Market Outlook 2011: Clear Skies? Wait Until 2012

But probably the most encouraging news to those in attendance is that almost every speaker emphasized they see no double-dip recession in sight.

HIGHLIGHTS AND COMMON THEMES

Stimulus packages have helped: Beyond the water/wastewater industry, several other U.S. industries have been helped by federal stimulus, especially those that have to do with building infrastructure. Speakers also pointed out, however, that stimulus packages in other countries have benefited North American industrial manufacturers by creating new markets.
Take advantage of low interest rates: Several presenters pointed out that the nation is not likely to see interest rates as low as they were at the time of the fall 2010 workshop anytime soon. While credit is still tight, it’s about to open up, speakers said, so companies should look for ways to take advantage of that situation.
Global warming concerns will affect most industries: Almost every speaker this year talked about greenhouse gas and other environmental concerns as well as the possibility of new legislation both at the state and federal levels. From the fact the nuclear industry may benefit because coal is getting a bad reputation, to the effects the Deepwater Horizon disaster will have on drilling, speakers shared new possibilities about what might happen.
China has become a better consumer; Brazil a good place to do business: Although it’s still tough to enter the Chinese business world, the country has become a better place to sell for some industries, such as the pulp and paper market, where production of paper goods cannot keep up with Chinese demand. Meanwhile, several speakers talked about developments occurring now in Brazil, including recent discoveries of massive oil deposits in deep-sea, “pre-salt” layers of the earth. Attendees were encouraged to look into finding partners in this business-friendly country.

THE DOMESTIC MARKET IS RECOVERING… SLOWLY

Last year, when meeting attendees heard Alan Beaulieu, economist, Institute for Trend Research, speak, “the picture was disturbingly gloomy. But I told you there would be a recovery,” and that recovery has occurred, Beaulieu said. Also: “For those worried about a double-dip recession, relax and take it down a couple notches. Because while there is uncertainty everywhere, there will be no double-dip recession and recovery will be here in 2012,” he said.

However, before meeting attendees could get fully comfortable with that good news, Beaulieu went on to say that the biggest change over last year’s forecast is that “it’s not going to be much more fun” in 2011 than 2010—2011’s move upwards will be milder than originally thought.

The nation’s unemployment rate (which was 9.5% at the time of the outlook workshop) has acted as he predicted last year, which was to stay high, and it may stay that way for awhile, he said.

“You have to look at how many jobs are created in a month. When we get to 200,000 to 300,000 jobs a month, that’s a real recovery,” but at that rate “it will take us three years to create all the jobs we lost, and there is no government initiative out there to help,” he pointed out.

Still, there are many signs that are more positive, Beaulieu said, starting with the lending situation. As far as commercial lending, which is still tight, the competition will begin to heat up soon, and when that happens, standards go down and credit loosens, which “is grease for the economic engine and good things begin to happen.” In the consumer realm, this is already occurring, he pointed out, and commercial is usually right behind.

Regarding inflation, Beaulieu originally predicted it would begin in 2010, but now says “it will hold off until the second half of 2011, but it’s coming.”

Interest rates are at an all-time low, though Beaulieu predicted the trough would be reached soon and then rates will creep upwards until the 2030s, when they may be as high as the Carter years. He advised attendees to “borrow. Invest in anything that will drive your efficiencies and do it in the next six months.”

Meanwhile, manufacturing “is coming back with a vengeance,” he said, pointing to the U.S.’s industrial production figures as well as GDP (gross domestic product) figures that measure rates of change going forward. Both are trending upwards, and demographics for long-term success are favorable in the U.S., he said. For example, the United Nations predicts this nation’s population will grow to 400 million (from 300 million today) by 2050, which compares favorably to places like China, with its birth restrictions and Russia, where the average age is increasing.

Still, Beaulieu had one piece of news that had the audience groaning—he looked down the road 20 years and announced that another great depression is coming—brought on by many factors such as high interest rates, inflation and a government that owes too much. “This won’t be our problem [referring to those at the workshop because of their age], but it will be the problem of the generation behind us,” he said. (Editor’s note: Read our interview with Alan Beaulieu in “Conversation with…” on page 52 of this issue.)

However, he ended by saying that proactive companies, those that look at leading indicators and how their particular companies fit into the current economic picture, will win out over the competition.

“Don’t wait for anyone to make your future. It is up to us to what happens to our world,” he said.

FORECAST: The stock market will return to a bull market going into 2011 and the economy will continue to expand for another six months, but this will not be an easy market in which to make money. Equity will offer a better return than counting on inflation (rising prices). Once inflation hits, lack of spending power may become a problem.

INDUSTRIAL SECTOR OUTPERFORMS OTHERS

Wall Street expert Michael Halloran, vice president for Robert W. Baird and Company, agreed with other speakers that no double-dip recession is in sight. He also said that overall, the U.S. recession ended in the third quarter of 2009 and the nation is now in a recovery and acceleration mode, though he said indicators “paint a mixed picture” of how soon that recovery will arrive.

“We are headed in the right direction,” but will see only moderate growth rates heading into early 2011, then a normalized recovery rate from that point on, he predicted.

On Wall Street, industrial trends during this economic slowdown have outperformed most other end markets, particularly the consumer markets, Halloran pointed out. U.S. industrial production reached a trough of -13.3% in June 2009, turned positive in March of 2010 and is now accelerating. Global industrial production reached its trough in about March of 2009 and turned positive in January of 2010.

One of the factors holding back a quicker recovery is that credit is still tight because lenders’ risk aversion remains, but that picture is also changing, Halloran said. Banks are now loosening loan standards, which should stimulate investment and the release of major projects going forward, Halloran predicted.

Halloran had this to say about the various end markets:

Oil and gas: “We are seeing a recovery, but it’s very early stage,” with the most money right now going into repair and recovery efforts, Halloran said. Rig counts are at healthy numbers, up nearly 40% globally from where they troughed in 2009 and up 80% in North America from a year ago. But “a lot of that is old rigs that are coming back online.” New project activity is not yet back in full force. Most of the new projects going forth will be in horizontal and directional rigs, but digging is harder on these wells so the process will be more costly. “As these sites become more difficult to access, we will need more cap ex [capital expenditure] to get the same amount of production,” he pointed out.

The downstream market has not seen quite as strong a recovery, Halloran said. Refinery capacity utilization rose slightly in early 2010 after reaching its lowest levels since the 1980s in 2009. Latin and Central America and China will lead in growth rates in this area. In the U.S., spending has accelerated, but utilization levels have fallen and crack spreads (the difference between the price of crude oil and the products that are extracted) are recovering from a collapse, so spending in 2011 will be flat to downward.

Chemical processing: For the chemical processing field, “2010 played out ahead of our expectations, but those expectations were muted to begin with,” Halloran said. Global capital expenditures were higher than forecasts after falling about 4% in 2009 primarily because capacity utilization deteriorated. In the U.S., for example, plant capacity fell to about 71% in that year, the lowest it’s been since 2001. Future production expansions will primarily occur in developing markets, particularly China, India and the Middle East, he said.

In North America, growth going forward will come not from new building, but from maintenance, repair and overhaul (MRO) projects. North American chemical MRO projects increased by 14% in 2009, but spending in that area increased just 5% because the size of projects decreased. However, maintenance turnaround projects should increase 27% during 2010 and spending will increase 43%, Halloran said.

Power: The power sector lags behind other end user industries when it comes to recovery, Halloran said. However, in the long term, the market is driven by the realities of increasing demand throughout the world. He predicted world energy consumption will grow 49% from 2007 to 2035 because of the needs of developing nations, for example.

Developed regions, in the meantime, will focus on replacing infrastructure, modernization of facilities and changing needs brought on by regulatory demands. For example, the share of electricity generated globally by renewables is expected to increase from about 18% in 2007 to 23% by 2035. Power maintenance projects will see a growth of 8% in numbers and 20% in spending for 2010, Halloran said.

Still, “we are going to need all kinds of energy sources—including coal and oil—to meet our demands.”

Water/Wastewater: One reality about the water/wastewater market is that “it has never played out as predicted,” Halloran said, and the current situation is no different. Yet the drivers are very clear, such as the increasing demands population growth and the aging infrastructure will bring North America and developed regions of the world. For example, the Environmental Protection Agency estimated in 2004 that the U.S. would need almost $300 billion over the next 20 years to replace existing systems and construct new ones to meet demands, Halloran pointed out. Such clear-cut drivers mean a growth in the overall water/wastewater market of about 6% to 8% yearly in the long term.

Growth deteriorated in North America and Europe (which comprise 69% of demand) through mid-2009 mostly due to lower state and local tax receipts, as well as tight credit and uncertainty over what the stimulus package would bring, he pointed out. Still, in the U.S., new opportunity for funding exists beyond the stimulus package in the form of several bills now before Congress on water quality and state revolving water funds.

FORECAST: Global fixed investment growth in process equipment and controls will accelerate to more than plus 6% by the fourth quarter of 2011. In the upstream oil & gas industry, capital spending globally should grow at a rate of about 5% to 7% because of infrastructure investments in emerging regions of the world, which have not caught up to demand. Demand in mature regions will decline modestly through 2014 but will be offset by the growth in developing regions. Global downstream oil and gas capital expenditures will increase 8% in 2010, 2011 and 2012. In chemical processing, global capital expenditures will grow 7% in 2010 and 2011 driven primarily by activity in China and Latin and Central America. For power, investments in electricity infrastructure around the world will exceed $13 trillion by 2030. The global water/wastewater market will grow 6% to 8% going forward driven by population growth, rising living standards, industrialization and disrepair of existing systems.

WATER/WASTEWATER: NOT TOO BAD… COMPARATIVELY

Up until 2009, the water/wastewater industry was “such an easy game to play,” according to Water Industry Consultant Tom Decker, who quoted Beatles songs throughout his presentation.

“Market growth was double digit in 2005 and 2006, it dropped off in 2007 and was slightly lower in 2008, but it was still experiencing growth,” especially in comparison to what many other industries were doing, he said.

However, in 2009, the overall synopsis of the industry was “flat as a pancake,” Decker said. Some areas, such as equipment sales and water project construction, were a bit up. And other areas, such as engineering, were a bit down, while a few (contracting and utilities) were even.

The situation might have been worse if not for the stimulus packages, which got the ball rolling on some clean water projects in the U.S., and the impact from the stimulus promises to have a larger impact starting in 2010 and going into 2011 as these projects continue and grow, Decker pointed out.

Also, “the good news I have is that this downturn is different than those in previous recessions,” Decker said.

Besides the stimulus packages, the current situation also includes “stunningly low” interest rates, attractive new financing vehicles, and the political push and confidence within the industry that water and sewer rates will continue to move upward, Decker said. What that means is that instead of the usual lag period (downward movement) that recessions bring to water/wastewater, “we’ll see a continuation of the flat spot for while, but then we’ll kick back upwards sometime next year.” In other words “I feel fine,” he said, quoting another Beatles hit.

As far as long term, the industry outlook is much rosier, driven forward by:

Population growth: The world’s population is expected to grow to about 9 to 10 billion by 2050 (it reached 1 billion in 1800 and was about 6 billion in 2000. By 2050, about 70% of people will live in cities, which is where water/wastewater is needed, Decker said.
Aging infrastructures: Decker pointed out that a pipe breaks every two minutes in the U.S. and that 60% of all utility investment now occurs in the areas of rehabilitation and repair.
Regulations and enforcement: Today’s Environmental Protection Agency is “very active,” especially in the area of effluent requirements, and consent orders on water quality issues keep increasing. This will result in many new projects such as a $2.5 billion Kansas City combined sewer overflow project that also puts disinfection into water reintroduced into that city’s major river.
Water availability: Many areas in the world now face severe water shortages—over a billion of the world’s people don’t have access to drinking water and 40% of the population will be in “extreme water stress” by 2050, Decker said. China is using up water faster than it can replenish its supplies, and Australia is looking at major reuse and desalination projects, Decker pointed out. In the U.S., many states are now facing the fact they don’t have enough water and buying up water rights, looking at piping in water from very long distances or studying drastic measures such as what’s happening in Tampa, which is considering reuse of water on a major scale.
Power generation: Water plays a major role in the drive for energy by serving as coolant for many energy sources and playing a vital role in new sources of fuel. For example, to produce one gallon of ethanol requires four gallons of water, Decker said. Water also is pumped into rock formations to extract natural gas and oil in the fracturing process for shale drilling.

All of these factors mean that: “Getting the water we have, to where it is needed and being smarter about how we manage, use and reuse it will be a big driver in the marketplace for many years to come,” Decker concluded.

FORECAST: Decker is somewhat optimistic the industry will see upward growth in the second half of 2010 and that equipment project numbers will rise going into 2011. Utility revenues will be flat or a bit up in 2010. The industry will rebound in 2011.

ENERGY CHALLENGES ARE INTERMINGLED

There are realities about the world’s energy demands and supply that need a closer look, according to Branko Terzic, PhD, regulatory policy leader, Energy & Resources, Deloitte Services LP. Terzic encouraged outlook attendees to use a chart he showed “as a truth source.”

Two important points the chart (shown on page 22) illustrates are:

Electric power is a consumer of fuel, a delivery system not a fuel itself, as many people see it, so producing it plays into the fossil fuel discussion. Terzic went on to explain that almost 70% of electricity is still produced from fossil fuel—almost half comes from coal, 17% from natural gas, 1% from petroleum. Just 9% comes from renewable sources today, and about 21% comes from nuclear power. Natural gas, while one of those fossil fuels, produces half the amount of carbon emissions as coal: “So if you want to reduce CO2, you need to switch to natural gas or use nuclear,” Terzic said.
“If you want to switch off foreign petroleum sources, you must find a substitute for motor fuel,” Terzic said. Transportation takes up 95% of the world’s petroleum today, while natural gas accounts for just 2% of transportation needs and ethanol provides 3%. At the same time, well over 60% of petroleum used in the U.S. comes from foreign countries, he explains, and even “if we convert our autos to electric, have we avoided CO2 emissions? Not if we burn coal to generate that electricity,” he pointed out.

But Terzic also referenced other global realities about energy that show how much potential there is in the power industry and what will affect the industry going forward.

First of all, there is the sheer size of demand.

“Half of the world’s population burns woods, twigs and dung for all their energy needs—the No. 1 health problem among them is breathing burning fuel,” Terzic pointed out. As the world becomes more developed, the possibilities for usage are enormous. Though the last few years actually had negative growth in use in developed areas because of the economy, the next few decades will see tremendous increases, he said. The Energy Information Agency, for example, predicts a 30% growth in electricity by the year 2035.

Second is the reality of global warming. Two-thirds of the world’s climate scientists believe the world’s people are causing global warming, and the United Nations has said the probability of that being true stands at about 85%. “In the military, when there is more than a 50% probability, we plan for it,” Terzic said. In this country, Congress hasn’t yet passed a carbon rule, but legislation is on its way. CO2 wasn’t considered a pollutant when the Clean Air Act was passed (originally in 1970, with major changes later that decade and in 1990), but it’s now been proven to be harmful to health, so rulemaking will move forward and legal issues are likely to be debated for many years going forward, he said. Almost a quarter of the nation’s states already have laws on renewable energy, for example, and in places such as England, national laws are in effect.

All these realities are changing constantly and interconnected in complex ways, Terzic observed. For example, if we increase the use of electric vehicles, what effect will that have on electricity demands? Although some experts have said they can be plugged in during non-peak evening hours, “how many people fill their gas tanks when they are at half?” Terzic asked. People will plug in while their cars are idle at work. Also, while carbon sequestration units for taking carbon out of industrial plants have been touted as a way to clean up industries, each unit is about the same size as an electric plant (which could be good news for valve manufacturers, Terzic said) and requires 100 square miles of underground as a filter.

In the future, the world will have a lot more data on which to base its many decisions. For now, “all we know for sure is that society will advance, populations will increase, and you [those who produce valves and other pieces of the puzzle] will all be in business,” he concluded.

FORECAST: In the U.S., electricity consumption, after decreasing by about 7% in 2008 and 4% in 2009, will grow 4% in 2010 and another 0.4% in 2011. The U.S. will need $1.5 trillion in electricity between 2010 and 2030.

NUCLEAR INDUSTRY SHINES PRETTY BRIGHT

The nuclear power industry has some powerful drivers behind it right now including a growing worldwide demand for energy, the fact that nuclear is a low-cost baseload for power, and the call for reduction in greenhouse gas emissions (GHG), said Keith Porter, director of new construction, nuclear, for Curtiss-Wright Flow Control. At the same time, the industry has some powerful enablers, including federal laws and policy that encourage new growth here in the U.S. and a strong safety and operating performance record.

As far as need, the Nuclear Energy Institute states that demands for electricity worldwide will be almost double what they were in 2010 by 2030, rising from just over 19,000 billion kilowatts/hour (KWh) to over 30,000 billion KWh during that time, Porter said.

At the same time, the costs for producing electricity via gas and petroleum are high (6.75 cents per KWh and 9.63 cents per KWh respectively) in comparison to the costs for using nuclear as a source (1.72 cents per KWh); and nuclear is now cheaper than coal (which costs 2.37 cents per KWh), Porter noted.

Meanwhile, the world’s concern over GHG emissions grows stronger and coal is way behind in that game: it produces 1,041 tons of CO2 per gigawatt-hour compared to 622 tons for natural gas and 17 tons for nuclear, he continued. At the same time, the nuclear industry has one of the tightest security standards of any American industry—spending on security has increased by $1.5 billion since September 2001, Porter said. It also has a strong operating performance record of about 92% capacity, according to the Institute of Nuclear Power Operations.

The government has realized the potential of nuclear and put into place significant rules and procedural changes that began with the U.S. Energy Policy Act of 2005’s incentives and reduced time frames and has continued with the Department of Energy’s NP2010 program, Porter said. That last program puts into place incentives such as cost sharing on site identification between government/industry, incentives to bring new technologies to market, and support for a new generation of nuclear plant, Porter said.

He outlined the many new plants set to be built or have their licenses renewed in the U.S. and said this represents much opportunity for valve manufacturers, as well as industry in general since the new plants will help the employment picture.

“Nuclear plants are comprised of hundreds of components and subcomponents, whose construction will require a deep and diverse supplier base,” he said. “It requires a near-term commitment of resources, but has very long-term deliverables,” he concluded. His company, for example, has already received orders that won’t ship until 2012 to 2014.

FORECAST: The first eight nuclear plants slated to be completed in the U.S. will require 4,000 to 24,000 valves.

REFINING SPENDING UNDER NEW PRESSURES

The refining industry faces a number of new challenges brought on by recent events, including the weakened economy, the Deepwater Horizon disaster and the growth of national oil companies, said Mark Peters, group publisher and vice president of Pennwell.

Overall, the world has seen “demand destruction” of the oil industry because of the economy. “When people don’t have jobs, they don’t drive to those jobs,” he explained.

But overall, the International Energy Agency has projected a slight increase for the year (about 1% at the time of the workshop but IEA has since revised that slightly upwards to over 2%). Globally, demand will increase by 30% by 2025, but the industrialized world will show only modest growth while developing countries will make up the bulk.

One development that is “changing the marketplace and the refining industry,” is the growth of national oil companies (NOCs, which are companies controlled by governments) and the tendency toward resource nationalism (protection of resources) in many of those countries, Peters said. NOCs now control and provide limited access to 77% of the world’s reserves, he pointed out, and some of those countries (such as Russia, Venezuela, Iran and China) are using energy as a diplomatic tool. But even in Mexico, that country’s state-owned oil company Pemex is forbidden by the country’s constitution to form partnerships with any companies that own oil resources in Mexican territory, Peters pointed out. Meanwhile, the Arabian states have a goal of developing their own gulf area into another Gulf of Mexico with its accompanying refining power.

The Deepwater Horizon disaster and the uncertainty about what will happen federally also have potential for changing the face of where events occur, Peters said. Personnel already are being shifted from the U.S. Gulf States by service and supply companies, and operating companies are shifting focus from the deepwater frontiers to other places, he pointed out.

One of the great game changers for international oil companies may be unconventional sources such as the heavy oil found in the sands of Canada, Peters continued. However, heavy oil extraction is not carbon friendly, and “the thing to remember about all these unconventional sources is that they are a lot more expensive.”

As far as building new refineries, Peters said there will be significant declines in North America and Europe as demand destruction continues, and what will likely be built will be for new fuels such as ethanol, which will be about 20% of the marketplace by the year 2020 (right now it’s at about 12%). Still, ethanol plants do not have the massive amounts of steel used in most of today’s refineries, and requirements for temperature and pressure are not the same, he told the audience.

He also said that new energy legislation in North America, driven by the Deepwater Horizon disaster, may decrease levels of spending on capital here, and the push for biofuels may affect the world’s refinery spending. However: “As soon as a large oil discovery is made, that [spending on biofuel] becomes not so important,” Peters said. Most of the spending going forward will probably be for maintenance and retrofits or new technologies here in North America, though new refining facilities in developing areas such as China, India and the Middle East will remain strong.

FORECAST: Refinery capital expenditures on this side of the ocean will be down about 10% from last year. Demand for oil will rise to 120.8 million barrels per day (bpd) in 2025 from about 91.5 million bpd in 2010, but most of that will come from developing countries.

OIL GOES UP, GAS GOES DOWN

The global oil and gas market is growing fairly slowly at about 1.5% to 2% per year and all of the growth in world oil consumption is taking place in emerging markets, according to John Spears, president of Spears and Associates.

The U.S. petroleum industry, meanwhile, has adapted to the current economic cycle by changing the way it goes about drilling wells, Spears added. Rigs that drill horizontally have doubled since the second quarter of 2009 while directional drilling rigs (those that go down for a while, and then drill at a slant) have grown 10% and standard vertical wells have grown by about 25%, he said.

However, since horizontal wells are up to 20 times more efficient, that means fewer wells and fewer valves, Spears added.

As far as what’s happening overall in upstream oil activities, “we were way too cautious in our estimates” of what would happen in 2010, including how many rigs would be drilled. This is partly because the rise in prices was almost twice as high as what many expected, he said, making it attractive to do business in oil. Prices rose to the more than $80 per barrel in 2010 and had just begun falling as of the workshop date. Since oil drilling is profitable at about $50 per barrel that reality contributed to oil activity rising 40% from 2009 to 2010, and it will grow another 9% in 2011, Spears said.

Gas, on the other hand, with its unpredictable and fluctuating prices ($4.5 to $5 per barrel as of the outlook date, but falling to $3 a year ago after reaching a peak in 2008 of $10), will see a decrease in drilling of 20% from mid 2010 to the end of 2011, Spears said.

This disparity “is a challenge for many companies because what you see emerging is a profitable oil business but a less profitable gas market,” he said. One event that has occurred because of this disparity is that drilling itself has become very regional as some areas seek oil while others concentrate on gas, he said.

Along with the increased usage of horizontal drilling, the horsepower that will be used for fracturing (breaking a formation to get to the gas or oil) will also rise, probably by about 28% this year, while demand for these services will rise 10% to 15% next year, Spears said. There will also be some capital expenditures for the new advanced technology rigs that are required for shale plate drilling, he said. However, with overall new rig construction activity falling about 60% in the U.S. this year, overall capital expenditures upstream will just hold steady.

Capital expenditures for midstream, however, are dependent on a set of variables that include changes in gas production capacity, the oil/gas relationship, drilling activity, gas composition and the petrochemical markets, Spears said. Gas liquids that result from midstream operations are selling at about $35 to $40 per barrel (as of the outlook workshop date) so this area may be an important source of revenue for gas producers, Spears said. Also, because of the disparity between oil and gas prices, the U.S. has become a low-cost source for petrochemical feedstock.

FORECAST: Oil and gas prices will remain steady through the end of 2011. Gas drilling activity will fall 20% but oil drilling activity will grow 50% by 2011. U.S. natural gas demand will increase 0.1% for 2010, though industrial gas use will be up 1.5%. The number of active oil wells (up 2%) and gas wells (up less than 1%) will grow modestly in the coming year. Natural gas liquids production will grow 3% in 2011.

PETROCHEMICAL INDUSTRY FACING OVERSUPPLY ISSUES

The demand crisis that the petrochemical industry faced in 2008 and 2009 is pretty much over; however, the industry is now facing a new challenge: over-supply, according to Mark Eramo, executive vice president of CMAI.

“The drivers in the petrochemical industry are what’s happening economically on the consumer end and what’s happening on the upstream energy side, not about what’s flowing through pipelines currently,” he explained. Global markets largely react to local conditions, and in many of those markets, capacities were increasing at the same time demand decreased. While this has had limited impact so far in North America, “oversupply is just starting to arrive this year,” Eramo said.

The situation is exacerbated by cheap labor in Asia, particularly in China, which “has become the manufacturing floor for the rest of the world,” Eramo said. Eventually, the situation will begin to right itself, but “we need a couple more years to absorb excess capacity,” so pricing power will not return until about 2013, Eramo predicted.

Worldwide economics are clearly changing and the chemical markets are changing with it, Eramo pointed out. Stimulus packages have been good for many countries, especially China, and this has been good for North American countries that market to those economies.

However, overall recovery for the global petrochemical industry has got to start with downstream demands, which will not occur until consumer confidence returns, he pointed out. Meanwhile, older capacity will continue to be closed, and businesses will be consolidated.

China is advancing quickly to become one of the largest economies (by late this decade), so much of the world’s development plans will be centered there, Eramo said. One area that saw astounding growth in China this year, for example, is the light vehicle market. The market is a large petrochemical consumer market because of tires, gaskets, belts and other interior and exterior components. More cars were sold in 2009 in China than in the U.S., he noted.

Globally, the demand for basic chemicals—though it fell by 7.1% in 2008—is now back on track and has actually experienced cumulative growth that will be above the 500-million-metric-tons mark by 2015 (from about 300 to 325 million before it began declining). In the U.S., a strong period of growth in the 1990s was followed by a flight of manufacturers in the early 2000s. “And when manufacturing leaves, so does petrochemicals,” Eramo said. More recently, personal goods consumption has fallen