Chemical Over Expansion Seen by KPMG Unless U.S. Exports Rise

The U.S. chemical industry, which is building factories to take advantage of low-cost natural gas, risks over expanding unless producers take steps now to increase exports, KPMG LLC said.

Dow Chemical Co. (DOW) and other producers may spend $25 billion on new and expanded factories that convert ethane and other natural gas liquids into chemical building blocks and plastics, according to a KPMG report released today. Increasing exports is the only way to avoid a drop in earnings that will result from building too much capacity, the report said.

U.S. chemical exports rose to a record $86.9 billion last year, Census Bureau data show, as an abundant supply of gas from shale formations provided a cost advantage over producers in Europe and Asia, where chemicals are made mostly from oil. Accelerating exports may require companies to invest in supply chains and form joint ventures with partners in faster-growing regions, KPMG said.

“U.S. chemical companies need to take actions today that will guarantee markets for products to be produced in four or five years’ time,” Mike Shannon, global and U.S. leader of KPMG’s chemicals and performance technologies practice, said in a statement. “This will require a significant transformation of operating models for U.S. companies who have traditionally been focused on the domestic marketplace.”

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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