Fundamentally, the chemicals industry can be divided into two sectors; commodity/basic chemicals and specialty chemicals. Commodity chemicals are manufactured by many different companies however the end product is generally the same with very little variations. There exist other segmentations for this industry as well. Understand the main sectors of the chemical domain.
Sales of the chemical business can be divided into the following broad categories/sectors:
Fundamentally, the chemicals industry can be divided into two sectors; commodity/basic chemicals and specialty chemicals. Commodity chemicals are manufactured by many different companies however the end product is generally the same with very little variations. Specialty chemicals are typically made to suit the needs of a specific customer and are generally only available from a few suppliers. These chemicals are often protected by patents.
They are also called basic chemicals, are typically inexpensive and include polymers, bulk petrochemicals, basic industrial chemicals, inorganic chemicals, and fertilizers. Polymers make up the largest segment of this sector. Commodity chemicals are generally made in large volumes.
They are also called fine chemicals; include industrial gases, adhesives, sealants, industrial cleaning chemicals, coatings, and electronic chemicals. A Specialty Chemical is a chemical produced for specialized use. They are produced in lower volume than bulk chemicals, of which petrochemicals, made from oil feedstock, are the most common. However, both are produced in a chemical plant. Some examples of specialty chemicals are adhesives, additives, antioxidants, corrosion inhibitors, cutting fluids, dyes, lubricants, pigments, etc. These chemicals are generally more expensive than commodity chemicals. Chemicals are made from elements and every element has a unique set of physical and chemical properties. Specialty chemists understand how to combine certain elements that result in a chemical with the required properties.
Further classification of the chemicals industry can be done to separate Life Science Chemicals, Science and Technology Chemicals, and Commodity Chemicals. The definition of these two sectors is provided below:
These are differentiated biological and chemical substances used to induce specific outcomes in humans, animals, plants, and other life forms. The major products of this segment include agrochemicals, pharmaceuticals, and biotechnology products. Life sciences (about 30 percent of the dollar output of the chemistry business) include differentiated chemical and biological substances, pharmaceuticals, diagnostics, animal health products, vitamins, and pesticides. Life science products are usually produced with very high specifications and are closely scrutinized by government agencies such as the Food and Drug Administration. Pesticides, also called "crop protection chemicals", are about 10 percent of this category and include herbicides, insecticides, and fungicides.
These products include advanced materials that transform current technologies. They enhance the characteristics of traditional specialty chemical products, as listed above.
Consumer products include direct product sale of chemicals such as soaps, detergents, and cosmetics. Typical growth rates are 0.8 to 1.0 times GDP. They include sulfuric acid, nitrogen, ethylene, oxygen, lime, ammonia, propylene, polyethylene, chlorine, and phosphoric acid.
Given below are some of the sub-segments of the chemicals industry. They help the learner to understand the various sub-classifications as well as key products and manufacturing operations in the chemicals domain:
As a key intermediary within the supply chain, the Chemical Wholesaling industry plays an important role in overall chemical manufacturing. Because chemical wholesalers have diversified product offerings, no operator holds a dominant share of the market. As a result, this industry is highly competitive, with wholesalers competing on storage efficiency and distribution. This industry wholesales chemicals and related products, including compressed gas, chemical additives, and synthetic rubber, to the manufacturing, construction, and mining industries. This industry does not wholesale agricultural and medicinal chemicals, paints and varnishes, fireworks, or plastics materials. Major industry products are detergents and soaps, alkalies and chlorine, industrial gases, adhesives, sealants and glues, sanitation chemicals, polishes and waxes, synthetic rubber, dyes, and pigments.
The organic chemicals industry is one of the most significant sectors of the chemical industry. It plays a vital developmental role by providing chemicals and intermediates as inputs to other sectors of the industry like paints, adhesives, pharmaceuticals, dyestuffs and intermediates, leather chemicals, pesticides, etc. Methanol, acetic acid, formaldehyde, pyridines, phenol, alkyl amines, ethyl acetate, and acetic anhydride are the major organic chemicals produced. Formaldehyde and acetic acid are important methanol derivatives and are used in numerous industrial applications. Phenol is an aromatic compound and derived from cumene, benzene, and propylene derivatives. Alkylamines are used in the manufacture of surfactants. Pyridine derivatives are used in the manufacture of pharmaceuticals. Ethyl acetate is the ester of ethanol and acetic acid and is manufactured for use as a solvent. Acetic anhydride is widely used as a reagent. Natural gas/ naphtha are mainly used as feedstock for the manufacture of these organic chemicals. Alcohol is also an important feedstock for the industry, with the sizable production of acetic acid and the entire production of ethyl acetate being based on alcohol. The global production of organic chemicals was around 400 million tons during 2010-11. Major producers of organic chemicals are the USA, Germany, U.K, Japan, China, and India. Few Latin American countries, for example, Brazil and Chile are increasing their presence in the global organic chemicals market.
This industry manufactures a variety of basic inorganic chemicals. Inorganic chemicals are generally mineral-based. Most organic chemicals, on the other hand, are carbon-based. Inorganic chemicals are used as inputs in a number of manufacturing and industrial processes. Key identifiable industry segments include Chlor-alkali and carbon black products. Major industry products are Chlorine, Caustic soda, Potassium, sodium, and other alkali compounds, Chemical catalysts, Inorganic acids, Carbon black, and Other inorganic chemicals.
This industry primarily manufactures fertilizer products. These products contain a different mixture of the three vital nutrients essential for plant growth: nitrogen, phosphorous, and potassium. The products are distributed via wholesale arrangements with third parties or, in the case of vertically integrated operations, by the manufacturer. Major industry products are phosphate fertilizers, nitrogenous fertilizers, and mixed fertilizers. The major activities include manufacturing ammonia, ammonium nitrate, ammonium sulfate, and ammonium phosphates, natural organic and animal waste or sewage origin fertilizers, nitric acid and phosphoric acid, nitrogenous fertilizer materials, urea, phosphatic fertilizer materials, potting soil, plant foods, and compost, etc.
This industry formulates and prepares agricultural and household pest control chemicals. Key products include pesticides (herbicides, insecticides, and fungicides) and agricultural chemical products (insect repellents, sheep dips, fly sprays, and flea powders). Key markets for this industry include the agricultural sector, households, and various commercial and industrial users.
This industry produces substances that loosen and remove soil from a surface for personal hygiene, sanitization or cleaning clothes, linens, and furnishings. The industry does not include manufacturers of synthetic glycerin, industrial bleaches, or shampoos. Major industry products include household soaps and detergents, commercial soaps and detergents, polishes, and other sanitation goods and surface-active agents.
This industry manufactures a diverse range of chemical products. Key product groups include custom compounding plastic resins and manufacturing toners, toner cartridges, photographic chemicals and sensitized photographic film, paper, and plates. Custom compounding of plastic resins includes custom mixing and blending of purchased plastic resins and reformulating plastic resins from recycled plastic products. Major industry products include custom compounding of resins, photographic chemicals and materials, and other related products and preparations.
This industry manufactures synthetic organic and inorganic dyes and pigments, such as lakes and toners (except electrostatic and photographic). As such, the industry produces various pigments and dyes, including color, lead, chrome, metallic and zinc-based pigments as well as disperse, vat, and direct dyes. A chemical intermediate product, these pigments, and dyes are used to impart color to numerous products. Major industry products include inorganic dyes and pigments and synthetic organic dyes and pigments.
Generic pharmaceutical and medicine manufacturers develop prescription and over-the-counter drug products that are used to prevent or treat illnesses in humans or animals. Generic drugs are produced and distributed without patent protection, and industry operators are not significantly engaged in the research and development of new drugs. The industry does not include manufacturers of nutritional supplements or cosmetic beauty products. Major products include pharmaceutical preparations for metabolic drugs, cardiovascular drugs, central nervous system drugs, psychotherapeutic drugs, and other drugs. It includes medicinal and botanical products, in-vitro diagnostic substance products, and biological products (except diagnostic). The main activities of this industry are to develop and produce drugs, market and distribute them after gaining regulatory approval for respective drugs. Generic firms can be smaller because the cost of research and development is significantly lower than it is in the brand name industry. Economies of scale exist when increasing the size of a company increases its productivity.
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The chemical industry consists of the companies that produce industrial chemicals. This industry utilizes chemical processes such as chemical reactions and refining methods to convert raw materials—such as oil, natural gas, air, water, metals, and minerals—into more than 70,000 different products. These products include petrochemicals, agrochemicals, ceramics, polymers and rubber (elastomers), oleochemicals (oils, fats, and waxes), explosives, fragrances, and flavors. The chemical industry is, thus, central to the modern world economy.
Technology
Most of the products manufactured are used in the manufacture of other items, but a smaller number are used directly by consumers. Solvents, pesticides, lye, washing soda, and portland cement are a few examples of products used by consumers. Examples of the products produced by chemical industries are shown in the Table below.
Although the pharmaceutical industry is often considered a chemical industry , it has many different characteristics that puts it in a separate category. Other closely related industries include petroleum, glass, paint, ink, sealant, adhesive, and food processing manufacturers.
Chemical processes such as chemical reactions are used in chemical plants to form new substances in various types of reaction vessels. In many cases the reactions are conducted in special corrosion resistant equipment at elevated temperatures and pressures with the use of catalysts. The products of these reactions are separated using a variety of techniques including distillation especially fractional distillation, precipitation, crystallization, adsorption, filtration, sublimation, and drying. The processes and product are usually tested during and after manufacture by dedicated instruments and on-site quality control laboratories to insure safe operation and to assure that the product will meet required specifications. The products are packaged and delivered by many methods, including pipelines, tank-cars, and tank-trucks (for both solids and liquids), cylinders, drums, bottles, and boxes. Chemical companies often have a research and development laboratory for developing and testing products and processes. These facilities may include pilot plants, and such research facilities may be located at a site separate from the production plant(s).
Products
Polymers and plastics—especially polyethylene, polypropylene, polyvinyl chloride, polyethylene terephthalate, polystyrene, and polycarbonate—constitute about 80 percent of the industry’s output worldwide. Chemicals are used to make a wide variety of consumer goods, as well as inputs to agriculture, manufacturing, construction, and service industries. Major industrial customers include those who use rubber and plastic products, textiles, apparel, petroleum refining, pulp and paper, and primary metals. Chemicals is nearly a $2 trillion global enterprise, and the EU and U.S. chemical companies are the world's largest producers.
Product category breakdown
Sales of the chemistry business can be divided into a few broad categories, including basic chemicals (about 35 to 37 percent of the dollar output), life sciences (30 percent), specialty chemicals (20 to 25 percent) and consumer products (about 10 percent).
Basic chemicals are a broad chemical category including polymers, bulk petrochemicals and intermediates, other derivatives and basic industrials, inorganic chemicals, and fertilizers. Typical growth rates for basic chemicals are about 0.5 to 0.7 times GDP. Product prices are generally less than fifty cents per pound. Polymers, the largest revenue segment at about 33 percent of the basic chemicals dollar value, includes all categories of plastics and man-made fibers. The major markets for plastics are packaging, followed by home construction, containers, appliances, pipe, transportation, toys, and games. The largest-volume polymer product, polyethylene (PE), is used mainly in packaging films and other markets such as milk bottles, containers, and pipe.
Polyvinyl chloride (PVC), another large-volume product, is principally used to make pipe for construction markets as well as siding and, to a much smaller extent, transportation and packaging materials. Polypropylene (PP), similar in volume to PVC, is used in markets ranging from packaging, appliances, and containers to clothing and carpeting. Polystyrene (PS), another large-volume plastic, is used principally for appliances and packaging as well as toys and recreation. The leading human-made fibers include polyester, nylon, polypropylene, and acrylics, with applications including apparel, home furnishings, and other industrial and consumer use. The principal raw materials for polymers are bulk petrochemicals.
Chemicals in the bulk petrochemicals and intermediates are primarily made from liquefied petroleum gas (LPG), natural gas, and crude oil. Their sales volume is close to 30 percent of overall basic chemicals. Typical large-volume products include ethylene, propylene, benzene, toluene, xylenes, methanol, vinyl chloride monomer (VCM), styrene, butadiene, and ethylene oxide. These chemicals are the starting points for most polymers and other organic chemicals as well as much of the specialty chemicals category.
Other derivatives and basic industries include synthetic rubber, surfactants, dyes and pigments, turpentine, resins, carbon black, explosives, and rubber products and contribute about 20 percent of the basic chemicals external sales. Inorganic chemicals (about 12 percent of the revenue output) make up the oldest of the chemical categories. Products include salt, chlorine, caustic soda, soda ash, acids (such as nitric, phosphoric, and sulfuric), titanium dioxide, and hydrogen peroxide. Fertilizers are the smallest category (about 6 percent) and include phosphates, ammonia, and potash chemicals.
Life sciences (about 30 percent of the dollar output of the chemistry business) include differentiated chemical and biological substances, pharmaceuticals, diagnostics, animal health products, vitamins, and crop protection chemicals. While much smaller in volume than other chemical sectors, their products tend to have very high prices—over ten dollars per pound—growth rates of 1.5 to 6 times GDP, and research and development spending at 15 to 25 percent of sales. Life science products are usually produced with very high specifications and are closely scrutinized by government agencies such as the Food and Drug Administration. Crop protection chemicals, about 10 percent of this category, include herbicides, insecticides, and fungicides.
Specialty chemicals are a category of relatively high valued, rapidly growing chemicals with diverse end product markets. Typical growth rates are one to three times GDP with prices over a dollar per pound. They are generally characterized by their innovative aspects. 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. Coatings make up about 15 percent of specialty chemicals sales, with other products ranging from 10 to 13 percent.
Consumer products include direct product sale of chemicals such as soaps, detergents, and cosmetics. Typical growth rates are 0.8 to 1.0 times GDP.
Every year, the American Chemistry Council tabulates the U.S. production of the top 100 basic chemicals. In 2000, the aggregate production of the top 100 chemicals totaled 502 million tons, up from 397 million tons in 1990. Inorganic chemicals tend to be the largest volume, though much smaller in dollar revenue terms due to their low prices. The top 11 of the 100 chemicals in 2000 were sulfuric acid (44 million tons), nitrogen (34), ethylene (28), oxygen (27), lime (22), ammonia (17), propylene (16), polyethylene (15), chlorine (13), phosphoric acid (13), and diammonium phosphates (12).
Companies
The largest corporate producers worldwide, with plants in numerous countries, are BASF, Dow, Shell, Bayer, INEOS, ExxonMobil, DuPont, SABIC, and Mitsubishi, along with thousands of smaller firms.
In the U.S., there are 170 major chemical companies. They operate internationally with more than 2,800 facilities outside the U.S. and 1,700 foreign subsidiaries or affiliates operating. The U.S. chemical output is $400 billion a year. The U.S. industry records large trade surpluses and employs more than a million people in the United States alone. The chemical industry is also the second largest consumer of energy in manufacturing and spends over $5 billion annually on pollution abatement.
In Europe, especially Germany, the chemical, plastics and rubber sectors are among the largest industrial sectors. Together they generate about 3.2 million jobs in more than 60,000 companies. Since 2000 the chemical sector alone has represented 2/3 of the entire manufacturing trade surplus of the EU. The chemical sector accounts for 12 percent of the EU manufacturing industry's added value.
The chemical industry has shown rapid growth for more than fifty years. The fastest growing areas have been in the manufacture of synthetic organic polymers used as plastics, fibers, and elastomers. Historically and presently, the chemical industry has been concentrated in three areas of the world, Western Europe, North America, and Japan (the Triad). The European Community remains the largest producer area followed by the U.S. and Japan.
The traditional dominance of chemical production by the Triad countries is being challenged by changes in feedstock availability and price, labor cost, energy cost, differential rates of economic growth and environmental pressures. Instrumental in the changing structure of the global chemical industry has been the growth in China, India, Korea, the Middle East, South East Asia, Nigeria, Trinidad, Thailand, Brazil, Venezuela, and Indonesia.
Business strategy
Alfred Chandler relates the success or failure of American and European chemical companies to three themes: "Barriers to entry," "strategic boundaries," and "limits to growth."[1] He says that successful chemical firms followed definite "paths of learning" whereby first movers and close followers created entry barriers to would-be rivals by building "integrated learning bases" (or organizational capabilities) that enabled them to develop, produce, distribute, and sell in local and then worldwide markets. In addition, they followed a "virtuous strategy" of reinvestment of retained earnings and growth through diversification, particularly to utilize "dynamic" scale and scope economies relating to new learning in launching "next generation" products.
See also
Notes
Alfred D. Chandler,(Harvard University Press, 2005, ISBN 067401720X ).
References
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