Taking a Topical Look at the U.S. Economy and Oleochemicals Sector

Let me start by wishing everyone a healthy, productive and prosperous 2023. Last year, the reopening of businesses, manufacturing and travel helped improve supply chains and the availability of goods. This year, although many obstacles remain, one of the biggest economic challenges to overcome is inflation, which stands at 6.5% as of this writing, after peaking at 9.1% in June 2022. Following eight consecutive interest rate increases to a current range of 4.5% to 4.75%, the U.S. Federal Reserve continues to focus on reducing inflation and striving toward a “soft landing.”

On the macro level, U.S. economic growth is forecast to decrease below 1% for 2023, following two years of stronger than average growth. Some market factors to consider:

• Labor: Though we are hearing news of tech layoffs, macro labor does not yet appear to have been significantly impacted by interest rate hikes. The U.S. Bureau of Labor Statistics indicates that unemployment recently fell to 3.4% (5.7 million unemployed), matching the lowest level in about 50 years.Healthcare, leisure and hospitality, construction and social assistance added more than 170,000 new jobs. We keep seeing “for hire” signs for good-paying hourly jobs which appear to have gone unfilled for months. Overall, some economists are viewing the current job market as a “Goldilocks moment”: not too hot and not too cold. That said, we likely have reached the bottom of low unemployment levels.
  
  

• Feedstocks Supply and Demand: Not quite Goldilocks. Supply and inventory levels were low to non-existent during the pandemic-related lockdowns that began in 2020. With those behind us in the U.S., supply recovered and healthy inventory levels followed in the second half of 2022 and into 2023. At the same time, demand for goods has been subdued as consumer spending shifted to travel and leisure. This has resulted in destocking of various chemicals and a resulting price adjustment as buyers required less supply. In addition, the relatively warm winter has contributed to a more than 50% decline in natural gas prices, to below $3/MMBtu, the lowest in one year. These price corrections should help lower inflation. The key question is about timings; when will excess inventory be consumed and demand bounce back?
  
  

• Logistics: Softening of demand, coupled with high inventory levels and year-end destocking, has negatively affected logistics providers. On the other side of the equation, diesel prices have remained above $4 per gallon, higher than a year ago. From a positive perspective, the potential U.S. rail strike that made headlines in 2022 was averted by congressional act, avoiding related supply chain interruptions and significant economic losses.
  
  

Some of the factors mentioned above may have a domino effect that could result in a recession in 2023. If there is a recession or we already are in one, questions remain about its severity and duration.

Whatever the rest of this year brings, P&G Chemicals appreciates our customers’ and suppliers’ continued trust in our global oleochemicals business. Despite the challenges our industry may experience, we remain resilient and ready to support our customers’ needs. Here is a toast to our future!