Chemicals, Coatings & Plastics Industry Market Research

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 21^st 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.