See the complete list of trends that we analyze.

1. Introduction to the Chemicals, Coatings & Plastics Industry

TThe businesses of chemicals, coatings and plastics are closely linked, and those sectors, in turn, are closely linked with the oil and gas industry. Plastics comprise a branch of petrochemicals-that is, chemicals refined from petroleum. Total world consumption of oil for industrial uses is about 30 million barrels daily-mostly for use in chemical processes. At present growth rates, global use of oil for industrial purposes will grow to nearly 50 million barrels daily by 2030, according to the U.S. Energy Information Administration. Coatings, which include paints, are chemical concoctions. Other everyday chemicals products include pharmaceuticals, fertilizers, dyes, fibers, packaging, adhesives and explosives, among many, many others. Among the more visible end products are PVC (polyvinyl chloride) pipe for plumbing and other purposes, plastic bottles and other food containers, vinyl window frames, flooring and carpeting made from vinyl and other synthetics, as well as clothing of all types made from synthetic fabrics.

This is a research-based business that requires massive capital expenditures on the production end. According to the American Chemical Council, U.S. chemicals companies invested $26.1 billion in research and development in 2006, plus $25.7 billion in capital expenditures. It is also a cyclical business, highly subject to costs for basic commodities (especially oil and gas) and open to rapid changes in fortune due to the ups and downs of the global economy.

The U.S. chemicals, coatings and plastics sectors combined will see about $980 billion in revenues in 2008. Primary sectors include basic chemicals, specialty chemicals, consumer products (largely plastics) and life sciences chemicals (pharmaceuticals). About 862,900 people are employed in the American chemicals manufacturing sector, 754,000 in the plastics and rubber manufacturing sector and 65,100 in the coatings manufacturing sector. Employment has been declining in recent years, along with employment in most basic manufacturing sectors in America. This is due to increasing productivity and technology-based efficiency in manufacturing plants, along with a continued move of some types of manufacturing offshore.

For 2008-2009, the chemicals industry faces dampened demand, due to a global economic slowdown, combined with exceptionally high costs for commodities vital to production, specifically oil and gas. At the same time, distribution of finished chemicals products is suffering from soaring costs of transportation, particularly because of fuel costs. For example, rapid rises in the cost of sending a standard shipping container from China to the U.S. or Europe are sapping profits at a wide variety of firms. Meanwhile, offshore firms in India, China and elsewhere are suffering from the cost of rapidly rising wages. On the consumption end, the construction market has plummeted, and along with it demand for insulation, plastic pipe, paint, windows and hundreds of other basic building materials has nosedived. This is altogether an ugly picture for much of the chemicals and coatings industry.

While the chemicals industry is most definitely cyclical, gaining and losing ground with changes in the global economy, many long-term trends in the industry point to rapidly increasing demand for many types of chemical products once the global economy gets out of the doldrums. To begin with, a swiftly aging population with growing access to, and budgets for, drugs of all types is making demand for life sciences chemicals soar. Eventually, worldwide demand for construction of new commercial buildings and new housing will once again fuel growth for chemicals used in building products of all types. The extremely rapid industrialization and commercialization of markets in China and India, two nations where an immense proportion of the world's population live, is creating demand for industrial and consumer chemicals of all types. Finally, a rapidly-expanding transportation market worldwide, including the growing number of automobiles and trucks on the road, is creating greatly increased demand for chemicals, coatings and plastics used in the manufacture of automobiles. (Lightweight plastics are extremely important for the manufacture of fuel-efficient vehicles.)

Growing demand for consumer products and convenience products, such as processed foods and beverages, is enhancing demand for plastic packaging on a worldwide basis. Meanwhile, makers of many components in major commercial and consumer products, from automobiles to computers, are switching to plastics due to the durability, light weight and long life of plastic. Growth in the plastics sector is so rapid that total world consumption of plastic materials is forecast to nearly double from 2003 through 2015, as demand is growing at more than a 5% annual rate. As industry leader BASF puts it, "In brief, plastics will be the materials of the 21st Century." Global consumption of plastics is now in excess of 180 million metric tons yearly. (BASF is investing more 1.3 billion Euros yearly in research and development, deployed by 8,000 employees at 70 R&D sites worldwide.)

Meanwhile, consumer concerns and environmental activism about packaging have come to the fore. Plastic grocery and shopping bags have become evil in the eyes of some. In the U.S. alone, plastic bags are about a $4 billion industry, with about 110 billion bags used yearly. In America and elsewhere, bags to a growing extent are seen as a big burden to landfills and an even bigger eyesore in the form of litter. Recycling is modest at best. Various answers are being developed. Biodegradable bags would be welcomed by many consumers, even if they drove up costs a bit, and reusable string, nylon or canvas bags are very much in vogue. Paper bags are now more in evidence; at least they are clearly biodegradable. Meanwhile, more than two dozen U.S. cities have proposed or legislated bans on the use of plastic bags, and the entire nations of Taiwan and Bangladesh have outlawed them.

Next, a crisis in plastic bottles occurred in early 2008 in the U.S., Canada and elsewhere. Consumers are concerned about he use of BPA or bisphenol-a, which is commonly used in the manufacture of the hard, clear polycarbonate plastic bottles used for juices, drinks and other liquids. Many manufacturers promptly announced they would no longer use BPA. Environmental concerns, health concerns and consumer backlash regarding packaging will grow in coming years.

This boom in worldwide demand for chemicals and plastics has the potential to create serious shortages. For example, plastics must come from petroleum refineries, and there is not enough refining capacity in the U.S. to provide for current or future needs. In petrochemical-based products, such as plastics, rising costs are a serious problem as well, with crude oil costs soaring above $120 per barrel at times and natural gas prices soaring in recent years. Ethylene plants and many other types of chemical manufacturing facilities are running at near capacity-93% or better. Global demand for ethylene has been growing at more than 4% yearly over the long-term. Global demand for polyethylene has been growing at more than a 5% yearly rate.

Watch for rapid changes within the chemicals sector, as many factors with the potential for driving the industry in new directions are at work. These include a growing use of biotechnology to create biochemical products such as enzymes and solvents; consolidation, mergers and acquisitions on a worldwide basis; high raw components costs; increased environmental regulations and concerns; rapid growth in demand for plastics and other chemical products; the rise of nanotechnology in such chemicals sectors as composites, coatings and exotic materials; technological breakthroughs in such areas as ceramics; and the rapid rise of China as both a producer and consumer of chemicals and chemical products. BASF expects to sell 500 million Euros worth of products that incorporate nanotechnology in 2010, up from 250 million Euros in 2006. These products include nanochemicals for textiles, paints, cosmetics, electronics, insulation and lighting.

Many manufacturers of plastics products now find that they must move beyond basic offerings to become ODMs (original design manufacturers). This means that they must offer value-added services in addition to manufacturing, including engineering, design and perhaps increased logistics support. Also, watch for a rapidly growing use of outsourcing and offshoring in the plastics and chemicals field. For example, Newell Rubbermaid, one of the best-known brands in business and consumer products made of plastics, plans to move the majority of its manufacturing to Asia over the mid-term.

Consolidation within many industry sectors continues. For example, global ethylene production (110 million tons in 2005) is now concentrated in 11 major firms that together control 50% of the market. The most important recent example of the consolidation trend is the July 2008 announcement of an agreement whereby Dow Chemical will acquire Rohm and Haas for $15.3 billion. Other recent deals include the sale of Huntsman to Hexion Specialty Chemicals for $6 billion in 2007.