Chemical Execs Eye Fiscal Cliff

Many chemical industry executives say that the US fiscal cliff and general economic uncertainty are driving increased focus on operational excellence and a strong balance sheet. Despite economic challenges, executives say the chemicals industry will continue to see strong growth in the US as a result of shale gas developments, according to the results of a poll conducted by KPMG LLP, the US audit, tax and advisory services firm.

According to the KPMG poll, 41% of industry business leaders indicate that in the current macro-economic environment, their biggest concern is the US fiscal cliff. An additional 20% point to a slowdown in emerging markets and 19% say Eurozone debt issues.

“The threat of the fiscal cliff is an obvious concern, leading many companies to focus on improving business effectiveness and maintaining a strong balance sheet,” said Mike Shannon, global chairman of KPMG’s Chemicals and Performance Technologies practice. “Companies that are successful in these endeavors can gain a competitive advantage and be better positioned to capitalize if the economic tide turns.”

According to nearly one-third of executives surveyed, shale gas developments in the US will drive significant growth in petrochemical and downstream manufacturing. Additionally, 37% say US shale exports will force increased competition leading to price and margin erosion in Asia.

“Regardless of concerns about the fiscal cliff, US companies should remain focused on long-term investment strategies,” said Paul Harnick, chief operating officer of KPMG’s Global Chemicals and Performance Technologies practice. “To support planned investments in capacity, companies must invest in broadening their supply chain capabilities to ensure that exports get to the high growth markets. These markets will be critical to the growth of the sector, especially in the US where exports of product derived from shale gas are expected to become a critical growth platform.”

According to the poll, however, 28% of chemical industry business leaders say their companies do not currently have an emerging markets growth strategy in place.

“This response is startling because we see emerging markets as a critical growth factor for any large chemical company over the next decade, especially as demand in those regions will only increase,” Harnick said.