Chemicals: Global Market Outlook

By Guest Editor

November 12, 2015 at 7:00 AM

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. 

Background

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.

chart 1 chemical capacity.png

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. 

table A percentage of global capacity.png

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%).

 chart 2 operation rate.png 

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.

Imports

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.  

chart 3 imports.png

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

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.

chart 4 exports.png  

Chemical Demand

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.

chart 5 chemical demand.png                                         

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.

table c product volume.png

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.

charts 6 and 7 growth rates.png

In terms of chemical families, the biggest growth rates are described in Table D.

table D volume growth.png

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.  

Conclusion

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

Paulo2_-_2012.jpgPaulo 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



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