The American Chemistry Council says 2002 will be better than 2001 for the U.S. chemical industry. But even if the projected results prove accurate, the industry's fortunes will still fall below where they were in 2000.

Every fall, ACC surveys its members to get their perspective on the coming year. This year, the association received completed surveys from 95 of its 165 member companies. Those companies represent $186.6 billion in sales.

However, while the number of participating life sciences companies was sufficient to allow reporting of their responses separately, ACC warns that because of their low participation rate it cannot be assumed that those responses are statistically valid.

The survey indicates that total chemical industry sales will increase 2.1% this year over last. In ACC's survey for 2001, only 3% of the respondents expected lower sales; this year, they are not so optimistic, with 28% expecting declining sales. Basic chemical companies are the least optimistic: Responses project an average sales increase of just 1.4%, against improvements of 3.8% for specialty chemical companies and 7.4% for life sciences firms.

Exports will not help the basic chemical sector very much. Respondents there expect only an average 1.3% rise in export revenues, compared with 3.0% for specialty chemicals and 13.4% for life sciences.

But with a cyclical recovery expected in the second half of 2002, the highly leveraged basic chemical sector should rebound from a very low base. That earnings rebound will be helped as basic chemical feedstock costs fall a further 9.5% and fuel and power unit costs decline 16.7%.

So while basic chemicals will lag in revenue growth, they will lead the way in earnings growth. The total survey projects net operating income to increase 42.5% this year over last. The basic chemical sector indicates a 56.0% rise in income, while specialty chemicals predicts a 10.9% increase. Life sciences companies, however, expect to contract an average 0.5%.

In specialty chemicals, where prices historically have been set by "value in use" and not by cost, earnings are not usually impacted as much by demand pressures. This has changed recently as demand slowed for companies dealing primarily with industrial markets. In addition, supply-chain management practices have eroded value in use, and overcapacity and rising costs for chemical intermediates are a problem in some specialty segments.

Lower employment also provides a boost to earnings, and chemical companies evidently are not done cutting. The survey indicates that employment will decline another 1.5% this year, with basic chemicals down 1.6%, specialties down 1.1%, and life sciences up a minuscule 0.3%.

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