Chemical Manufacturing
Description
Companies in this industry transform organic and inorganic raw materials by a chemical process and formulate products. Major companies in the US include Dow, DuPont, and Pfizer. Major companies outside the US include BASF (Germany), Formosa Plastics (Taiwan), Roche (Switzerland), SABIC (Saudi Arabia), and Sinopec Group (China).
The global chemical manufacturing industry remains at about $5 trillion annually, according to Statista. China, the US, Ireland, Germany, and Belgium produce the most chemicals and also are among the largest importers of chemicals, according to NES Fircroft.
The US chemical manufacturing industry includes about 14,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $740 billion.
COMPETITIVE LANDSCAPE
The overall health of the US economy drives the demand for chemical industry since chemicals are used to make a wide variety of industrial and consumer products. The profitability of individual companies is closely tied to efficient operations. Big companies have economies of scale in purchasing and production. Small companies can compete effectively by producing specialty products, of which there are a large number. The US industry is concentrated: the top 50 companies account for about 50% of revenue.
Many specialty chemicals are protected by patents, either for the product itself or the manufacturing process, and have no direct competition. Indirect competition comes from products with similar properties. Patents are especially important to many smaller manufacturers, which may license their product or technology to larger companies for manufacture and sale.
Because they often have a high value-to-weight ratio, many chemicals are traded internationally, and many US manufacturers have production plants overseas. The largest sources of US chemical imports are Ireland (a major source of pharmaceuticals), Canada, and Germany. The biggest export markets for US chemicals are Canada and Mexico.
Competitive Advantages:
Access to Capital - The cost of chemical production facilities is extremely high. Companies require considerable capital for manufacturing equipment, safety systems, and raw materials.
Global Scale - Consolidation among chemical companies has resulted in a highly concentrated industry dominated by large producers who operate and market globally.
Proximity to Feedstocks - Large chemical companies require abundant supplies of oil and gas, which are used to fuel plants and as chemical feedstocks.
Companies to Watch:
BASF is the largest chemical company in the world, with products in every major chemical segment.
DuPont was spun off after the demerger of DowDuPont and now specializes in markets including everything from animal nutrition to water solutions.
Bayer may be best known for its pharmaceuticals, but the company is also a leading agricultural chemical maker and broadened its agrochemical offerings with its 2018 acquisition of Monsanto.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major products of the chemical manufacturing industry include thermoplastic resin and plastic materials, accounting for about 10% of the industry's revenue. Other products include liquefied refinery gases (about 5%), fuel ethanol (about 5%), and pharmaceutical preparations (less than 5%).
Basic chemicals include petrochemicals, industrial gases, dyes and pigments, alkalies and chlorine, alcohols, and various other organic (based on the chemistry of carbon and oxygen) and inorganic chemicals. These basic chemicals are made from mined materials such as crude oil, natural gas, and minerals, or from crops and other natural substances. The raw materials are called feedstocks. Chemicals companies use basic chemicals to produce intermediate products like polyethylene; polyethylene oxide (PO); ethylene oxide (EO); and ethylene glycol, or final products like phosphate and nitrogen agricultural fertilizers.
Basic and intermediate chemicals are collectively referred to as commodity chemicals. These chemicals are produced mainly by large companies, often as byproducts of petroleum refining. Margins on commodity chemicals are usually low because the chemicals are so widely produced.
Commodity chemicals are used to produce more complicated chemicals, known as specialty chemicals, which include resins, plastics, synthetic fibers, pesticides, lubricants, paints, coatings, adhesives, soaps and cleaners, pharmaceuticals, and a huge number of other products with special applications. Margins are generally higher on these products.
The manufacturing process usually involves mixing various raw materials and adding heat to produce a series of chemical reactions, then using various physical techniques to isolate the finished product. Production may involve dozens of intermediate steps. Many specialty chemicals are produced in batches, while commodity chemicals are often produced in continuous-flow operations. Special reaction vessels, valves, piping, and control instruments are used to produce different chemicals. Companies generally employ a large number of engineers to manage the manufacturing process. There are usually waste products to be disposed of, and energy inputs are often high. Large amounts of energy are typically used to drive chemical reactions, and natural gas or crude oil is used as feedstock for many chemicals.
The global chemical manufacturing industry remains at about $5 trillion annually, according to Statista. China, the US, Ireland, Germany, and Belgium produce the most chemicals and also are among the largest importers of chemicals, according to NES Fircroft.
The US chemical manufacturing industry includes about 14,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $740 billion.
COMPETITIVE LANDSCAPE
The overall health of the US economy drives the demand for chemical industry since chemicals are used to make a wide variety of industrial and consumer products. The profitability of individual companies is closely tied to efficient operations. Big companies have economies of scale in purchasing and production. Small companies can compete effectively by producing specialty products, of which there are a large number. The US industry is concentrated: the top 50 companies account for about 50% of revenue.
Many specialty chemicals are protected by patents, either for the product itself or the manufacturing process, and have no direct competition. Indirect competition comes from products with similar properties. Patents are especially important to many smaller manufacturers, which may license their product or technology to larger companies for manufacture and sale.
Because they often have a high value-to-weight ratio, many chemicals are traded internationally, and many US manufacturers have production plants overseas. The largest sources of US chemical imports are Ireland (a major source of pharmaceuticals), Canada, and Germany. The biggest export markets for US chemicals are Canada and Mexico.
Competitive Advantages:
Access to Capital - The cost of chemical production facilities is extremely high. Companies require considerable capital for manufacturing equipment, safety systems, and raw materials.
Global Scale - Consolidation among chemical companies has resulted in a highly concentrated industry dominated by large producers who operate and market globally.
Proximity to Feedstocks - Large chemical companies require abundant supplies of oil and gas, which are used to fuel plants and as chemical feedstocks.
Companies to Watch:
BASF is the largest chemical company in the world, with products in every major chemical segment.
DuPont was spun off after the demerger of DowDuPont and now specializes in markets including everything from animal nutrition to water solutions.
Bayer may be best known for its pharmaceuticals, but the company is also a leading agricultural chemical maker and broadened its agrochemical offerings with its 2018 acquisition of Monsanto.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major products of the chemical manufacturing industry include thermoplastic resin and plastic materials, accounting for about 10% of the industry's revenue. Other products include liquefied refinery gases (about 5%), fuel ethanol (about 5%), and pharmaceutical preparations (less than 5%).
Basic chemicals include petrochemicals, industrial gases, dyes and pigments, alkalies and chlorine, alcohols, and various other organic (based on the chemistry of carbon and oxygen) and inorganic chemicals. These basic chemicals are made from mined materials such as crude oil, natural gas, and minerals, or from crops and other natural substances. The raw materials are called feedstocks. Chemicals companies use basic chemicals to produce intermediate products like polyethylene; polyethylene oxide (PO); ethylene oxide (EO); and ethylene glycol, or final products like phosphate and nitrogen agricultural fertilizers.
Basic and intermediate chemicals are collectively referred to as commodity chemicals. These chemicals are produced mainly by large companies, often as byproducts of petroleum refining. Margins on commodity chemicals are usually low because the chemicals are so widely produced.
Commodity chemicals are used to produce more complicated chemicals, known as specialty chemicals, which include resins, plastics, synthetic fibers, pesticides, lubricants, paints, coatings, adhesives, soaps and cleaners, pharmaceuticals, and a huge number of other products with special applications. Margins are generally higher on these products.
The manufacturing process usually involves mixing various raw materials and adding heat to produce a series of chemical reactions, then using various physical techniques to isolate the finished product. Production may involve dozens of intermediate steps. Many specialty chemicals are produced in batches, while commodity chemicals are often produced in continuous-flow operations. Special reaction vessels, valves, piping, and control instruments are used to produce different chemicals. Companies generally employ a large number of engineers to manage the manufacturing process. There are usually waste products to be disposed of, and energy inputs are often high. Large amounts of energy are typically used to drive chemical reactions, and natural gas or crude oil is used as feedstock for many chemicals.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
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