The chemical industry is defined by the fact that raw materials used are distinguished more for their chemical properties than for their physical or mechanical properties. The industry includes companies that convert raw materials such as oil, natural gas, air, water, metals, and minerals into more than 70,000 different products. 70% of the chemicals manufactured are used to make products for other industries including other branches of the chemical industry itself.
Sales of the chemical business can be divided into a four categories: basic chemicals (36 percent of industry value), life sciences (30 percent), specialty chemicals (24 percent) and consumer products (about 10 percent).
Basic chemicals, or "commodity chemicals" include polymers (33% of basic chemicals), bulk petrochemicals and intermediates (about 30% of basic chemicals), other derivatives and basic industrials (20%), inorganic chemicals (12%), and fertilizers. Others categorize basic chemicals into petrochemicals, polymers and basic organic chemicals. Life sciences (about 30 percent of the dollar output of the chemistry business) include pharmaceuticals, diagnostics, animal health products, vitamins, and pesticides, and differentiated chemical and biological substances. Specialty chemicals are relatively high valued, rapidly growing products with diverse end product markets. Many companies in the US and Europe focus on this sector rather than basic chemicals because, with active research and development, specialty chemicals deliver higher and more stable profitability. Typical growth rates are one to three times GDP with prices over a dollar per pound. Products are sold for what they can do rather than for what chemicals they contain. Products include electronic chemicals, industrial gases, adhesives and sealants as well as coatings, industrial and institutional cleaning chemicals, and catalysts. Consumer products include direct product sale of chemicals such as soaps, detergents, and cosmetics.
Three of the largest seven chemical companies are US-based. The balance of these seven companies are headquartered in Germany, Saudi Arabia, China and the Netherlands. However, all of these companies have manufacturing locations in multiple countries. Global distribution of chemicals is shown graphically in the following diagram. China alone accounts for almost 40% of global chemical production. Interestingly, as recently as 2001, China accounted for just over 8% of global production. After China, the NAFTA region is next with 16.5% (the US comprising 14.5%), followed by the EU at 14.7%. After China and the US, the largest chemical producing countries are Germany and Japan.
The U.S. chemical industry remains on course for growth this year despite several challenges including a strong dollar and a low oil price environment, according to Industrial Info's 2017 Global Industrial Outlook. Much of this activity stems from the continued low cost of natural gas liquids (NGLs), a primary feedstock for building-block chemicals such as ethylene.
Global demand for ethylene and other chemicals such as ammonia and methanol remains strong, providing export opportunities for U.S. producers, resulting in increased investment in the U.S.
According to the American Chemistry Council (ACC), an industry trade group, U.S. chemical production will rise 3.7% in 2017. Barring production of the pharmaceuticals segment, output is expected to go up 4.1% in 2017. In particular, the trade group expects basic chemicals production to expand 4.9% in 2017. Chemical production is also expected to increase across all regions of the country this year.
Chemical makers in the European Union remain affected by lower prices and a challenging regulatory landscape. According to the European Chemical Industry Council (CEFIC), chemical output in the European Union contracted 0.3% year over year in the first eight months of 2016 with chemical prices falling 4.8% for the period. Lower pricing and output also hurt chemical sales which slipped 4.4% during this period.
CEFIC expects a modest growth of roughly 1% in chemical output in both 2016 and 2017. Healthy domestic demand coupled with tailwinds from a strong construction end-use market are expected to be offset by sluggish demand for European chemical exports due to a challenging global environment.
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