Four signposts for the chemicals industry under a Biden administration

The Democrats are expected to retain control of the US House of Representatives, but the Senate will be determined by upcoming run-offs in the state of Georgia.

While the chemicals sector is expected to see few direct impacts, there are several themes that should be watched closely.

So, what can a Joe Biden administration do that affects the chemicals industry in the years ahead? According to Nathan Shaffer, Wood Mackenzie Vice President - Chemicals, there are four factors that have the potential to shape the chemicals market:

1. Feedstock costs – oil and NGL prices

US foreign policy has impacted oil markets over the last four years by implementing sanctions on Iran and pressuring OPEC and its partners to manage output. The Biden administration has signaled that the US will return to the international nuclear deal, provided Iran complies with the original terms under the Joint Comprehensive Plan of Action. A sizeable gap remains, however rapprochement with Iran could bring extra oil supply to the market. This would put downward pressure on oil prices without any adjustment from OPEC or other producers. 

The US upstream oil and gas sector is already facing a crisis due to the coronavirus pandemic and it is unlikely to see strong support from a Biden administration. The Biden plan for climate change includes a ban on new leases for drilling on federal lands and waters, as well as tougher regulations on methane emissions. The lease ban would mostly impact future offshore production, however tighter regulations combined with a low-price environment may slow overall US upstream activity. The consequence could be lower availability of NGLs, like ethane for petrochemical feedstock, with an upside risk for prices.

2. The energy transition, sustainability and economic recovery

The Biden plan on climate change includes returning to the Paris Agreement and pledging US$2 trillion to eliminate carbon emissions from the US power sector by 2035. The plan calls for building out infrastructure to develop a nationwide zero-carbon energy network, which has the potential to create jobs and drive growth for chemicals in sustainable applications such as solar installations and electric vehicles.

An immediate concern is the economic recovery, which could support demand for chemicals and polymers. However, managing an economic downturn alongside the pandemic remains complex and any potential stimulus packages will likely be stalled by the pending administration change.

Certain polymer demand segments have remained resilient, despite the economic downturn, due to strength in packaging and medical sector applications. Other areas, such as automotive, construction and apparel, have suffered most through the coronavirus pandemic, resulting in weaker demand for polymers with associated exposure. Additional stimulus and an economic rebound would clearly help to boost demand, but higher levels of unemployment, debt, and taxes are expected to be a drag on future growth.

3. Trade policy

The Biden administration is expected to maintain a tough stance on trade with China given bipartisan support for the protection of US manufacturing jobs.  The approach is expected to differ from that of the Trump administration by enlisting international allies. That may be easier said than done, as many traditional US allies, such as Japan and the EU, have been affected by US tariffs under Trump.  Rebuilding those relationships will be key, as will timing. The US President has broad authority over trade policy, so changes could be implemented relatively quickly without Congressional support. 

In recent years, export destinations for US chemicals and polymers have shifted in response to trade disputes. That seems unlikely to change over the short term, with little movement in US policy in relation to China. China is expected to remain undeterred and continue forward with its investment plans in the chemicals sector, with the goal of achieving self-sufficiency across the chemicals value chain.

4. Predicted pace of policy change

The Biden administration, like all its predecessors, will come into office full of campaign promises and lofty goals. The reality is that most elements of change happen more slowly than anticipated due to the established political framework. An important area to watch will be the balance of seats in the US Senate, which now depends on a runoff election in the state of Georgia. At best, the Democrats would need to win both seats to reach a 50:50 tie with Republicans and could then rely on the Vice President for any tie-breaking vote. Should the Republicans prevail with at least one Georgia Senate seat, they would retain the majority – a result which would likely hinder several of Biden's policy plans.

Beyond Congress, other policy changes are expected to face court challenges. Many of the Obama-era regulatory changes remain unsettled and those initiated by Trump will similarly face scrutiny.  Dealing with the pandemic and associated fallout will impede the targeted pace of change. However, the Biden transition effort has already announced members of a coronavirus task force. This is a helpful step, but cases have continued to rise, and the colder winter weather could exacerbate the spread of the virus.