America’s chemicals industry is booming. But politics may get in its way

It is one of America’s largest export sectors, but it will suffer in a trade war


“THIS is what 3bnlookslike.SobeamsamanageratChevronPhillipsChemical(CPC),apetrochemicalcompanyjointlyownedbyChevronandPhillips66,bothAmericanoilfirms.Shethrowsopenherarmsinafigurativeembraceofagiantcracker(pictured)builtbythefirminBaytown,agrittypartofHouston.Thenewplantturnsvastquantitiesofethane,whichisderivedfromnaturalgas,intoethylene,animportantbuildingblockinplastic.Anothernearbyfacility,whichthefirmhasrecentlyexpanded,convertstheethyleneintoplasticresinthatissoldworldwide.Alltold,CPChasspentsome6bn expanding its chemicals-production infrastructure around Houston.

A decade ago, this would have been unimaginable. Chemicals firms in America, beaten down by rivals from the Middle East that enjoyed cheap feedstocks and others from China feasting on subsidised capital, had not invested in new local plants in years. Growth in global demand for chemicals, once roaring, had slowed thanks to the global financial crisis. America had costly workers, ageing capital stock, pricey feedstocks and sluggish demand. Some crackers were shut down.


It is astonishing, then, that the CPC plant is just one of six new megaprojects in America. According to the American Chemistry Council (ACC), an industry umbrella group, over 185bninnewchemicalinvestmentshasbeenannouncedsince2010,withhalfofthoseplantsalreadybuiltorcurrentlyunderconstruction(seechart).TheindustrynowaccountsforroughlyhalfofallinvestmentinAmericanmanufacturing.Withannualshipmentsofover500bn, it is one of America’s largest export sectors.

This remarkable turnaround in the American chemicals industry’s fortunes raises two questions. Why did it happen, and how sustainable is the boom? The answers point to how clever new ideas are reshaping the “old economy”. They also offer clues about the viability of the industrial renaissance that President Donald Trump wants for America and highlight the risks of his recent trade initiatives.

Behind the rejuvenation lie two things. One is a recent wave of what Jason McLinn of Bain, a consultancy, calls “portfolio reshaping”. Commodity chemicals, which are produced in bulk, and specialty chemicals, such as those used as additives and ingredients, do not have much to do with each other, he says, but chemicals firms seeking growth in sluggish markets like America typically developed both. Now, under pressure from activist investors, bosses are spinning off non-core businesses and bulking up in core areas. This is producing firms with the gargantuan scale needed to take on their giant state-sponsored international rivals. This week, for example, news surfaced that American regulators will approve the $60bn takeover of Monsanto, an American agrochemicals firm, by Germany’s Bayer.

Dow, whose long-standing boss, Andrew Liveris, stepped down as chairman this month, is a case in point. By acquiring DuPont, a local rival, for $130bn last year, he turned Dow into the world’s biggest chemicals firm by sales. The next step in the master plan is to combine the specialty and agricultural-chemicals arms of the two firms, and spin each of them out separately. What remains will focus on the automotive, packaging and construction industries. David Witte of IHS Markit, a research firm, believes it will create a pure-play rival to the biggest firms in the sector.

“I’d rather own a small, subscale, poorly-run cracker in America than any in Europe right now,” chuckles Jonas Oxgaard of Bernstein, an equity-research firm. That quip alludes to the other enormous edge that the American chemicals business has at the moment. The shale revolution is unleashing a tidal wave of cheap natural gas and related liquids that can be used instead of pricier, petroleum-derived naphtha (the feedstock typically used outside America) to make chemicals.

The cost advantage is most evident in the “shale crescent”, a gas-rich swathe of land the size of Germany that includes parts of Ohio, Pennsylvania and West Virginia. Not only is the ethylene produced there much cheaper than naphtha abroad, but making more sophisticated chemicals and plastics in this region also saves on transport costs since much of American manufacturing is close by. Royal Dutch Shell, a European oil giant, is building a $10bn chemicals complex in Pennsylvania.

Exciting stuff, but there are potential snags. One is inadequate infrastructure. Mark Lashier, boss of CPC, is worried about congestion at Houston’s busy port and so has invested in alternative routes involving both rail and sea. Shell’s Graham van’t Hoff observes that in Texas and Louisiana, “you just connect to a gas pipeline and off you go.” In contrast, the shale crescent requires a massive buildout of pipelines, ports and logistics facilities.

Another potential obstacle to expansion is rising costs. The capital cost of a new petrochemical plant is at least 50% higher in America than in China today, estimates IHS Markit. Because of its many fallow years, the American chemicals industry has lost a generation of talented field managers, welders and other workers. Labour shortages are a big headache and expense.

The darkest cloud, though, is politics. Consider Mr Trump’s tariffs on imports of Chinese steel and aluminium. Dow says that the steel tariffs alone will add $300m to the cost of its new plants in Texas, and threatens to build its next facilities in shale-rich Argentina or in Canada instead. The ACC observes that China imports 11% of all American plastic resins, noting with alarm that 40% of the American products to which China has assigned retaliatory tariffs are chemicals. This tit-for-tat may, in the end, prove mostly bluster. However, it would be rum indeed if Mr Trump’s efforts to support local heavy industry ended up derailing the ongoing revival of America’s once-moribund chemicals sector.


Get Out 'Da Way!


IntroductionnnBoudreaux and Thibodaux have just seen the Matrix, and are arguing whether or not it would actually be possible to dodge bullets if you moved fast enough. Boudreaux is used to hunting nutria with buckshot, and maintains that most bullet spreads should make it impossible to dodge all the bullets. Thibodaux is still doing kung-fu in his head, and is sure that if you could move fast enough it would be possible to dodge the bullets. Boudreaux is getting fed up, and is about ready to prove his point with some empirical testing. Your job is to come up with a way to prove or disprove this hypothesis for different scenarios using computer simulations, which are much safer than the methods that Boudreaux has in mind.nnnInputnnInput to this problem will consist of a (non-empty) series of up to 20 data sets. Each data set will be formatted according to the following description, and there will be no blank lines separating data sets.nnA single data set has 5 components:nnStart line - A single line, "START N", where N is a positive integer in the range 1 <= N <= 10 which indicates the number of bullets fired at the target.nnTarget Velocity - A single line representing the velocity of the target.nnBullet Velocity List - A non-empty set of up to 10 lines. Each line will contain the velocity of a single bullet.nnTarget - A nonempty series of up to 30 lines. Each line will consist of up to 30 characters (not counting the end-of-line). Each non-whitespace character represents a piece of the target that can be hit by a bullet. The target will not contain numbers, asterisks, or commas, but any other characters may be used. The target grid is assumed rectangular for the purposes of determining its center, and its dimensions are that of the longest row/column (this will not exceed 30 blocks in either direction). Each block of the target grid is 10cm X 10cm.nnEnd line - A single line, "END"nnNote:nnThe target will be the first line after the last bullet velocity line with a first character that is neither a number nor a minus sign ('-') followed by a number.nnThe bullets are assumed to have been fired at the same instant, from a point exactly 10 meters due South of the center of target, and at a height equal to half the height of the target.nnEach bullet (and the target) velocity will be listed as a three-component velocity vector. The velocities are in meters per second, and of the format: , , with no spaces. Velocities may be negative values.nnnOutputnnFind out if the target got out 'da way. A hit occurs when any bullet passes through a grid square with mass in it. For the sake of simplicity, the target can be assumed to be two dimensional, and the bullets volumeless. Also, Boudreaux and Thibideaux don't even know what precision means, they just make sure to calculate to at least four decimal places. (In other words, don't worry about precision edge detection. Just keep the math simple and use very precise numbers to minimize error. You'll find hits in the correct places.)nnFor each data set, there will be exactly one output set, and there will be exactly one blank line separating output sets.nnAn output set will take one of two forms:nnIf no bullets hit mass-containing parts of the target, your output will be, "Got Out Da Way!"nnOtherwise (if at least one hit occurred), your output will be the Target, with all hit blocks replaced with asterisks ('*').nnnSample InputnnSTART 3n-10,-2,1n300,14.5,-20n350,-80,0n400,28.75,26n @@@@ nn #^^# oUn ## on ooooooooooon o oooooon o oooon o DDDDnoo DDDDn D Dn D Dn TT TTn TT TTn nENDnSTART 2n-10,-2,1n300,14.5,-20n350,-80,0n @@@@ nn #^^# oUn ## on ooooooooooon o oooooon o oooon o DDDDnoo DDDDn D Dn D Dn TT TTn TT TTn nENDnnnSample Outputnn @@@@ *n #^^# oUn ## on ooooooooooon o oooooon o oooon o DDDDnoo DDDDn D Dn D Dn TT TTn TT TTn nnGot Out Da Way!