in other parts of the world as they have here in the United States. Further, agencies comparable to OSHA and the EPA seem non-existent overseas (with the exception of Europe), and the resulting cost of compliance also seems to be non-existent. To make matters worse, the cost of a major raw material input to the U.S. chemical industry - natural gas - has risen from $2-3/BTU to $5-6/BTU and shows no signs of receding anywhere close to the $2/BTU level in the foreseeable future. Because of all these issues, many other manufacturing industries have also begun relocating the production facilities to overseas countries. The chemical companies have, both rightly and conveniently, taken some opportunity to use these actions of other industries to justify locating new plants overseas, to be close to their customers.
There is still a large and vibrant infrastructure of chemical plants, across many segments from basic to specialty and fine chemicals, operating in the United States. The challenges facing these plants are the most demanding any of us are likely to see in our lifetime. Most executives at these companies are addressing the economic forces by radically reducing the operating costs of their plants, mostly due to the sheer desperation caused by the disparity in their operating costs versus the overseas plants. Capital expenditures have been slashed and/or eliminated. Engineering and maintenance personnel have been reduced by multiples. New purchasing personnel are also demanding ever-increasing concessions from equipment vendors.