Chemical production volumes continued to increase with robust growth expected in 2019 (3.9%), according to the American Chemistry Council. The upturn is sustained by robust demand from the automotive and construction sectors, capital investment, and the cost advantage of shale gas.
Chemical producers are clearly looking to take further advantage of continued low natural gas prices in the U.S., which is enabling the significant expansion of methane-based projects.
The comprehensive tax reform will offer chemicals corporates based in the U.S. a lower corporate tax rate and allows them to repatriate some of the cash they hold overseas. An influx of repatriated cash could be used to repay company debt, fuel new business development activities or reinvest in U.S.-based projects.
The number of insolvencies is low compared to other sectors and is expected to remain so this year, consistent with improving demand for chemicals.
Profit margins of U.S. chemicals businesses are generally stable, and the amount of protracted payments is low. On average, payments in the industry take between 30 and 90 days.
Currently, it seems that the potential downside risks related to President Trump’s economic policies outweigh the business opportunities. Should international trade disputes escalate, there is the immediate risk that retaliatory measures by trade partners would hit the U.S. chemicals industry, given its substantial trade surplus (Mexico alone accounts for more than half of the U.S.’s chemicals trade surplus). At the same time, potential taxes on chemicals-related imports could find U.S. chemicals businesses paying more for feedstocks and would negatively impact supply chains.
As the sector is highly fragmented and dependent on the broader economy and input costs, trends and end-markets need to be scrutinised.
Close monitoring is recommended when trading with customers in countries where the local currency has significantly devalued against the USD.
While the Fed’s change in policy offers relief for U.S. firms, risks to the business outlook are still high. Trade policy uncertainty and general policy uncertainty, especially under the split Congress, could weigh on investment. Furthermore, with the Fed’s policy rate already tighter at 2.25%, high levels of corporate debt, and the fading out of fiscal stimulus, the operating environment for corporates is expected to become more challenging.
Trade receivables risk mitigation
Should your debtors fail to meet their payment obligations, Atradius Collections can help initiate a professional collection process, focusing on the relationships between you and your debtors at all times.
We pursue debtors within the bounds of federal and state laws and liaise with you and the relationship management team to ensure that we serve you efficiently and effectively.
When there is a dispute, we aim to reach an amicable solution between you and the debtor. We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as standard terms previously agreed upon).
All investigations are completed with the assistance and agreement of our legal team. Our collectors work to ensure that, if the initial collection phase is not productive, the file is adequately documented to fully utilise the second tier of our collection process, the legal phase.
If third-party collections do not yield results, we would consider taking legal action after consulting with you.
The judicial system in the U.S. is unique, as it is made up of two different court systems: the federal court system and the state court systems. While each court system is responsible for hearing certain types of cases, neither is completely independent of the other and the systems often interact. Solving legal disputes and maintaining legal rights are key goals of both systems.