The businesses of chemicals, coatings and
plastics are closely linked, and those sectors, in turn, are closely linked to
the oil and gas industry.
Plastics
comprise a branch of petrochemicals—that is, chemicals refined from petroleum
and natural gas.
(Although a small
amount of bioplastics is now being produced from plants such as corn.) 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 industry that requires
massive capital expenditures on the production end.
For example, BASF, the world's largest
chemical firm, has 10,000 research personnel worldwide.
While the firm is based in Germany, its
R&D labs are spread around the globe, including major facilities in the
U.S.
in Florham Park, New Jersey (its North American headquarters), Research
Triangle, North Carolina (where it runs one of the world's largest agricultural
chemicals research facilities) and St.
Louis, Missouri (a pest control
lab).
The company's continuing
investment in infrastructure is equally impressive.
According to the U.S.
Department of Commerce,
U.S.
chemicals companies invested $99 billion in research and development
during 2017 (the
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The businesses of chemicals, coatings and
plastics are closely linked, and those sectors, in turn, are closely linked to
the oil and gas industry. Plastics
comprise a branch of petrochemicals—that is, chemicals refined from petroleum
and natural gas. (Although a small
amount of bioplastics is now being produced from plants such as corn.) 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 industry that requires
massive capital expenditures on the production end. For example, BASF, the world’s largest
chemical firm, has 10,000 research personnel worldwide. While the firm is based in Germany, its
R&D labs are spread around the globe, including major facilities in the
U.S. in Florham Park, New Jersey (its North American headquarters), Research
Triangle, North Carolina (where it runs one of the world’s largest agricultural
chemicals research facilities) and St. Louis, Missouri (a pest control
lab). The company’s continuing
investment in infrastructure is equally impressive.
According to the U.S. Department of Commerce,
U.S. chemicals companies invested $99 billion in research and development
during 2017 (the latest year for which data is available). Chemicals industry employment is about
858,000 in America alone. Equally
important to the U.S. economy are the vast sums being invested in new
petrochemicals plants.
The dramatic recent declines in the price of
crude oil and natural gas have reduced costs for much of the chemicals
industry. In many cases, these reduced
costs have been passed on to end users.
The global chemicals industry will total about $5.4 trillion in revenues
in 2019, according to Plunkett Research estimates. In the U.S., chemicals will generate about
$910 billion in revenues during 2019.
U.S. plastics and rubber industry revenues were $237.4 billion in 2018,
according to the Bureau of the Census.
Chemicals and plastics companies are taking
advantage of abundant natural gas in the United States. As a result, the future looks extremely
bright for American chemicals makers.
The continuing flow of natural gas from shale formations is the driving
factor here, since gas is a primary need of the chemicals sector. Additional significant factors are the
relatively low cost of electricity in many parts of America, and reasonable
wage costs. Compared to much of the rest
of the world, gas and electricity are superb bargains in the U.S.
America’s chemicals sector manufacturers are
gaining considerable advantage from the extremely low price of natural gas, an
advantage that is likely to last for many years. The immense surge in shale gas and shale oil
production is leading to a boom in chemicals plant construction on the Gulf
Coast of America, close to major gas fields.
As of mid-2019, The American Chemistry Council reported 334 new U.S.
petrochemical projects in the works, largely due to the massive output of
America’s shale gas fields. The Council
estimates the new activity will add $204 billion to the U.S. economy. U.S. exports of chemicals will soar.
In particular, the manufacture of
ethylene-based plastics is a major benefactor of today’s boom in low-priced
natural gas from shale formations.
Makers of oil-based chemicals (propylene polymers) are likewise getting
relief from the low level of U.S. oil prices, and strong production from oil
fields such as the Eagle Ford in Texas.
The strength of the automobile industry will
remain one of the most positive factors in chemicals demand, as will relatively
strong demand for paint and other building materials used in new construction.
While the chemicals industry is most definitely
cyclical, gaining and losing ground with changes in the global economy,
long-term trends point to increasing demand for many types of chemical
products. To begin with, a swiftly aging
population with growing access to, and budgets for, drugs of all types is
causing demand for life sciences chemicals to soar. Worldwide demand for the construction of new
commercial buildings and new housing will 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 global
transportation market worldwide, including the growing number of automobiles and
trucks on the road (and commercial aircraft in the air), will create 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 and convenience
products, such as processed foods and beverages, is enhancing demand for
plastic packaging on a worldwide basis.
Makers of many components in major commercial and consumer products are
switching to plastics due to the durability, light weight and long life of
plastic. As industry leader BASF puts
it, “In brief, plastics will be the material of the 21st
Century.” Global production of plastics
is now more than 300 million tons yearly.
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. 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. 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.
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 bioplastics (from plants such as corn)
as well as biochemical products such as enzymes and solvents; consolidation,
mergers and acquisitions on a worldwide basis; increased environmental
regulations and concerns; the rise of nanotechnology in chemical applications
including composites, coatings and exotic materials; technological
breakthroughs; and the rapid rise of China as both a producer and consumer of
chemicals and chemical products. BASF
sells hundreds of millions of dollars in products that incorporate
nanotechnology each year. 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
offer value-added services in addition to manufacturing, including engineering,
design and perhaps increased logistics support.
Consolidation within many industry sectors
continues. For example, global ethylene
production is now concentrated in a handful of major firms. Recent examples of the consolidation trend
include the Dow Chemical acquisition of Rohm and Haas, which was completed in
the spring of 2009; the 2011 DuPont acquisition of Danish firm Danisco for $6
billion; and the 2011 Solvay acquisition of Rhodia for $5 billion. Many of today’s acquisitions are driven by a
desire to pick up companies that manufacture higher-profit margin specialty
chemicals. A recent study by Deloitte
Touche Tohmatsu Ltd. found that global chemicals industry mergers and
acquisitions soared from $15.9 billion in value during 2009 to $72.4 billion in
2018. The biggest news is the merger of
Dow Chemical Company and DuPont, valued at $73 billion. This is an all-stock merger of equals,
expected to close during August 2017.
The combined company will be named DowDuPont. The merged firm will then
be split into three distinct new companies, each one specializing in
agriculture, materials science or specialty products.
Eventually, further increases in capacity will
be called for as global economic growth moves forward. In particular, shortages of refined diesel
and gasoline are a future concern in some parts of the globe. Refinery expansion and modernization is
progressing around the world, with the largest investments occurring in the
oil-rich Gulf of Mexico region of the U.S.