By Guest Editor
By Paulo Moretti
This is the third of a series of articles related to global chemicals and plastics, links to the previous of which can be found here:
Market Analysis: Chemicals and Plastics, U.S. data for chemicals and plastics with past and future demand along with their growth rates.
Plastics – Global Market Outlook, Installed capacity, current and future demand, growth rates, imports, and exports.
Parallel to the second article, this global market outlook focuses on chemicals, aggregating 116 chemical families totaling demand of 3.0 billion MT (6.7 trillion lb.) of global products.
There are thousands of chemical products on the market. However, the data from this market analysis are restricted to chemicals most consumed in the industry (in solid, liquid, or gas form) that are considered commodity chemicals.
In terms of regions, the data was aggregated as North America (USA, Canada, and Mexico), Latin America (Central, South), Europe (Western, Eastern, Central, and Baltic), Middle East, and Asia-Pacific (India, Southeast, Northeast, and Oceania).
An analysis of demand can be broken into “Current” and “Future” categories. Each market analysis has a different year as its base line, with 2012, 2013, and 2014 being called Current. Future demand is considered five years ahead, correspondingly: 2017, 2018, and 2019. In a perfect world, we should have one single year as a base line, but different sources use different starting dates for their market data. In that regard, we need to view the data below in the perspective of magnitude and general direction, and not as a precise number.
Capacity and Operation Rate
The global capacity for all chemical families is around 3.1 billion MT (metric ton) where Asia-Pacific presents higher capacity than all other regions together as shown in Chart I.
Please click on images to enlarge for viewing.
Some of the chemicals present a higher capacity concentration in a specific region. Table A below shows which chemicals, in each region, have the highest concentration of global capacity (local capacity/global capacity). Having a higher capacity concentration may mean that the region has abundance and probably lower cost for that specific feedstock. It could also mean lower total unit fixed cost (manufacturing and expenses) because they produce higher volumes. Consumers of these products should consider sourcing from these regions.
Chart II below captures the operation rates for each region. North America presents the highest Current operation rate at 82% for the products produced in the region, followed by Asia-Pacific (77%), Europe (75%), Latin America (74%), and the Middle East (71%).
The second perspective is to see which region may have more products available for purchase. Currently there is more product available from Asia-Pacific (469 million MT), Europe (181) and North America (131). It is interesting to note that product availability from Asia-Pacific is higher than total capacity from the Middle East or Latin America.
It is important to also pay attention to the between regions. In part, imports reflect how a region covers its internal demand and also provides opportunity for purchases from lower-cost regions.
The chemical families with high volume trading between the regions are shown in Table B and represent 63% of global trade volume of 116 chemical families. The high volume tradable products are evidence that it is relatively easy to import and export products between regions and also that the prices between the regions are very similar. I believe that any company should buy from international sources in order to create competition with local suppliers and keep the prices in a lower level.
Exports reflect the competitiveness of regions across the world. As we see in Chart IV, Asia-Pacific is the biggest exporter because of its huge installed capacity. On the other hand, the Middle East represents the highest export percentage compared to their installed capacity, showing their competitiveness based on lower feedstock costs.
All 116 chemical families in my analysis present a current demand (see background note above) of 3.0 billion MT, which is expected to grow globally at a rate of 3.4% per year reaching 3.6 billion MT in the future.
The chemical families with highest demands in the world are shown in Table C. These chemicals represent 57% of all 166 Chemical families’ global demand.
The Compound Average Growth Rate (CAGR), is the growth rate in percentage year over year in a specific region. It reflects the growth of all end-use applications of that specific chemical in a region, which of course, is driven by the overall growth of the region’s GDP. In Chart VI, we see the CAGR for the internal demand in each region, which shows Asia-Pacific, the Middle East, and Latin America with the highest growth rates. The same data from a volume perspective (see Chart VII) shows very clearly that Asia-Pacific is the region where chemical producers should have business, either by having local plants in the region or exporting chemicals from other regions.
In terms of chemical families, the biggest growth rates are described in Table D.
The growth rates at this level, much above GDP growth, reflect some new end-use applications or high growth rate from specific market segments. Every time we see a product with high demand where the supply is not following at the same rate, we can expect a price increase. This means that companies buying these chemicals may find difficulty getting the product if they do not have a contract in place.
Chemicals are used in all manufacturing industries as first or second-tier materials, so it is important to understand market dynamics in the chemical world. From the chemical business perspective, it is imperative to understand the supply and demand of each chemical family and the competitive position in each region in order to define long-term business strategy. From the purchasing perspective, managers need to educate themselves about each chemical family they buy at a granular level, so they can select the suppliers that best fit long-term needs, as well as identifying opportunity for lower-cost materials.
Taking Purchasing to the next level,
Paulo Moretti is Principal at PM2Consult.com, a boutique consulting company focused on excellence in the purchasing function for manufacturing industries and market analysis of Chemicals & Plastics industries. Prior to becoming Principal, he was Senior Consultant at Vantage Partners, and worked 35 years at The Dow Chemical Company, where he developed experience in such diverse areas as Manufacturing, R&D, Sales, Marketing, Finance, Strategic Planning, e-Business, and Purchasing. A native of Brazil now based in the U.S., Moretti holds a Bachelor’s degree in Chemistry and Chemical Engineering, with Master’s degrees in Industrial Management and in Business and executive course certifications from Kellogg, Wharton, and MIT Sloan.
Download a PDF of this article, Chemicals Global Market Outlook
George E. Krauter
When one defines third-party MRO (3PMRO) success, one assumes that fundamental operations are being executed and that expectations are being met (i.e., ROI goals are surpassed} Read More
The US Labor Department reported in March of this year that there were 6.6 million job openings, a record high. Although most of us applaud these numbers Read More
Millennials working in the supply chain management field don’t fit the mold that the older generation assumes for them. APQC’s recent study Read More
Staples Advantage is the one supplier that offers all the business solutions you need, all with the expertise of a specialty vendor. Read More
It started in 1972 with an idea, a new concept in distribution. Today, Digi-Key Corporation is one of the fastest-growing electronic component distributors in the World. The stimulus for this growth is Digi-Key's customer-centered business philosophy… Read More
Procurement and supply management leaders have a seat at the table, and management’s expectations are high. But what do CEOs really want, and is purchasing delivering on these expectations? This webcast looks at how procurement and supply management … Read More
At world-class companies, purchasing’s influence touches just about every area of spending. But, how exactly do procurement teams get to the point where other departments approach them for help with sourcing such indirect categories as human resource… Read More