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WORLD CHEMICAL OUTLOOK Across the globe and throughout industry sectors, the chemistry enterprise is moving into a HIGHER GEAR
SHU TTERSTOCK/C&EN
CHEMICAL COMPANY managers spent
the past three years battling slow growth in many of the world’s important economies. The recession of 2007–09 brought the industry to its knees, and it’s been a dispiriting recovery since then. But the economies of many countries are finally starting to shift into second gear. The result is that the outlook for the chemistry enterprise in the year ahead is more positive than it has been in some time. Managers are particularly optimistic in the U.S., where low-priced natural gas extracted from shale deposits is trimming production costs and spurring a plant building boom the likes of which hasn’t been seen in decades. At 2.5%, the forecast for chemical production growth published by the American Chemistry Council, a trade group, is by no means stellar. But the figure is above the 1.6% expansion posted in 2013, and the expectation is for even better growth in the years ahead. In Asia, forecasts for 2014 economic
growth in key countries don’t vary much from the healthy figures posted in 2013. But profit margins for important building block chemicals should improve, thanks to good demand and a reduction in overcapacity. Even European executives are getting over the pessimism that for several years has enveloped their region. Growth figures for the industry there finally turned positive in the middle of 2013 after numerous down quarters, according to CEFIC, Europe’s main chemical industry trade group. CEFIC hasn’t come out with a forecast for 2014, but the industry association for Germany, Europe’s leading chemical producer, expects a 1.5% increase in production this year, compared with a mere 0.5% rise in 2013. Companies that serve the housing, auto, and energy markets are especially bullish about 2014. In the U.S., increased energy production will fuel demand for chemicals used in oil drilling and refining. And construction projects in the U.S., China, CEN.ACS.ORG
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and Russia will spur demand for paints and polymers. Executives in the fine chemicals sector, who monitor their drug industry customers more closely than the general economy, are optimistic about 2014. Scientific instrumentation manufacturers, on the other hand, are focusing on acquisitions and corporate reorganizations in the face of lackluster markets. And the biobased chemicals sector will be shifting this year from an industry of expectations to one that is actually manufacturing products. World Chemical Outlook was compiled by Assistant Managing Editor Michael McCoy, Senior Correspondents Marc S. Reisch and Alexander H. Tullo, and Senior Editor Rick Mullin in New York City; Senior Editor Melody M. Bomgardner in Washington, D.C.; Senior Editor Lisa M. Jarvis in Chicago; Senior Correspondent Jean-François Tremblay in Hong Kong; Senior Correspondent Ann M. Thayer in Houston; and Senior Editor Alex Scott in London.
PFIZER
COVER STORY
U.S. Growth of U.S. manufacturing, global
economy will turn up chemical demand Strong auto sales and an uptick in housing starts, which combined to spur modest growth in U.S. chemical production in 2013, will continue this year. What will be new and notable in 2014 is a manufacturing revival in the U.S. and economic expansion around the globe that will buoy demand for basic chemicals. “Manufacturing needs and exports will drive demand for basic chemicals, especially where shale gas drives competitive advantage. Europe and many emerging markets will be stronger in 2014,” says T. Kevin Swift, chief economist at the American Chemistry Council, a trade group. Combined, the
PHARMACEUTICALS: WITH IN-HOUSE R&D PARED DOWN, COMPANIES WILL LOOK OUTSIDE FOR INNOVATION ALTHOUGH 2013 brought an end to the parade of patent losses
that had for several years plagued the pharmaceutical industry, drug companies still struggled during the year with how to reinvigorate their portfolios. Big pharma firms will continue in 2014 to reconsider their R&D strategies, focusing on fewer therapeutic areas and relying more on outside sources to fill their new-product pipelines. After a decade spent diversifying their businesses, major drug firms began in 2013 to reverse course to concentrate on what they, in theory, do best: develop new medicines. Among the most notable shake-ups last year was the creation of AbbVie, the innovative medicines business that split off of Abbott Laboratories last January. Pfizer unveiled plans to break into three units: innovative pharmaceuticals; generic INDICATORS An increase in drugs; and vaccines, oncology, and consumer health care. chemical output will help meet rising The trend to pare back businesses will continue this demand for cars and houses. year, says Patrick Flochel, global pharmaceuticals sector leader at the consulting firm Ernst & Young. Companies will sell off products and units, while also potentially revamping their portfolios of drug candidates. Housing U.S. LightSuch revamps often come at the expense of jobs, and starts: chemical vehicle last year was no different. Merck & Co. and AstraZeneca output: sales: both announced major job cuts in 2013, while other big pharma firms made smaller, but still significant, layoffs. Flochel expects the headcount reductions to conNote: Estimated increases in 2014. SOURCE: American Chemistry Council tinue in 2014 but says they will be weighted toward sales, manufacturing, and supply-chain positions, rather than the deep cuts to R&D seen in recent years. “There’s a limit to how positive trends should impact much you can cut because then you cut in the muscle rather than most segments of the U.S. the fat,” he says. chemical industry including With smaller internal R&D operations, drug firms will rely even plastics, basic chemicals, and more heavily on academia and biotech firms to fill their early-stage specialties, according to ACC. pipelines. As such, several big pharma firms will be looking to recentCompared with the 1.6% ly created external innovation offices in life sciences hubs around growth in chemical producthe globe in order to cultivate relationships with key scientists. tion that the U.S. saw in But along with that greater reliance on external research comes a 2013, this year’s expected need to support it. Although the public markets opened up in 2013, growth rate of 2.5% will the cash primarily went to companies with drug candidates that have be rather robust. But the already undergone significant clinical testing. Entrepreneurs conacceleration won’t haptinue to have a tough time finding the funds for early-stage projects. pen until mid-2014 or later, Venture firms willing to put money into discovery-stage prosays Sergey Shchepochkin, grams “are few and far between,” observes Jay Lichter, managing chemical industry analyst director of the venture capital firm Avalon Ventures. “It will be at credit insurance provider incumbent upon the pharmaceutical industry to figure out creative Euler Hermes. By then, the ways to support start-ups,” he says.—LISA JARVIS
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rise in construction will have had downstream effects on demand for appliances and other durable goods. Consumer spending will also create more demand for plastics and electronics, Shchepochkin says; paper and textile markets, in contrast, will continue to underperform. Consumers around the world, not just in the U.S., will demand more autos and homes, which will boost chemical exports by 6.6% this year, according to Swift. He expects a continuing trade surplus, with basic and specialty chemical exports more than offsetting imports of pharmaceuticals and agricultural chemicals. Last year’s slowdown in demand from China’s manufacturing sector is likely to turn around this year, to the benefit of U.S. chemical exporters. Meanwhile, the Society of Chemical Manufacturers & Affiliates, a trade group for smaller firms, has turned its eye to Europe as it advocates for the U.S. and European Union to agree early in the year on the trade-enhancing Transatlantic Trade & Investment Partnership. Another big change for the U.S. chemical industry this year should be in employment, where expansion is helping to reverse what had been more than a decade of workforce decline. Chemical jobs grew by an estimated 1.3% in 2013, says Swift, who expects additions to continue through 2018. Employment will follow the large capital investments in the U.S. brought by shale gas; the tally of new projects has reached 135 with a combined value of more than $90 billion.—MELODY BOMGARDNER
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CONSTRUCTION: U.S. CONTINUES ON THE REBOUND, AS EUROPE LAGS AND ASIA SLOWS
selling an existing home,” he notes. Existing singlefamily home sales rose more than 9% last year and should increase by about the same amount in 2014, NAHB reports. ON A ROLL A building rebound will boost U.S. In Europe, the sales of paint and construction chemicals. construction industry will continue to scrape along the bottom, says Henry Warren, senior principal analyst at IHS Chemical. European production of polyvinyl chloride, a plastic widely used in residential and infrastructure construction, is down by 20–25% from its prerecession peak. With Europe’s governments continuing to keep a tight rein on spending, Warren doesn’t expect more than a 1% recovery for the PVC business in 2014. “We’re at bottom now,” he says, and even such a small recovery will be a positive sign. Russia, however, will boom, Phillips says, as the oil and gas industry builds infrastructure to move fuel southwest to Western Europe. One of those projects is a 1,490-mile pipeline that will cross the Black Sea and head toward Italy. Construction will continue to increase in China, Phillips adds, but it will likely grow more slowly than in the past as the government applies the brakes on a fast-moving economy.—MARC REISCH
HOME, COMMERCIAL, AND CIVIL construction will rebound
globally this year, particularly in the U.S., where the housing market is on the upswing. Construction in Europe will once again be slow, but economists say the recession is over and the situation won’t be as dire as last year. Meanwhile, developing countries will post strong growth but perhaps not at the double-digit rates enjoyed in the past. A revived housing market was a major reason behind the 3.2% surge in U.S. chemical production last year excluding pharmaceuticals, according to the American Chemistry Council, a leading trade association. U.S. construction activity rose 3.5% in 2013, the group says, and it predicts a further 7.4% rise in 2014. “The U.S. housing market is moving along very well,” says Phil Phillips, president of paint industry advisory firm Chemark Consulting. Helping builders turn a profit are lower prices for lumber and other raw materials. Meanwhile, mortgage rates below 5% are making it easier for consumers to take on loans, he says. The result is a rise in new home construction. According to the National Association of Homebuilders (NAHB), single- and multifamily housing starts will jump nearly 25% in 2014, after an 18% increase in 2013. It’s not just new housing that will boost demand for paints and coatings this year, says Eric Kaiser, Americas director for Arkema’s coatings resins business. “Painting is a common upgrade prior to
EUROPE Tougher times ahead as offshore competition nears
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derivative chains, will face financial pressures, and significant closures are inevitable.” An increase in chemical consumption in Europe could absorb some of the supply and stave off wholesale plant closures, Disteldorf adds. Ineos, one of Europe’s cracker operators, is seeking to insulate itself against competition outside Europe by importing ethane from the U.S. to feed its cracker in Grangemouth, Scotland. The firm plans to build a $500 million terminal in Grangemouth to bring in the cheap feedstock starting in 2016. An additional problem is that European chemical firms collectively borrowed heavily in recent years to finance acquisitions. Repayments on loans totaling $76 billion will be due within the next few years, Disteldorf notes. “Refinancing will need to take place in the context of oversupply and asset rationalization,” he says. “The knock-on effect for cracker derivatives will also put pressure on the industry to restructure.”—ALEX SCOTT SHUTTERSTOCK
Europe’s chemical sector emerged from issues,” including relatively high energy a long-term recession in the second and and feedstock costs, BASF Chairman Kurt third quarters of 2013—the latest periBock told journalists at a recent briefing. ods for which data are available–with a Hendrik Disteldorf, principal with conslight uplift in chemical sales, says CEFIC, sulting firm A.T. Kearney, sees trouble Europe’s leading chemical industry association. It’s a bit of good news for a beleaguered region, but some industry leaders believe that even this small improvement could be short-lived. Sales by Germany’s chemical industry, the largest among European countries, grew 0.5% to $256 billion in 2013 and are set to increase another 1.5% in 2014, according to VCI, the German chemical industry association. And the expectation is that U.K. manufacturing output, including chemicals, also will grow for at least FEEDSTOCK PROBLEM Ineos will import cheap U.S. the first three months of 2014, acethane to Grangemouth, Scotland, to cut costs. cording to a survey of industry leaders by the Confederation of British Industry. ahead. “Europe is likely to come under But European chemical firms have a significant pressure as exports from relatively high cost base that needs to North America and the Middle East focus be addressed in light of strengthening increasingly on this market,” he says. international competition, experts say. “Large-scale naphtha crackers in Europe, Europe’s chemical sector has “structural which provide the building blocks of many
CAMBREX
COVER STORY
FINE CHEMICALS: AFTER A GOOD 2013, OPTIMISM INCREASES THE OPTIMISM expressed in the fine chemicals sector last year is
ready to tilt toward something more like enthusiasm in 2014. Industry executives agree that 2013 was a successful year, continuing a steady climb up from the downturn in 2009, and most are confident that 2014 will be at least as good. The market for active pharmaceutical ingredients (APIs) in particular is primed for growth. “I think 2014 is probably going to be a good year for most people, but those are the guys that started preparing for it in 2010, 2011,” says James Bruno, president of the consulting firm Chemical & Pharmaceutical Solutions. Companies that invested in technologies to manufacture complex molecules in small quantities, as well as those that built up services including regulatory support and finisheddosage manufacturing, are starting to reap the benefits. The agricultural chemical market will continue to grow in 2014, Bruno says, noting that some diversified fine chemicals companies will move their emphasis away from APIs to agchems and industrial fine chemicals. A recent deal with implications for 2014 is DSM’s agreement to merge its API division with Patheon, a finished-pharmaceutical services company. Although some industry watchers were surprised by DSM’s move, Bruno says there is some logic in emphasizing services. “A lot of other companies are starting to refocus and rethink,” he says, “just not so drastically.” Aslam Malik, president of Ampac Fine Chemicals, sees the opportunity for growth in 2014 hinging on the ability to deliver complex chemistry. He points to his firm’s development of simulated moving
bed separation technology and its building of small-scale manufacturing facilities as examples of investments that should pay off this year. Steven M. Klosk, CEO of the fine chemicals maker Cambrex, says he is optimistic going into 2014, “particularly with our business to branded pharmaceutical companies.” Cambrex invested more than $30 million last year to expand its Charles City, Iowa, facility to support a major contract. Klosk says the firm has also geared up in specialized high-potency chemistry and is pursuing smaller projects. Klosk and others point to a continued flow of work from Asia back to U.S. and European fine chemicals manufacturers. And many of the new molecules brought forth by small drug companies will be manufactured in proximity to the innovators, who want to stay closely involved. “These little guys love to be touchy-feely,” Bruno says.—RICK MULLIN BRIGHT OUTLOOK
Cambrex invested in its Iowa facility in anticipation of a new contract this year.
ASIA China to maintain high growth as rest of region picks up After the mildest of economic slowdowns last year, Asia is likely to resume its role as one of the locomotives of the world economy in 2014. For the chemical industry, healthy economic growth in the region will translate into strong demand for a wide range of materials. Profitability will likely rise for chemical companies because, compared with past years, fewer chemical plants are going to come on-line in Asia. “The gap between supply and demand is tightening,” says Tony Potter, vice president for the Asia-Pacific region at IHS Chemical, a consulting firm. “Prices of chemicals will stay flat, but oil prices will moderate; therefore, margins will improve.” In terms of economic strength, China has been the big surprise. The country registered “unexpectedly strong” economic growth of 7.7% in 2013, according to the Asian Development Bank (ADB). Last year, Chinese growth was buoyed by infrastructure investment. This year, private consumption and private-sector
investment alike should be supported by structural reforms that the government approved at a national conclave in November. India’s economy grew by less than 5%
UPTICK Growth will hold steady in China and Japan, pick up in India. Nominal GDP, 2012 ($ billions)
8,358
5,960
China
Japan
1,841 India
Change in GDP from the previous year, % 2013a 2014a
China 7.7 7.5
India 4.7 5.7
Japan 1.7 1.6
a Estimates. GDP = gross domestic product. SOURCE: Asian Development Bank, International Monetary Fund
last year, a lackluster performance for the developing country. In 2014, ADB expects, Indian growth will pick up on the strength of higher exports. In addition, private-sector capital spending should resume after national elections in the first half of the year remove corporate uncertainty. As economies grow in Asia, so should demand for a wide range of chemicals. Profit margins for building blocks such as ethylene and propylene will particularly benefit because relatively few petrochemical complexes are coming on-line. “Demand growth will outstrip supply growth in 2014 and 2015,” Potter says. Synthetic rubber will also enjoy improved profitability. In 2013, profit margins were pressured by an abundance of natural rubber during a year when many new synthetic rubber facilities came online, especially in China, according to Potter. But Asia’s booming regional market for motor vehicles is helping to correct the situation. “Excess capacity is getting mopped up,” he says.—JEAN-FRANÇOIS TREMBLAY
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ELEVANCE
PETROCHEMICALS: U.S. FIRMS ARE MAKING AS MUCH, AND EXPANDING AS FAST, AS THEY CAN IN 2013, U.S. petrochemical producers once again racked up
fantastic profits while their counterparts in Europe and Asia struggled. There’s little to indicate that 2014 will be much different. Extraction of hydrocarbons from shale continued to keep U.S. natural gas cheap relative to oil in 2013. In fact, on an energy-content basis, oil is about four times more expensive than gas. Because U.S. chemical companies make the building block chemical ethylene predominantly by cracking natural-gas-derived ethane, this price disparity gives them an enormous advantage over European and Asian firms that rely primarily on naphtha, which is derived from crude oil. Thus, U.S. chemical producers are running their plants as hard as they can. According to Stephen Lewandowski, director of olefins research at the consulting firm IHS Chemical, North American operating rates are currently about 93%, the practical maximum. Because U.S. petrochemical producers can’t push their plants any harder, they are meeting growing demand at home for ethylene derivatives such as polyethylene and polyvinyl chloride by exporting less. In Europe, the situation is dire. The average integrated margin— the profit in the supply chain from naphtha all the way to polyethylene—is break-even, according to Lewandowski. There, producers are running plants at rates of less than 80%. “As long as crude stays where it is, it is going to be difficult for Europe,” he notes. “They just don’t have the competitive feedstocks and competitive assets.” In the U.S., companies are planning an unprecedented amount of new capacity. The tenth announcement of a multi-billion-dollar pet-
OILED UP Elevance makes specialty chemicals from vegetable oils at
this plant in Gresik, Indonesia.
CLEANTECH: RENEWABLES TO REBOUND FROM HYPE DEFICIT EXCITEMENT about cleantech has hit bottom, according to ana-
lysts. But that’s to be expected, because it has been several years since the sector was considered new. Venture capitalists have moved on, and this is the year corporations and private equity firms will take over to advance the most desirable technologies. Renewable chemicals and fuels became a real, live industry last year, with a first batch of commercial-scale facilities. Advanced biofuels firms KiOR and Beta Renewables scaled up production, as did biobased chemical makers Myriant, Elevance Renewable Sciences, and Amyris. Genomatica’s partner BASF began commercial production of 1,4-butanediol in December. This year, cellulosic ethanol makers Enerkem, POET-DSM, and DuPont will open their first large facilities. And BioAmber will follow Myriant in producing commercial quantities of succinic BY THE NUMBERS acid when it opens its plant in Ontario. Cost Of Producing 1 lb Of Ethylene All new technologies follow a pattern of initial hype followed by disappointment and then a trough. “Climbing out of the Elsewhere, In the U.S., In the Middle East, trough is where we are today in cleantech,” says Dallas Kachan using naphtha: using ethane: using ethane: of consultancy Kachan & Co. Kachan predicts a rebound this year, saying business demand for green products is high. But there won’t be any major surprises, or failures for that matter, adds Mark Bünger, an analyst at Lux Research. “Now we’ll see people pull it together. It’ll be more like normal business day to day.” Renewable chemical firms should take their U.S. price of 1 lb U.S. price of 1 lb next batch of products off the shelf and put them into the of polyethylene: of ethylene: market, Bünger advises. “We’re done with the ethanol thing. SOURCES: LyondellBasell, IHS Chemical, And makers of adipic and succinic acid—they too can go make Nova Chemicals something else now.” Excitement about renewables will move from simple chemirochemical complex came last month from the chlor-alkali and PVC cals to more complex compounds—such as man-made spider silk, producer Axiall. The company and an unnamed partner are considBünger predicts. Start-ups should work to “really understand how ering a $3 billion cracker in Louisiana. biology forms those materials and how we can tweak them to make But there are signs of an approaching limit to the number of projdifferent types of molecules,” he says. ects North America can bear. For instance, last month, Nova ChemiThe changing energy landscape will have diverse effects on recals announced it will delay a new polyethylene plant. newable industries. Solar is set to soar this year, with global instalThe problem is not availability of ethane but rather access to lations growing by 25%, according to GTM Research. But demand muscle and steel. “There is an awful lot of construction proceeding for lithium-ion batteries for electric vehicles and industrial uses will on the U.S. Gulf Coast for a number of different types of projects, remain small, predicts Yoshihiro Azuma, equity analyst at Jefferies. and in this industry we haven’t had that kind of build-out, really, Cleantech analysts caution that technologies to extract and use ever,” says Chris Bezaire, Nova’s senior vice president of polyethshale gas in the U.S. are attracting investment. As the infrastrucylene. “So the industry is really constrained on engineering reture to make fuels and chemicals from natural gas grows, demand sources, pipe fitters, and electricians—all of these trades—as well for ethanol and other two-carbon chemicals made from renewable as equipment manufacturing and even materials.”—ALEX TULLO resources may take a hit, Bünger says.—MELODY BOMGARDNER
10 to 15 3 to 6 cents cents
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COVER STORY
CANADA Chemical producers are feeling
fine, but they expect near-term pains Canadian chemical producers enjoyed a fantastic year in 2013. Sales of industrial chemicals were up 6%, hitting $26.4 billion and tying the high mark set in 2008. Operating profits set a record, hitting $3.5 billion. “The shale gas phenomenon didn’t end at the 49th parallel,” says David Podruzny, vice president of business and economics for the Chemistry Industry Association of Canada (CIAC). “It continued up here.” Canada’s largest petrochemical maker, Nova Chemicals, is literally piping ethane feedstock derived from U.S. shale over the border. Its massive complex in Corunna, Ontario, is beginning to receive ethane from Pennsylvania’s Marcellus Shale. By 2018, the company will expand the site by 20% and make improvements at a polyethylene plant. Nova has, however, delayed a new polyethylene unit it was
BOOMING Demand for oil-field chemicals is growing along with
North American energy production.
SPECIALTIES: ABOVE-AVERAGE DEMAND TO BE FUELED BY CARS AND ENERGY PRODUCTION SPECIALTY CHEMICAL consumption will increase at above-aver-
age rates in 2014 as manufacturers satisfy demand from industries as diverse as cars, energy, and personal care. Global specialty chemical output will rise 4.2% in 2014, and another 4.7% in 2015, predict economists at the American Chemistry Council, a trade group. Demand for such chemicals rose 2.6% in 2013. New bonding requirements are driving the demand for adhesives used to assemble cars, says Michael Robinet, managing director at market research firm IHS Chemical. Automakers, he explains, are shifting away from heavy steel body components to alternatives such as plastic composites and aluminum. To join dissimilar surfaces and speed car assembly, automakers are adopting epoxy- and urethane-based adhesives. These bonding techniques are gaining ground not only because they are helping to displace steel. They are also benefiting from overall growth in auto demand. LMC Automotive, a vehicle forecasting service, expects North American light-vehicle production to increase 2.5% in 2014 to 16.6 million units. APEX Chemical makers enjoyed More cars on the road means greater demand for fuels strong sales in 2013 but expect to and the catalysts needed to refine them. The market for flusee a slump in 2014. id catalytic cracking catalysts is set to grow 3–4% annually over the next five years, according to Robert R. Gatte, refin$ Billions ing catalysts vice president at W.R. Grace & Co. Demand 30 25 will continue to be strong in Asia and the Middle East. More recently, the shale energy boom has increased catalyst con20 sumption by North American refiners. 15 The shale boom is also creating opportunities for chemi10 cals used to extract oil and gas from shale deposits. Ray K. 5 Will, a director at IHS, says he “conservatively” predicts 8% 0 annual growth in sales of thickening agents, drilling sands, 2004 05 06 07 08 09 10 11 12 13a 14a and water treatment chemicals to companies engaged NOTE: Currencies converted at the 2013 averin the drilling technique known as hydraulic fracturing. age exchange rate of $1.00 U.S. = $1.027 CanaMexico, where the oil industry is on the cusp of privatizadian. a Estimate. SOURCE: Chemistry Industry Association of Canada tion, may be the next big opportunity for shale energy and related oil-field chemicals, Will says. At the other end of the specialty chemical spectrum, the market planning for the province or for cosmetic active ingredients that deliver antiaging effects will the U.S. Gulf coast. enjoy another year of 5% growth in 2014, predicts Nikola Matic, a Across the country in manager at consulting firm Kline & Co. Consumption of commodAlberta, costs for locally ity personal care ingredients such as surfactants will expand at a produced ethane are low, but much slower pace, he says.—MARC REISCH CEN.ACS.ORG
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supplies have been dwindling because competition from cheap U.S. shale gas is slowing the province’s production of natural gas—and hence the ethane that it contains. Nova’s “octopus” strategy of aggregating feedstocks from various sources to make up for the Alberta shortfall is starting to come together. Williams Cos. is opening a plant that will extract ethane from Alberta’s oil sands for Nova’s complex in Joffre, Alberta. Additionally, the recently completed Vantage Pipeline will bring ethane to Joffre from North Dakota. “With that extra ethane we are able to run our plants at full capacity,” says Chris Bezaire, senior vice president of polyethylene for Nova, something that the company couldn’t do for a decade. As the feedstocks ramp up, the Joffre plant should produce 1 billion lb more ethylene per year. This summer, Nova broke ground on a $1 billion polyethylene plant to soak up that extra production. Nova isn’t the only Canadian chemical producer to invest heavily. In 2013, companies shelled out $2.0 billion on plants and equipment. According to CIAC’s annual survey of chemical firms, they will shatter that record in 2014 with $2.5 billion in investment. As bullish as they might be about the long term, Canadian chemical executives are pessimistic about 2014. According to CIAC’s survey, they expect sales to decline by 8% this year. John Margeson, CIAC’s manager of business and economics, says an anticipated 4% reduction in prices explains half the decline.—ALEX TULLO
THERMO FISHER SCIENTIFIC
INSTRUMENTATION: MERGERS WILL SHAPE THE INDUSTRY IN 2014 IN THE PAST FEW years, low- to mid-single-digit growth has been
the norm for leading analytical and life sciences instrumentation companies. Restricted R&D spending in the U.S., weak European economies, and moderating growth in emerging markets are challenges they’ve all seen. In response, many firms have turned to deal-making to create their own growth. Merger and acquisition activity announced in the past few years will greatly alter the instrumentation company landscape in 2014. “In 2013, the recipe for outperformance in life science tools was to play M&A,” Goldman Sachs stock analyst Isaac Ro told clients in a late-2013 report. Notably, Thermo Fisher Scientific is buying Life Technologies for $14 billion. When the merger closes early this year, the additional $4 billion per year in Life Technologies sales, 85% of which are of consumables and reagents, will likely make Thermo Fisher the industry sales leader. The company will compete for the top slot with Danaher, which has also built its business through acquisitions, including the 2011 purchase of Beckman Coulter. Having gotten Beckman’s operations on track, Danaher appears to be on the acquisition trail again. At a mid-December 2013 analyst meeting, CEO H. Lawrence Culp Jr. pointed out that the company has $8 billion to spend. Meanwhile, a substantial portion of growth in Agilent Technologies’ life sciences and diagnostics business came from the Dako diagnostics business it acquired in mid-2012. And Agilent continues to be excited about diagnostics and pharmaceuticals markets, as well as food and energy, CEO William P. Sullivan recently told analysts. After growing through acquisition, Agilent is poised to get
LAB RESULTS A bigger
consumables business will support Thermo Fisher’s lab tools.
smaller again with a split in two planned for later this year. Keeping the Agilent name, one company will have the betterperforming life sciences, diagnostics, and applied markets businesses. The other piece, to be called Keysight Technologies, will be made of Agilent’s electronic measurement business. It saw revenues decline in 2013, although it should see a boost from economic growth anticipated in the second half of 2014, Sullivan said. Amid the big deals, companies also have been using more prosaic means to control costs and reshape operations. A common corporate tack has been to reduce manufacturing footprints while making bolt-on acquisitions. As companies revamped last year, economic challenges forced them to keep lowering their estimates for sales and earnings growth. Looking ahead, Goldman Sachs’s Ro points to developments, such as a bipartisan budget deal, that might free up spending on instrumentation in the U.S. this year. He also suggests that Europe’s Horizon 2020 research and innovation program could help drive sales. However, in China, the largest of the emerging markets, growth is moderating overall and appears decidedly mixed across industrial, academic, environmental, and food markets.—ANN THAYER
MIDDLE EAST Capacity is growing, but so is the competition Supplies of cheap natural gas from U.S. shale deposits are growing while gas supplies in the Middle East are becoming constrained. That dynamic will be the shaping force this year for Persian Gulf chemical companies competing in international markets. The Middle East petrochemical industry “is at a critical juncture and must be well prepared and positioned” to face these challenges, said Prince Abdulaziz bin Salman bin Abdul Aziz, deputy minister for Saudi Arabia’s Ministry of Petroleum & Minerals, in a speech in Dubai late last year. Middle Eastern firms are responding by investing in feedstock supply, boosting R&D, and expanding their presence in specialty chemicals that don’t depend so much on cheap raw materials. The fertilizer sector, where Gulf producers have invested in some of the world’s biggest plants, could be adversely affected by increased exports from the U.S. in the coming years, according to
London-based Business Monitor International, a market analysis firm. The Middle East’s fertilizer capacity is expected to increase by some 50% to 50 million tons per year by 2016, BMI says.
STILL GROWING Middle East ethylene capacity is expected to increase through 2018. Billions of metric tons per year 50 40 30 20 10 0
2011 12
13
14
15
16
17
18
NOTE: Data for 2013–18 are current planned capacity. Total includes capacity for Iran, Israel, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates. SOURCE: Business Monitor International
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The Gulf’s polyethylene producers are also likely to face increased U.S. competition as ethylene crackers planned for the U.S. start cranking out polyethylene and other derivatives. At the same time, Middle East exports of polyethylene are expected to soar as production in the region ramps up, states BMI in a recent report on Saudi Arabia. Half of all the new ethylene projects being developed globally are located in the Persian Gulf, BMI says, and through 2017 the Middle East could add almost 6 million tons per year of ethylene capacity. Saudi Arabia is the region’s largest overall exporter of petrochemicals. It is set to account for 16% of global petrochemical production in the next five years, up from around 10% in 2013, as capacity expands and Asian demand continues to grow, BMI states. Overall, however, “the days of new massive olefins projects may be over,” BMI predicts.—ALEX SCOTT
BASF
COVER STORY
LATIN AMERICA Region braces for a coming
storm of imports
All is quiet on the economic front in Latin America, where growth was moderate in 2013 and should remain so this year. Local executives are preparing instead for 2017, when U.S. chemical plants built to run on shale gas are expected to start up. Latin America, they know, is a logical market for the output of these plants. Latin American economies have cooled from the frenzied rate of growth many enjoyed a few years ago. Economists at the International Monetary Fund expect Brazil, the region’s largest economy, to repeat last year’s 2.5% growth performance in 2014. The depreciation of Brazil’s currency will boost competitiveness and lift exports, IMF
GOOD YEAR Demand from farmers such as this Austrian zucchini
grower made for strong crop protection chemical sales in 2013.
CROP PROTECTION: GROWTH WILL EASE AFTER A STRONG YEAR MARKETS DON’T outperform forever. In 2013, the value of the
global agrochemicals market expanded nearly 8.9% to $55.8 billion, according to the Scottish consulting firm Cropnosis. But 2014 will be less outstanding, with growth of only 4.4%. “It’s partly because of crop prices that are generally lower,” says Leon van Mullekom, Southeast Asia business leader for crop protection at BASF. “The farmers have to consider their return on investment.” Cropnosis’s forecast assumes that no nasty weather pattern develops in the coming months. Pacific Ocean temperatures have so far been stable, says Gautam Sirur, the firm’s principal consultant, which indicates that no El Niño or La Niña system is developing. During El Niño or La Niña years, devastating STEADY Growth in Latin floods or droughts can harm harvests. America’s largest economies is Growth rates vary widely among the different segexpected to remain modest. ments of the crop protection industry. In 2013, seed treatNominal GDP, 2012 ($ billions) ments were the highest performers, with growth of more than 13%, and they will continue to outperform this year, Sirur expects. “Farmers are buying high-value seeds that increase yields or produce special breeds,” he says. Growth in herbicide demand will slip from its double2,253 Brazil 1,177 digit rate but still outperform the crop protection market Mexico 475 as a whole this year, Sirur expects. One reason for the Argentina relative strength of herbicides is that farmers are being forced to use more expensive products as weeds become resistant to glyphosate, a weed killer made popular by Change in GDP from the previous year, % Monsanto as Roundup. Argentina Brazil Mexico Over the medium term, developing countries will gen2013a 3.5 2.5 1.2 a 2014 2.8 2.5 3.0 erate much of the growth in crop protection, BASF’s van Mullekom expects. In Southeast Asia, for instance, Laos, a Estimates. GDP = gross domestic product. SOURCE: International Monetary Fund Cambodia, and Myanmar are important and completely new markets, he notes. Across the developing world, one trend underpinning crop says. “But higher inflation chemical growth is the rise of agriculture as a professional occupahas lowered real incomes and tion. “As older farmers retire, their children do not take over the may weigh on consumption,” farm,” van Mullekom says. “So small family farms get merged, and the fund warns. this gives rise to professionalization.” According to the Brazilian In recent years, the world’s major agricultural chemical firms chemical industry’s trade have boosted their sales and distribution infrastructure in the degroup, Abiquim, chemical veloping world to tap the potential there as farmers become more performance was in line with technology savvy. Although 2014 will likely be a slow one for the the broader economy last crop protection industry, it might just be a period of rest before a year. Brazilian chemical shiprebound.—JEAN-FRANÇOIS TREMBLAY CEN.ACS.ORG
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ments increased by 1.5% in 2013, hitting $162 billion. From 1996 through 2013, in contrast, the industry grew at an 8.1% annual clip. In Mexico, the economy was even more sluggish, with meager 1.2% growth in 2013. Chemical sales volumes at the state oil company Pemex declined by 6.6% during the first 11 months of 2013. However, IMF says Mexico is set to ride a wave of increased government spending and strong U.S. growth to see 3.0% economic expansion in 2014. Mexico is also on track to be the home of the first new ethylene cracker to be built in the Americas in more than a decade. In November, Braskem reported that its $4.5 billion project in Coatzacoalcos, Mexico, is 48% complete. It is scheduled to start up in 2015, well ahead of the U.S. projects based on shale gas. But most other major Latin American projects are languishing, according to Rina Quijada, senior director for the region at IHS Chemical. “Most of the petrochemical projects that we had in the region have been put on the back burner at the moment due to all this new feedstock that will come on soon in North America,” she says. When that happens, Latin America will become an even more critical market for U.S. chemical producers than it already is. A mere 40% of the planned U.S. polyethylene capacity that can’t be absorbed at home would completely saturate the Latin American market, Quijada says. Small, older plants in the region, she notes, are in jeopardy of closing.—ALEX TULLO
