Demographic changes hit US chlorine and caustic soda demand

Its not all fun being part of the US millennial generation (those born between 1980 – 2000).  They number 80 million, about the same as the BabyBoomer generation.  But as the New York Times notes:

  • The millennial generation has less wealth and more debt than other generations did at the same age, thanks to student loans and the lingering effects of the deep recession
  • “Though millennials are hailed as the first generation of “digital natives,” the over-40 (and 50 and 60) sets have become pretty adept when it comes to smartphones and other devices”

In addition, the millennials are much more racially mixed than the older generation as Census Bureau data shows for the 15-34 age group.

    • Only 58% identified themselves as White, compared to 78% of the Boomers generation at this age
    • 21% were Hispanics (versus 7% of the Boomer generation); 6% were Asian (2% of the Boomer generation); whilst the proportion of Blacks was stable at 14% in both generations
    • Immigration is a key reason for the increase in Hispanic numbers:  15% of millennials aged 20 – 34 were born in a foreign country, double the figure for the Boomer generation

This increase in racial diversity matters in terms of employment, and hence spending power. Bureau of Labor Statistics data shows that in Q1, only 3% of Asians and 5% of Whites were unemployed in the 25 – 34 age group, compared to 7% of Hispanics and 12% of Blacks.  Equally important is that median earnings for Blacks are around 20% less than for Whites/Asians, and 25% less for Hispanics.

Importantly also, in terms of potential housing demand, nearly a third of all 18-34 year olds were still living with parents in 2014, up from just over a quarter in mid-2000.

These changes matter in terms of demand for basic chemical products, as the chart above of chlorine and caustic soda production from the American Chemistry Council (ACC) confirms.

The problem is that the higher-spending Boomer generation has been followed by lower-spending Millennials.

Volumes for both chlorine and caustic soda have thus drifted steadily lower over the past 20 years.  Current volumes are actually lower than the lowest levels seen before 2008.  And chlorine demand into PVC has been badly hit by the collapse of housing starts which are now less than half the peak levels seen in the early 2000s.

This has not been good news for producers, who had assumed there would be a major recovery in the US economy.  They have also been disappointed by demand in export markets, as latest data from Global Trade Information Services shows:

  • Average US export prices fell 22% in January – April versus 2013 to $168/tonne, whilst volume was unchanged at 1.6m tonnes.  Overall volume was only maintained via a 40% cut in prices to just $126/t to Australia
  • PVC markets (the main vehicle for chlorine exports) were even more difficult, with volume down 20% over the period and average selling prices down 15%

US chloralkali Jun15The second chart, based on Chlorine Institute data confirms the result of these trends in terms of capacity utilisation.  Rates so far in 2015 have been in steady decline with 2015 averaging just 81% versus 83% in 2014 and 86% in 2013.

Similarly, the ACC report total chlorine volume is down 3% versus 2014, and caustic volume is down 4.8%.

Thus developments in the chloralkali industry highlight the critical importance of focusing on demand-related issues, rather than assuming that lower feedstock costs will automatically lead to success.

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