With the economy growing at a 6% annualized rate in first quarter 2002, the balance of power in U.S. chemicals markets has shifted swiftly from buyers to sellers. PURCHASING's Business Activity Index for chemicals-consuming companies shot up from a low of 31 in January to 68 in May as half now report rising new orders compared to just 14% still witnessing a decline in their end-market sales.

Physical production capacity for chemicals is not tight. Latest data release from the Federal Reserve places capacity utilization for chemicals and allied products (SIC 28) at just 77.7%, which is only three points above its 1990-91 low and more than six points shy of its last high. Still, sellers are obviously making the most of the speed at which market expectations have altered, using the opportunity to push prices upward at least while buyers scramble to meet rapidly rising production plans. PURCHASING's Forward Demand Index remained elevated at 70 in May, as 50% of chemicals buyers reported plans to increase their demand in the coming 90 days versus just 10% who said they intended to buy less. PURCHASING's index tracking percentage of buyers who say they're paying more for chemicals turned positive last month. That dovetails with the Chemical Price Index, which has risen 11% in the last two months.