Global trends in chemical industry

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Global trends in chemical industry Conference
Delivering the HLG results in the regions
16-17 April 2009, Usti René van Sloten,
Cefic
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Key facts and figures
EU is a leading chemicals production platform
29.5 of world chemicals production
(2007) Around 29,000 companies (96 have less
than 250 employees) Direct employment of nearly
1.2 million people (2007) Indirect employment
2.4 million people Sales of 537 billion in
2007 Trade surplus of 35.4 billion in 2007
Note None of the above figures includes the
pharmaceuticals.
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The main characteristics of the chemical industry
strongly influence its competitiveness

• The chemical industry has some unique
  characteristics which have to be taken into
  account in a competitiveness analysis
• Globalised industry
• Innovation-driven and knowledge-intensive
• Integrated along the value chain into its
  downstream industries, or directly to consumers
• Capital-intensive
• Energy intensive
• Long product development time, requiring stable
  and predictable policy framework

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Chemicals are a truly globalised industry in
which competition takes place at a global level
Production value growth chemicals excl pharma
p.a. 2000 - 2006
Total trade growth chemicals excl pharma p.a.
2000 - 2006

• Markets are booming around the world, with
  average growth rates p.a. of trade and production
  of up to 25 in certain countries
• More than 45 of the value of the global chemical
  industry is traded. Over 35 of this world trade
  is intra-company in nature.

Source CEFIC, COMTRADE and BASF
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Global competition in the chemical industry is
beneficial, if everybody competes on equal and
fair terms

• Competition in the chemical industry takes place
  on all levels
• Trade from and to Europe
• Investment - building up a presence sales and
  production
• High growth markets are mainly in non OECD
  countries
• But growth in other parts of the world is not a
  zero sum game, as long as any player can benefit
  from it
• Access to markets and a global level playing
  field are prerequisites for fair and beneficial
  competition

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Labour Costs high but competitive

• Labour costs in the EU chemical industry are
  high.
• There are large differences within Europe.
• Adjusted by productivity, ULC levels in the EU
  are competitive with most countries.
• Asian countries have lower ULC. This is a
  comparative advantage.
• A strong Euro harms labour cost competitiveness
  of the EU chemical industry.

Exchange Rate2003 1.13 US/Euro2007 1.37
US/Euro (20)
Source Unit Labor Costs, Productivity and
International Competitiveness, RuG 2005
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Gas prices give a clear advantage to Russia and
Middle East

• Expensive and scarce goods in Europe, as Europe
  is neither a strong gas nor oil producer country
  and has to import its raw materials.
• Europe has a good infrastructure, but inputs have
  to be sourced from other countries.
• Security of supply is crucial for a competitive
  European chemical industry.
• Other countries have preferential access to these
  energy sources. Prices are lower than in Europe
  and additionally unfair commercial practices take
  place (e.g. double pricing).

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Electricity prices in Europe have gone up in
recent years
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Capacity Changes and Closures due to lack of
access to renwable feedstock at world market
prices
Closing Down of Production Units in Europe New and/or Extended Capacities Outside Europe (by Foreign Based Companies and by European Producers)
Germany Vitamins (Roche BASF) and Insulin (Pfizer) UK Citric Acid (Tate Lyle), Astaxanthin (Tate Lyle), Penicillin (ACS Dobfar Ltd) and Xantham Gum (CP Kelco) Spain Glutamate (Peniberica) and Lactic Acid (Purac) Italy Glutamate (Biacor), Citric Acid (Palcitric Biacor) and Lysine (Ajinomoto) Czech Republic Citric Acid (Activa) France Yeast (DSM) and Xanthan (Danisco) Portugal Yeast (DSM) and Penicillin (DSM) The Netherlands Penicillin (DSM), Gluconic Acid Gluconic Derivatives (Purac) and Lactic Acid (Purac) Ireland Citric Acid (ADM) USA Lactic Acid (CSM/Cargill Cargill/Dow), Enzymes (Novozymes), Lysine (Cargill/Degussa) and Arachadonic Acid (DSM) Canada Citric Acid (Jungbunzlauer) China Lactic Acid (BBCA, Henan Jindan and Galactic), Enzymes (Novozymes), Penicillin (DSM), Lysine (Global Biotech, BBCA and others), Citric Acid (DSM, BBCA, TTCA, RZBC, Ensign), Glutamate (Meihua, Fufeng, Juhua, Global Biotech over 500 KT new capacities ), Xanthan Gum (Fufeng, GCC Inc), Vitamins Brazil Enzymes (Novozymes), Lysine (Ajinomoto), Citric Acid (Cargill) and Lactic Acid (Purac) Mexico India Penicillin (DSM) Chile, South-Africa Cuba Yeast (DSM) Thailand Lactic Acid (Purac) and Citric Acid Vietnam Glutamate and Lysine (Vedan and Ajinomoto)
These changes and closures took place over the last five years. This list is not exhaustive and other examples can be found. These changes and closures took place over the last five years. This list is not exhaustive and other examples can be found.
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Access to Raw MaterialsExample Bio ethanol for
industrial use

• Tariffs on bio ethanol are between 30 and 60
  (10,2 and 19,2 /hl)
• EU demand for bio ethanol has been rising since
  it is being mixed with fuel for reasons of
  climate protection (10 of energetic content of
  transport fuel has to be derived from plants by
  2020)
• National and EU regulations set wrong incentives
  in the utilization of bio ethanol
• The EU will not be able to fulfil domestic demand
  with domestic production
• Bio ethanol in Europe is more expensive than the
  world market price
• Other countries have lower import tariffs on bio
  ethanol for industrial utilization which means a
  loss of competitiveness for EU chemical industry
  (e.g. USA)

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Distortion of the APIs Level Playing Field

• Factors distorting the API level playing field,
  causing a landslide, and pushing EU companies out
  of business
• Our home market The EU
• Massive importation of low-priced Rogue APIs (
  Counterfeit APIs and APIs otherwise deliberately
  and severely non-compliant with pharmaceutical
  regulations)
• Worldwide Markets including EU
• Export Subsidies (Exports from India, China)
• Dumping (Chinese APIs Intermediates)
• Slashing VAT Rebate of upstream intermediates /
  raw materials for APIs
• Export Taxes on upstream intermediates / raw
  materials for APIs
• plus the given factors such as currency rates
  and low wages
• (Exporting to) the Asian Market
• Discriminating quality requirements for imported
  APIs vs.. Locally produced APIs (China)
• Astronomical fees for analytical testing of APIs
  by Chinese customs
• Excessive duplicate testing by Chinese customs
  Huge fees multiplicated
• Negative lists of APIs that are not allowed to be
  imported (India)
• Import duties (vs. Zero Tariff for API Imports
  into EU)

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Trade flows indicate an eroding competitiveness
of the EU chemicals industry
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Trade flows show a competitive position at risk
for 50 of the countries (or sectors) analysed
EU has a trade deficit and its competitive
position weakened
EU has a trade surplus but its positive
competitive position weakened
EU has a trade deficit but its weak competitive
position improved
EU has a trade surplus and its healthy
competitive position improved
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Strengths and opportunities for the European
chemical industry

• J Large integrated domestic market with strong
  customer industry cluster and reasonable demand
  growth from industry 2.0 p.a.
• J Continued strategic restructuring efforts to
  adapt flexibly to globalised markets
• J High international orientation and global
  network to external customer industries
• J Until now availability of skilled and motivated
  workers and scientists
• J Strong innovation efforts will generate new
  growth clusters Biotechnology, Renewable
  feedstock, Efficient Energy use, health and new
  materials (e.g. nanomaterials) which have the
  capability to solve upcoming societal mega
  challenges

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Weaknesses and threats for the European chemical
industry

• ? Diminishing growth stimulus from external
  demand due to weaker growth prospects for exports
  to overseas and much stronger import penetration
  from polymers and specialities.
• ? EU has a comparative price and feedstock
  disadvantage in Olefins and its derivatives and
  is facing an upcoming wave of petrochemical
  capacity additions, especially in ME.
• ? Subdued potential macro growth prospects due to
  elderly population, shrinking working age
  classes, high saturation levels.
• ? Energy markets have a quasi oligopolistic
  organisation with much too high energy cost for
  consumers and industry

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Long term outlook for the European chemical
industry
Challenges
Access to international markets Energy policy
taking into account the needs of EII Regulatory
burden and uncertainty New challenges in the area
of climate change, energy, health
Negative
Positive

• Innovation capacity
• Rising demand
• Strong internal market

• New competitors, eg Asia and China
• Macro economic climate
• Energy cost

?
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Summary competitiveness analysis

• Global competition is increasing as regards trade
  and production locations. Europes overall
  competitiveness is good and the European chemical
  industry has considerable strengths, but other
  countries are catching up quickly
• A detailed trade analysis already shows an
  eroding competitive position in some sectors and
  vis-à-vis certain countries
• Provided there are the right framework conditions
  and the right trade policy, Europe can remain an
  attractive platform for a competitive chemical
  industry and benefit from growth markets around
  the world.
• A balanced regulatory framework in Europe
• Free access to growing markets
• Fair competition as a stimulator for further
  growth
• A global level playing field