Four factors have the potential to shape the US chemicals market under a Joe Biden administration, claims industry analyst Wood Mackenzie: feedstock costs (oil and NGL prices), the energy transition, sustainability and economic recovery, trade policy, and the pace of policy change.
“US foreign policy has impacted oil markets over the last four years by implementing sanctions on Iran and pressuring OPEC and its partners to manage output,” said Nathan Shaffer, Wood Mackenzie’s vice president of chemicals. “The Biden administration has signalled that the US will return to the international nuclear deal, provided Iran complies with the original terms under the Joint Comprehensive Plan of Action.
“A sizeable gap remains, however rapprochement with Iran could bring extra oil supply to the market. This would put downward pressure on oil prices without any adjustment from OPEC or other producers.
“The US upstream oil and gas sector is already facing a crisis due to the coronavirus pandemic and it is unlikely to see strong support from a Biden administration. The Biden plan for climate change includes a ban on new leases for drilling on federal lands and waters, as well as tougher regulations on methane emissions. The consequence could be lower availability of NGLs, like ethane for petrochemical feedstock, with an upside risk for prices.”
An immediate concern, warned Shaffer, is economic recovery, which could support demand for chemicals and polymers. Certain polymer demand segments have remained resilient, despite the economic downturn, due to strength in packaging and medical sector applications. Additional stimulus and an economic rebound would clearly help to boost demand, but higher levels of unemployment, debt, and taxes are expected to be a drag on future growth.
When it comes to trade policy, the Biden administration is expected to maintain a tough stance on trade with China given bipartisan support for the protection of US manufacturing jobs. The approach is expected to differ from that of the Trump administration by enlisting international allies.
“That may be easier said than done, as many traditional US allies, such as Japan and the EU, have been affected by US tariffs under Trump,” admitted Shaffer. “Rebuilding those relationships will be key, as will timing. The US President has broad authority over trade policy, so changes could be implemented relatively quickly without Congressional support.”
Shaffer added that, in recent years, export destinations for US chemicals and polymers have shifted in response to trade disputes. That seems unlikely to change over the short term, with little movement in US policy in relation to China. China is expected to remain undeterred and continue forward with its investment plans in the chemicals sector, with the goal of achieving self-sufficiency across the chemicals value chain.
“The Biden administration, like all its predecessors, will come into office full of campaign promises and lofty goals,” added Shaffer.
