International
World chemical exports to continue growing World economic cycles affect different types of chemical exports in different ways, but net trade will keep expanding at high rates
1981 ACS ANNUAL MEETING World chemical exports have been growing at an average annual rate of 17 to 18% for the past two decades. Yet, despite this impressive record, chemical leaders in the U.S., Western Europe, and Japan—the areas that account for three fourths of these exports—seem continuously pessi mistic about the future of their chemical exports. To hear them talk, there is always something—new nontariff barriers, a new foreign plant, or a newly developing indus try—waiting to knock the pins out from under their chemical export markets.
One chemical trade expert, how ever, thinks that these chemical leaders are overpessimistic. George B. Hegeman, manager of industrial chemicals consulting at Arthur D. Little Inc., Cambridge, Mass., be lieves that world chemical exports will continue to grow at or near their re cent historical rates. He also believes that the U.S., Western Europe, and Japan may well strengthen their po sitions as leading exporters of chem icals during the next decade. At a recent meeting of the Chemi cal Marketing & Economics Division in New York City, he explained why. According to Hegeman, there is chemical trade—and there is chemi cal trade. There are, in fact, at least five different categories into which chemical exports can be divided. The most important is technologi cal trade, which involves the export of proprietary products. This is the most logical of all foreign trade, because a country exports a specific chemical that is not produced in the importing country, usually because of the spe cialized technology involved in pro ducing it. ADL estimates that about one third of all chemical exports in volves technological trade. The per centage is slightly higher for the U.S., Western Europe, and Japan. Balancing trade, which is required
to meet the supply-demand imbal ances worldwide, accounts for 20 to 30% of world chemical exports. The large scale of many new chemical plants has spurred the growth of balancing trade. Because they are so large, these plants often are not built until the market develops sufficiently to accommodate their output. Until then, the market is satisfied with imports. Balancing trade, says Hegeman, occurs most often with fast-growing chemical commodities. Marginal cost exports account for another 20 to 30% of chemical trade and ADL expects it to remain at these levels. When plant operating rates are low, many companies push exports at less than full market price. They can do this as long as the netback is higher than the plant's variable costs. When that price in the importing country is less than the home market price, the export can be considered dumping. Not surprisingly, marginal cost exports can disrupt market con ditions in the importing country more than any other. They also are the ex ports that competitors fear most. On the plus side, marginal cost ex ports can mean favorable prices for importing countries. However, when there is worldwide overcapacity, these exports often lead to global price cutting and little or no profits.
World chemical exports have averaged growth of 17% per year $ Billions 1974
1968
1972
$ 3.29 4.14 0.81 8.24
$ 4.13 6.54 1.78 12.45
Canada
0.41
Australia/New Zealand Africa Latin America Middle East
0.16 0.11 0.30 0.03 0.21
United States Western Europe (net) Japan Subtotal
Asia (except China) Eastern Europe U.S.S.R. Other Eastern Europe People's Republic of China TOTAL
1978
$ 8.82
$12.72
15.21 4.07 28.10
21.75 5.07 39.54
0.64
1.07
0.33 0.19 0.57
0.67 0.38 1.85
1.22 na na 0.09
0.18 0.45 2.06 0.36 1.70 0.14
$10.88
$17.20
$38.17
1968-78 growth ( % per year)
% share 1968
1972
1974
1978
14.5% 18.0 20.1 17.0
30.2% 38.1 7.4 75.7
24.0% 38.0 10.4 72.4
23.1% 39.9 10.7 73.7
23.9% 40.8 9.5 74.2
2.14
18.0
3.8
3.7
2.8
4.0
1.20a 0.52 2.03
22.3 16.8 21.3
1.5
1.9 1.1 3.3
1.8
0.65
0.34
26.9
2.3 1.0 3.8 0.6
1.13 3.51 0.75 2.76 0.34
1.78 5.16 1.07 4.09 0.55 $53.29
23.9 15.5 20.1 b 15.7 b 20.3 17.2%
1.0 2.8 0.3 1.9 11.2
— — 0.8 100%
1.0 4.9
1.1 2.6 12.0 2.1 9.9 0.8
1.7 3.0 9.2 2.0 7.2 0.9
100%
100%
I
3.3 9.7 2.0 7.7 1.0 100%
a Extrapolated at 1974-77 growth rate of 15.9% per year; 1977 exports = $1.037 million. b Growth from 1972-78. na = not available. Note: Percentage share totals may not add because of rounding. Source: United Nations Monthly Bullet η of Statistics via A. D. Little Inc.
Sept. 7, 1981 C&EN
21
International The other two types of exports— follow-on trade and tied sales—are considerably smaller, says Hegeman. On average, they account for only 12% and 11%, respectively, of world chemical exports. As the name implies, follow-on exports are the additional overseas sales stimulated by an existing export organization that is expanding its international operation. Tied sales can be long-term barter agreements such as those that swap crude oil entitlements for petro chemical investment. Several deals in the Middle East fall into this cate gory. Or they may be compensation deals, such as those between Western and Eastern Europe, in which tech nology and equipment are exchanged for the products made in the plant. World economic cycles affect these different types of exports in different ways, says Hegeman. Balancing trade, for instance, is extremely sensitive to industry operating rates, reaching high levels at or near the peak of the world economic cycle. Marginal cost exports, on the other hand, tend to be countercyclical. They peak as the world economy
starts increasing, but slide back into a trough when the economy does reach its peak. As the economy re cedes from the peak, these exports increase again, but drop back some what when the economy bottoms out. Technological, follow-on, and tied export sales tend to follow the world economic cycle, increasing during good times and falling off during re cession. Since these three types of exports account for 50 to 60% of world chemical exports, it comes as no sur prise to Hegeman that exports have been a steadily growing and stable business. Unfortunately, he says, marginal cost exports receive the most notori ety because they often result in charges of dumping. This gives the erroneous impression, he adds, that marginal cost exports are the only type in the chemical trade sphere. Because technological, follow-on, and tied sales are affected less by changes in economic cycles, Hegeman believes that, over time, the shift be tween balancing trade and marginal cost trade changes the driving force for world chemical exports. This
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change involves a switch from centers of low-cost capacity at the bottom of the economic cycle to centers of available capacity at the top. Based on ADL's estimate of trade patterns, Hegeman notes that tech nological trade is more important to Western Europe than to any other region. For the U.S., balancing ex ports are important, whereas for Japan, follow-on exports hold the key. Tied sales currently are of most importance to Western Europe, pri marily because of its compensation deals with Eastern Europe. Marginal cost exports play a very significant role in chemical exports of developing nations. Despite the frantic growth rate of world chemical exports (17% per year between 1968 and 1978 to $53 billion), Hegeman finds some amazing consistencies in chemical trade pat terns. The share of chemical exports, for instance, held by the major ex porting nations has remained almost constant at 75% of the total. Examining the sources and desti nations of chemical exports, he also finds an unexpected stability in the
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fraction of U.S., western European, and Japanese exports destined for specific regional markets. This sta bility, Hegeman suggests, means that there is more of a long-term buyerseller relationship in chemical trade than most industry leaders assume. A corollary relationship exists in chemical import patterns as well. Although they dominate chemical exports, the U.S., Western Europe, and Japan account for only 30 to 32% of world chemical imports. Again, the percentage has remained constant over the past decade. After analyzing these chemical trade patterns, Hegeman's outlook about the future of chemical exports goes against the grain of conventional wisdom. Conventional wisdom, he says, holds that, as new plants are built around the world, exports will decline. Hegeman believes that the reverse is true. Building a chemical plant to pro duce a commodity chemical, he points out, is only the starting point in meeting growing local demand. The new producing area still will need specialty processing chemicals and advanced downstream products. As
a result, technological exports from developed nations will continue to grow. Nor is Hegeman worried that chemical exports from hydrocarbonrich countries will pre-empt the markets of developed countries such as the U.S., Western Europe, and Japan. He thinks that the impact will be minimal. Finally, Hegeman says that the traditional chemical producers—the U.S., Western Europe, and Japan— will remain the favorite targets for future chemical investment, espe cially for high-technology products. As this investment produces excess capacity in these areas, an imbalance will develop between local supply and demand. Only increased chemical trade, he says, can fill this gap. Assuming that world economic growth continues at 3 to 4% and world chemical industry growth moves at 5 to 6%, Hegeman estimates that world chemical trade will continue to in crease at 6 to 7% in real terms. Adding an inflation rate of 10 to 12% to this means that world chemical trade will continue to grow at the same rate that it has over the past 10 years. Π
Plastics exports to decline steadily
1981 ACS ANNUAL MEETING U.S. plastics exports, which have grown an astounding 26% per year over the past five years, are in for a rude awakening. Bruce H. Pickover, manager of commercial development for Chem Systems Inc., says that plastics ex ports will decline steadily through 1985 as price decontrols erode the feedstock advantage that U.S. pro ducers have enjoyed over their inter national competitors. Between 1985 and 1990, plastics exports will drop even more sharply as new producing units come on stream in other countries. Pickover unfolded his sad forecast at a recent meeting of the Chemical Marketing & Economics Division in
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CIRCLE 42 ON READER SERVICE CARD Sept. 7, 1981 C&EN
23
International The future looks discouraging for plastics exports Net exports,3 billions of lb • Low-density polyethylene D High-density polyethylene M Polypropylene
Western Europe 1985
U.S.
Western Europe
Japan
1990
a Excess of exports over imports. Source: Chem Systems Inc.
New York City. His pessimistic outlook differs considerably from the optimistic picture that Arthur D. Little's George Hegeman painted on overall chemical trade (see page 21). Both could be right, because Pickover limited his forecast to the largevolume, commodity plastics, particularly low- and high-density polyethylene and polypropylene. For these three major plastics, Pickover expects U.S. net exports (the excess of exports over imports) to fall from last year's 2.6 billion lb to 1.7 billion lb by 1985. By 1990, the net export figure will plummet to only 565 million lb. As bad as that sounds, the outlook is even worse for plastics exporters in Western Europe and Japan. Western Europe, for instance, exported a net of 730 million lb of polyethylene and polypropylene last year. By 1990, it will be down to a mere 50 million lb. Japan's net exports of these big three plastics will erode from last year's 283 million lb on the positive side to a deficit of 5 million lb by 1990. Loss of its vaunted feedstock helps explain why U.S. plastics exports will suffer. But for Europe and Japan, as well as the U.S., the big factor will be the massive capacity buildup taking place in other world areas that will inject some stiff new competition in traditional export markets. Pickover says that most of these new projects will be based on natural gas and will not make much propylene. Thus international trade patterns for polypropylene won't change much. Polystyrene and polyvinyl chloride plants tend to be smaller and the trend will be to import the monomer. The big impact, says Pickover, will 24
C&ENSept. 7, 1981
be in polyethylene. And the greatest impact will come, not from the Middle East, but from Canada. There is no doubt that Canada is building up its petrochemical industry with an eye toward the export market. It has a surplus of natural gas. Its national energy policy, though still not set in concrete, will keep prices low. Its relatively small population makes exporting mandatory and its well-developed infrastructure makes it easier. Pickover counts three, four, and possibly even five petrochemical complexes being built in Alberta and at least one more in British Columbia. By 1985, new projects will add 756,000 metric tons of low-density polyethylene and 100,000 metric tons of high-density polyethylene to Canadian capacity. Longer term, oil and gas developments in northern and eastern Canada could spawn even more petrochemical complexes. Meanwhile, Pickover says that the Middle East will have little impact on world polyethylene trade for the next few years. A polyethylene plant recently was completed in Qatar and a small unit is being built in Iraq. The big Middle East push won't come until the mid- to late 1980's, when four large projects in Saudi Arabia are scheduled to come on stream. But Pickover says that, with the country's lack of infrastructure, he doubts if they can become operational before the end of the decade. Developments in Eastern Europe no doubt will have an impact on world polyethylene trade, particularly on Western Europe. The problem, says Pickover, is that it is difficult to predict how fast new plants will be completed in Eastern Europe.
Polyethylene projects are proliferating in other world areas as well. In southeast Asia, the ASEAN (Association of Southeast Asian Nations) countries alone will add a million metric tons of polyethylene capacity (590,000 low density and 425,000 high density) by 1990 if all planned projects bear fruit. Construction already has started in Singapore and a plant there should come on stream in 1984 or 1985. World-scale complexes probably will be built in Malaysia and Thailand around 1986 or 1987. The timing in Indonesia is much less certain; Pickover believes that it will be completed towards the end of the decade. The Philippines, which had been considering a small complex, now is planning world-scale units. The ASEAN region has been a big importer of plastics, especially from Japan and, more recently, from the U.S. By the end of the decade, it could be a significant net exporter. New Zealand, South Korea, and Taiwan each have additional capacity planned for the 1980's. However, for South Korea and Taiwan, these may well be the last ones. Like Japan, these countries have no feedstock and Pickover says that they will both be net plastics importers by 1990. In Latin America, Mexico, Brazil, Venezuela, and Argentina are increasing polyethylene capacity. There certainly will be new units, says Pickover, in other countries, such as Australia, South Africa, India, and perhaps even Nigeria. This influx of new capacity is bound to have an impact on U.S., western European, and Japanese polyethylene exports. None of it, says Pickover, will be for the good. D
