SHU T T ERSTO C K
COVER STORY CENM- Config Test
WORLD CHEMICAL OUTLOOK CHEMICAL INDUSTRY executives entered
2011 with the knowledge that it would not be as strong as 2010, a year of brisk rebound from the Great Recession. That turned out to be the case, and now 2012 looks to be even weaker than 2011. Going into 2011, trade association economists anticipated that chemical output growth would be 2.7% in the U.S. and 2.5% in Europe. In the end, the U.S. chemical industryloggedarespectable3.8%expansion,but Europe staggered in at only 2.0% growth. The outlook for this year in the two mature economies is not pretty, as companies must confront sluggish local economies, reduced government spending, and cooling demand in Asian export markets. The American Chemistry Council (ACC) expects a 1.6% expansion in U.S. chemical output; the European Chemical Industry Council projects 1.5% European growth. These lackluster dynamics are showing up in markets for paints, commodity
chemicals, and many specialty chemicals. Construction chemical executives, for example, anticipate almost no growth for their products in the U.S. and Northern Europe this year and even a slight contraction in Southern Europe, where the most debtladen countries are. U.S. petrochemical executives can take comfort in the silver lining of low natural gas prices. Although demand for their core product, ethylene, is expected to rise less than 1% this year, companies are investing heavily in new plants on the conviction that U.S. products will be highly competitive globally when business improves. And certain markets continue to do well. Agricultural chemicals should reap a good 2012 as farmers enjoying high crop prices do what they can to ensure large harvests. Pharmaceutical chemical companies anticipate high-single-digit growth based on better prospects in the drug development pipeline.
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As usual, chemical demand in Asia and Latin America will outpace that in the U.S. and Europe, but even these regions are slowing. Notably, economic growth in important countries such as Brazil, Argentina, and China is expected to slip this year, although not to the anemic levels of the West. T. Kevin Swift, chief economist at ACC, reported recently that “a global soft patch has emerged and has been centered in manufacturing.” With assessments like that, 2012 is likely to be a year for the chemical industry to endure rather than enjoy. World Chemical Outlook was compiled by Assistant Managing Editor Michael McCoy, Senior Correspondent Marc S. Reisch, and Senior Editors Melody M. Bomgardner, Rick Mullin, and Alexander H. Tullo in New Jersey; Senior Correspondent Jean-François Tremblay in Hong Kong; and Senior Correspondent Ann M. Thayer in Houston.
DA N ISCO
COVER STORY NEW TOY
DuPont’s purchase of Danisco included this facility in Shanghai.
U.S. Domestic firms will be competitive in a
slow-growth environment
FINANCE: CHEMICAL FIRMS WILL USE THEIR WAR CHESTS TO EXPAND INTO EMERGING MARKETS IN 2011, slow economic growth, fears of a double-dip recession,
and the March earthquake and tsunami in Japan cast a shadow over the finances of the global chemical industry. Nevertheless, most firms remained quite profitable during the year, and many have set ambitious growth goals for 2012 and beyond. Starting in the first quarter of 2010, the recovery from the Great Recession marked seven straight quarters of earnings growth of 30% or more for U.S. chemical firms. The secret to their success was steeply higher prices on specialty and performance chemicals, where demand was stagnant, and huge investments in segments such as seeds and crop protection, where demand was soaring. For both U.S. and European companies, exports to Asia and Latin America made up for lackluster results in domestic markets. Firms continued to implement cost reduction strategies and pay down long-term debt, and they entered 2012 with strong balance sheets. “What chemical companies saw in the recession was a lack of access to the financial markets. They recognize that in order to pursue long-term growth projects they need to be able to finance them with a better credit profile,” observes John Rogers, lead chemicals analyst for the credit rating firm Moody’s. Several large deals were made in early 2011, including DuPont’s purchase of Danisco for $6.3 billion and Solvay’s acquisition of Rhodia for $4.8 billion. In 2012, in contrast, “a vast majority of firms will be looking for smaller acquisitions—product line focused or geographically focused—to plug into their system,”Rogers predicts. Buying companies, adding product lines, and serving new geographic markets are the only sure paths to increased sales in 2012, he adds. The chemical giants BASF, Dow Chemical, and DuPont have ambitious goals to increase the proportion of sales they make in emerging markets, Rogers says, predicting that the firms will make big strides this year. “For all of these large companies, developing markets will grow. In general, companies will have fairly robust capital plans despite what seems to be a relatively soft economic outlook.” According to the American Chemistry Council, capital spending by the chemical industry should increase 9.5% in 2012 to $557 billion. ACC Chief Economist T. Kevin Swift forecasts 90% of new capital investments will be made in emerging markets through 2016. Although China is the largest of these markets, Rogers points out that chemical firms must fine-tune their strategies to be successful there. The Chinese government is investing heavily in the country’s commodity manufacturing base. So while Chinese producers focus on these basic chemicals, Western exporters should shift to value-added products, he counsels.—MMB WWW.CEN-ONLIN E .ORG
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Less expensive raw materials and good export opportunities will position the U.S. chemical industry to make the most of a bad economic situation this year. In the U.S., growth in chemical output, excluding pharmaceuticals, is expected to dip to 1.6% in 2012, compared with an estimated 3.8% gain in 2011, according to the American Chemistry Council. Basic chemicals, which rebounded early in the recovery in 2010 and then saw zero growth in 2011, will pick up a bit of speed with a 0.7% increase in output. The prognosis for specialty chemicals, 3.4% growth, is more robust, driven by demand from markets such as light vehicles and electronics, ACC says. Consumer products and synthetic rubber are
Key export markets in Europe and China have weakened, ACC says. The silver lining is that U.S. manufacturers should see profit margins expand “due to a relatively low dollar and reliance on low-cost ethane supplies boosted by shale gas development.” The advantage of cheaper natural gas feedstocks has attracted investment in new U.S. chemical plants that will supply both domestic and overseas customers in the coming years. For example, Dow Chemical CEO Andrew N. Liveris told investors in October that his firm will use its access to large quantities of cheap shale gas to bring new ethylene capacity on-line. Meanwhile, Dow’s massive Sadara chemicals project in Saudi Arabia will help it supply demand from Asia. For specialty U.S. CHEMICALS Economic and batch chemirecovery brought a return to cal manufacturers, seasonal demand in 2011. 2012 will be a year of expansion, says Lawrence D. Sloan, president of the Society of Chemical Manufacturers & Affiliates. He has spoken with leaders of performance chemical and custom pharSOURCE: Department of Commerce maceutical firms who say they are also likely to grow faster than planning significant capital the average for chemicals. expenditures. Some member “A global soft patch has companies—particularly emerged and has been centhose that sell to oil and gas tered in manufacturing,” the drillers—even anticipate primary customer base for earnings will grow. “Comchemistry, reports T. Kevin modity prices have stabilized, Swift, ACC’s chief economist. and oil prices still encourStill, Swift reports, “leading age drilling and exploration, indicators of manufacturing meaning that the market will activity are not yet pointing be strong this year,” Sloan to a recession.” says.—MMB
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WAT ERS
INSTRUMENTATION: CAUTION PREVAILS IN LIGHT OF VARIED MARKET OPPORTUNITIES
FINDING ANSWERS
Advances in separations science support business growth at Waters Corp.
THE $40 BILLION global lab instrumentation market is expected to
grow in 2012 despite uncertain academic and government funding. After a downturn in 2009 and a strong uptick in 2010, many companies were upbeat going into 2011. But the year turned out more challenging than expected, with many economic upheavals and no consistent recovery. For 2012, although macroeconomic data remain mixed, the life sciences tools industry “should grow in excess of global GDP given steady innovation, healthy pricing, expanding end markets, and global investment in R&D, particularly in emerging markets,” Goldman Sachs stock analyst David Roman told clients in an outlook report for medical and life sciences technology. However, academic funding is still constrained, and government austerity measures will likely further weigh on European growth, he added. Factoring in currency exchange rates, product launches, sales volumes, and acquisitions, Roman and colleagues forecast average sales growth of 6% in 2012 for 10 leading life sciences tools firms. Peter Lawson, executive director at Mizuho Securities USA, sees similar rates of sales growth, driven by applied, industrial, and emerging markets. In a forecast report, he points to concerns about European stability, flat U.S. government funding, and weak academic spending, which includes the last trickle of stimulus funding. Instrument firms share these concerns. “Uncertainty regarding funding in the public sector, both in the U.S. and Europe, has led to longer lead times in academic and government markets, a trend we expect to see continue into 2012,” says Chuck Kummeth, president for chromatography and mass spectrometry at Thermo Fisher Scien-
tific. But, he adds, “we see a growing market across all segments in China and India, Brazil in Latin America, and countries in Eastern Europe.” Other trends are pushing suppliers to expand their offerings. Labs in many industries must generate faster, more accurate results while reducing costs, Kummeth explains. Customer demands for increased levels of detection in routine applications such as food safety, environmental analysis, and clinical research are also driving innovation. Agilent Technologies is typical of instrument companies with its 2012 revenue growth prediction of about 6%. “We remain cautious as we enter the new year but believe there are several excellent market opportunities,” said Bill Sullivan, Agilent’s CEO, when presenting the firm’s fiscal results in November. He ranked communications, food, and petrochemicals on the plus side, along with opportunities to expand in life sciences. “Couple these market opportunities with our continued investment in emerging markets, and we believe our growth expectations are realistic, barring a financial crisis,” he concluded about 2012.—AMT
EUROPE Stalled growth in domestic markets puts pressure on exports The Eurozone—the 17 countries strong in 2012. Even construction OUTPUT Most sectors will be flat in 2012. that have adopted the euro—will markets may rebound this year, likely enjoy the dubious distinction CEFIC says. ANNUAL CHANGE of being the world region with the Florian Budde, European 2009 2010 2011a 2012a lowest rate of economic expansion chemical leader at consulting firm Chemicals (excluding pharmaceuticals) -11.0% 9.8% 2.0% 1.5% in 2012. According to many econoMcKinsey, says companies up Basic inorganics -17.3 12.9 2.5 1.0 mists, any growth at all would be a and down the supply chain have Consumer chemicals -6.9 6.8 6.5 2.5 good outcome. learned to manage downturns Petrochemicals -6.0 8.4 1.5 1.0 The region’s chemical industry more smoothly than in 2008. Polymers -16.1 14.6 1.5 0.5 will suffer as a result. The Euro“The chemical industry and its Specialty chemicals -9.3 6.1 0 1.5 pean Chemical Industry Council downstream customers have been a Estimates. SOURCE: European Chemical Industry Council (CEFIC) projects 1.5% growth in much more careful about managchemical output in 2012, down ing inventories. Sales are unlikely from an already paltry 2.0% for 2011. Indeed, chemical output has been rela- to drop off a cliff as deep as they did last CEFIC bases its outlook on an underlying tively flat since the first quarter of 2011. time, and chemical firms will be much increase of 1.0% in European GDP. The In the third quarter, Germany’s BASF better prepared,” he predicts. association blames the continuing debt reported a decline in earnings. The big The larger concern, Budde says, is that crisis in Europe and the high level of debt company’s report to investors presaged chemical companies are used to seeing in the U.S. for undermining the economy CEFIC’s dim predictions when it said: earnings grow in tandem with global GDP. at large. “BASF’s customers planned more cauBut for that to continue, they must acIn addition, “Companies are hoarding tiously, reduced inventories, and partially celerate their expansion into developing cash. The uptrend in oil prices has halted, delayed orders in expectation of falling markets, especially China, and that’s not reducing the incentive to buy ahead,” prices.” easy. “There is a lot of regulation and apCEFIC President Giorgio Squinzi said at a Still, most chemical firms are in good proval required to make new investments press conference last month. financial health, and exports should stay or even to make acquisitions.”—MMB
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NEWSCOM
COVER STORY
PHARMACEUTICALS: FOCUS SHIFTS TO REGULATIONS, SHORTAGES THIS IS THE YEAR the pharmaceutical sector faces down the so-
called patent cliff. After the late-2011 expiry of patents on Pfizer’s statin drug Lipitor, the top-selling drug of all time, and Eli Lilly & Co.’s schizophrenia treatment Zyprexa, the value of products at risk to generic competition will rise 59% to $35.2 billion in 2012, according to health care data firm IMS Health. Among the drugs set to lose patent protection this year are AstraZeneca’s bipolar disorder treatment Seroquel and the blood thinner Plavix from Bristol-Myers Squibb and Sanofi. Having spent years preparing for the patent expirations, the sector is expected to shift its focus this year to regulatory issues affecting reimbursement and to an alarming shortage that affects generic drugs in a range of therapeutic areas. Partnerships to support research will be a continued trend. According to a report by advisory firm PricewaterhouseCoopers on top health care industry issues for 2012, a critical shortage of drugs, sparked by manufacturing delays, quality issues, and a sudden demand for certain therapies, has raised concerns about patient care and safety. The year ahead will be characterized by heightened scrutiny of supply chains by FDA. IMS says more than half of the 168 short-supply drugs listed by FDA are provided by only one or two companies. Over the past year, 13 companies have stopped supplying listed drugs altogether. IMS estimates that the global drug market will grow 3–5% to between $960 billion and $970 billion in 2012. With the megamergers of Pfizer and Wyeth and of Merck & Co. and Schering-Plough still
being digested, major drug companies will shift investment to smaller acquisitions and to licensing compounds from biopharmaceutical and emerging drug companies. After several years of cutting back on R&D, the industry is desperate for innovation and is willing to pay a premium for promising compounds, says Wenyong Wang, managing director of merchant banking at the investment firm Burrill & Co. He cites Amgen’s acquisition of BioVex for $425 million up front and total payments of as much as $1 billion and Abbott Laboratories’ $400 million license of preclinical compounds developed by Reata Pharmaceuticals as 2011 examples of the industry paying dearly for a chance to acquire innovative drugs. Wang’s boss, G. Steven Burrill, anticipates a drop in new drug approvals in 2012 after a spike in 2011. “There will be fewer approvals as there will be no lessening in regulatory barriers to winning approval for new drugs,” he says. “Regulatory barriers will increase in the U.S. and lead companies to look to emerging markets for first approvals of new products.” Burrill cites biosimilars as an opportunity already being pursued by drug companies as FDA finalizes its protocol for approving the generic large-molecule therapies.—RM
ASIA Economic growth in most countries will slip this year Someone visiting almost any GDP Growth will dip in China, turn positive in Asian country from Europe or the Japan, and accelerate in India. U.S. would conclude that the local economy is firing on all cylinders. But by Asian standards, a slowdown is under way that is affecting commodity chemicals. The slowdown is most obvious in China, a major importer of chemicals and Asia’s largest economy. True, China’s economy is likely to expand 8.8% in 2012, according to the Asian Development Bank. But that number is lower than the 9.3% growth that China saw in a Estimates. SOURCE: Asian Development Bank 2011 or the 10.4% leap in 2010. According to Yoshihiro Azuma, a stock analyst at the investment firm will perform better in 2012 than it did last Jefferies, the Chinese construction secyear. In March 2011, of course, Japan expetor will slow in 2012, regardless of govrienced the Great East Japan Earthquake, ernment policies, because the country which led to a slight economic contracoverbuilt during the past two years. Thus, tion. Public and private reconstruction Chinese demand for vinyls, polyurethanes, spending will drive growth in 2012, acand phenol derivatives will be weak this cording to the Organization for Economic year, Azuma predicts in a research note. Cooperation & Development. Unlike China, the Japanese economy Yet Japanese chemical companies
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aren’t optimistic. When Sumitomo Chemical announced financial results two months ago, it anticipated deterioration in earnings over the coming months, largely because of slower demand for electronic materials. Shin-Etsu Chemical says it expects a “severe business situation” in Japan because of rising unemployment and deflation. India remains a bright spot, but according to a December report from the investment bank Morgan Stanley, growth prospects there are extremely fragile. Morgan Stanley expects falling tax income to force the Indian government to reduce subsidies to households. In addition, the bank says Indian growth in personal consumption will moderate because inflation is eroding purchasing power. The Reserve Bank of India estimates that inflation currently exceeds 9%. In its latest financial results, released in October, India’s Reliance Industries said demand for polymers had gone flat.—JFT
AT M I
CHIPPER Growth
in demand for semiconductors promises increase in sales of electronic chemicals.
PETROCHEMICALS: DEMAND IS SLUGGISH, BUT LONG-TERM PROSPECTS ARE BRIGHT
SPECIALTIES: BUOYANT INDUSTRIES SUCH AS ELECTRONICS AND AUTOS WILL FUEL GROWTH Although global demand for basic chemicals will slow in 2012, specialty chemicals serving industries such as electronics, autos, and cosmetics will continue to show good gains, says T. Kevin Swift, chief economist at the American Chemistry Council. “Specialties tend to do better later in the business cycle,” Swift explains, and they follow growth trends in the industries they serve. For example, the U.S. aerospace industry will grow 14% in 2012 as Boeing ramps up production of its next-generation Dreamliner airplane, Swift says. Epoxy resins, carbon fibers, and other materials from the chemical industry will benefit as a result. Swift projects the U.S. semiconductor industry will grow 6% in 2012 and nearly 10% in 2013. Intel, for instance, is building new chip facilities in Arizona and Oregon that should open in 2013. Makers of etchants and other electronic chemicals are likely to do well in the years ahead. U.S. auto sales should rebound in 2012, Swift says, and with them sales of specialties such as lubricant additives, emission control catalysts, plastic additives, and air-conditioning chemicals. According to an ACC study issued last month, every light vehicle produced in the U.S. contains on average $3,297 worth of chemicals. Food additives and chemicals for personal care and household use did relatively well during the recession, and they are likely to keep growing, says Gillian S. Morris, vice president of the chemicals and materials practice at consulting firm Kline & Co. Another bright spot is specialty chemicals used in hydraulic fracturing fluids to extract natural gas from shale deposits, Morris says. A slowdown caused by the financial turmoil in Europe could adversely affect specialty chemical use in the region. But Morris is cautiously optimistic that Europe will work out its problems. She says the strong economic fundamentals of Germany, the U.K., and France bode well at least for those economies and thus their specialty chemical markets. Global demand for fluid catalytic cracking catalysts is likely to grow 1–2% in 2012, says Shawn A. Abrams, vice president of W. R. Grace’s refining technology business. Mature markets for the catalysts, used to refine oil into fuels and chemicals, will be flat, whereas emerging markets in the Middle East, South America, and Asia will see some growth. Because of volatile prices for the rare-earth elements, Abrams notes, costs for refinery catalysts are on the rise. In response, catalyst makers such as Grace have developed low- or no-rare-earth alternatives, and Abrams sees a trend among refinery customers to adopt the newer alternatives.—MSR WWW.CEN-ONLIN E .ORG
In the face of economic uncertainty, 2011 was neither bad nor good for U.S. petrochemical makers, and observers expect 2012 to be more of the same. However, the long-term outlook is better than it has been in a generation. Last year started out strong, but sales weakened as worries over the European debt crisis and the U.S. economic recovery came to a head in the third quarter, according to Grant C. Thomson, president of olefins and feedstocks at Nova Chemicals. Given the uncertainty, buyers of ethylene derivatives reduced inventories. “Our customers in general have been very cautious,” Thomson says. John Stekla Jr., director of ethylene studies for consulting firm IHS Chemical, says U.S. domestic ethylene demand increased 3% during 2011. “With all the bad economic news, it maintained itself better than folks expected,” he says. In 2010, a year of economic rebound, domestic ethylene demand increased by a more robust 9%. U.S. ethylene demand will increase by less than 1% in 2012, Stekla projects. Plant operating rates, now a healthy 90%, might slip a little as producers complete incremental expansions. But bigger projects are in the works. It has been a decade since the U.S. has seen a new ethylene cracker. At the time, natural gas liquids, the feedstock that most of the U.S. petrochemical industry depends on, were at a cost disadvantage to the petroleum-derived feedstocks used elsewhere in the world. Observers thought the U.S. might never see another major petrochemical investment. With the new supply of natural gas derived from shale, everything has changed. Since the end of March 2011, companies have announced plans for four new ethylene cracker complexes and other expansions that together could add 7 million metric tons per year of new capacity by 2017. Stekla says additional projects could emerge: one on the Gulf Coast and one in the Northeast. But to get off the ground, all the projects will need both feedstock contracts and customers. Stekla thinks the feedstocks will be available, but marketing could prove challenging. “If you take each announcement individually, you can show where it makes perfect sense for that company,” he says. “It is only when you add up the total amount of volume where you can really begin to question whether the market needs all of that additional capacity.”—AHT
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SHALE BONANZA U.S. ethylene potential expansions may total more than 7 million metric tons by 2017.
a Capacity measured in thousands of metric tons per year. b Capacity figure for Dow includes a new steam cracker, incremental expansions, and the restart of a cracker in Louisiana. c Capacity figure for Sasol is the upper range of an estimate. TBD = To be determined. SOURCE: Company documents
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PPG
COVER STORY DOWNSHIFTED
Operating rates have dropped at this PPG chloralkali plant in Natrium, W.Va.
CLEANTECH: RENEWABLES FIRMS WILL LOOK TO CORPORATE INVESTORS TO GROW
U.S. output of basic inorganic chemicals will grow just 0.8% this year, down from 1.3% in 2011, the American Chemistry Council predicts. The forecast is sleepy, but developments for some key products should keep managers wide awake. Notably, weak demand for chlorine derivatives such as polyvinyl chloride is throwing off the delicate balance of the chlor-alkali business and setting it up for a rocky first half. In chlor-alkali production, the electrolysis of salt yields 1 part chlorine and 1.1 parts caustic soda. Because chlorine is a toxic gas that is not easily stored, it drives the reaction, and these days that means tightness in caustic soda supply. It’s this dynamic that led PPG Industries, the number three U.S. chlor-alkali producer, to raise caustic soda prices in late November. The firm said its plant operating rates had fallen rapidly from 91% in September to less than 80%, constraining caustic soda supply. Replicated across the industry, the phenomenon is also contributing to shortages of hydrochloric acid, according to Rx-360, a pharmaceutical quality consortium. Falling chlorine derivative demand means less output of HCl, which is often a by-product of chlorination. At the same time, HCl supplies are being gobbled up by the oil and gas industry for use in drilling. Rx-360 doesn’t expect HCl inventories to rebound until the third quarter of 2012. Demand for sulfuric acid, the largest-volume inorganic chemical, should grow 1–2% this year, says Kurt Bitting, market manager for sulfuric acid at Rhodia, the largest U.S. marketer of the acid. Known as a bellwether chemical because of its diverse applications, sulfuric acid generally tracks the economy. After a healthier showing in 2010 and 2011, demand this year will be in line with “the new normal of slower economic growth,” Bitting expects. The U.S. soda ash supply will continue to be sold out in 2012, according to Mark A. Douglas, president of FMC’s industrial chemicals group. Douglas credits strong overseas demand, particularly in Asia and Latin America. Domestic consumption, in contrast, will show only marginal improvement this year. Douglas expects demand for hydrogen peroxide, another inorganic made by FMC, to increase by 2–3% this year. Peroxide growth is being driven by economic recovery in North America and Europe and by high demand for bleached pulp in China. However, demand has yet to return to the peak of 2007 and 2008, he says. Although the 2012 outlook for some inorganics is dim, chlor-alkali executives are bullish about the longer-term prospects for their industry. In a presentation to analysts last month, PPG CEO Charles E. Bunch said the drop in natural gas prices due to the rise of shale gas has made the U.S. a globally competitive region.—MM WWW.CEN-ONLIN E .ORG
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DYNAMIC FUELS
INORGANICS: WEAK DEMAND FOR CHLORINE WILL COLOR 2012
In 2012, cleantech firms will have to cope with lowered venture capital investment and shaky support from government, industry watchers say. On the other hand, corporate investors will seek out promising technology in sectors such as biobased chemicals, dropin alternative fuels, water treatment, and agriculture. The high-water mark for venture investing in cleantech was 2008. According to Dallas Kachan of consultant firm Kachan & Co., 2011 will yield the second-highest investment total, about $8.8 billion globally. He anticipates that 2012 will bring less funding to green technologies, especially those in the early stages of development. “There are more indications than ever that some [large investors] are becoming increasingly reluctant to fund cleantech,” Kachan says.“They’ve been grousing about cleantech for years. But the politicizing of the Solyndra bankruptcy has amped the rhetoric higher than ever and will foster a self-fulfilling prophecy in 2012.” Andrew Soare, a senior analyst at advisory firm Lux Research, cites Solyndra and defunct cellulosic ethanol maker Range Fuels as two strikes that lower the industry’s likability among governmentstakeholders. Calls for austerity will also give policymakers reason to cut cleantech spending, he adds. “It will be necessary to wean off of government support to be viable,” Soare says. “Though not a death knell for industry, it could slow developers and less qualified companies looking to build facilities.” He suggests that private financing will be available RENEWABLES Solazyme but only for the least risky projects. will provide algal oil Biobased chemical firms, including for this Dynamic Fuels Solazyme, Amyris, and Gevo, went public facility in Louisiana. in 2011, but turning to the capital markets is not always the best move for firms that have little or no revenue, Soare warns. Many are taking advantage of the hype around cleantech or biotech but are still years away from commercialization. Companies focused on alternative fuels and biobased chemicals will need to develop partnerships with corporate investors to help construct commercial-scale facilities. “There will be favorable terms for corporate investors to get technology or a stake in cleantech companies,” Soare predicts. Soare’s research suggests that corporate investors are more interested in biobased chemicals than fuel-only technologies. But firms supplying renewable drop-in fuels such as diesel or jet fuel also look promising. Meanwhile, Kachan says marine energy from waves or tides, sustainable agriculture, and water treatment technologies will grow from a small base this year.—MMB JANUARY 9, 20 12
Prices for grain remained high in 2011, motivating farmers to invest in crop protection.
CANADA Industry expects more gains The past year was a strong one for Canadian chemical producers, and 2012 looks to be shaping up nicely as well. Canadian chemical sales climbed 18% in 2011 to more than $25 billion, according to the Chemistry Industry Association of Canada. The industry performed well by most other measures, too. Production volumes increased 10%. Exports rose 20%. Combined operating profits for chemical companies climbed 61% to a record $4 billion. “The numbers are really strong,” says John Margeson, manager of business and economics for CIAC. “We’re almost back to where we were before the recession hit us, which is pretty good considering we lost some plants.” A survey of CIAC members reveals that Canadian chemical makers anticipate a modestly positive 2012. They expect sales to increase by 2%, volume to rise by 5%, but operating profits to decline by 11%. Shale gas, which has caused a petrochemical revolution in the U.S., has had a mixed impact on the Canadian chemical industry. On one hand, it has reduced feedstock costs in Canada by bringing natural gas prices down. On the other hand, it has led to shortages of ethane in the country’s petrochemical hub of Alberta because the province is producing less natural gas for export to the U.S. Ethane is extracted from this gas for use in Alberta. The country’s largest chemical producer, Nova Chemicals, is taking matters into its own hands. The company has signed a supply agreement with Williams Cos. to get a stream of ethane
from Alberta’s oil sands. And it is planning a pipeline that will bring ethane up from oil fields in the Williston Basin in North Dakota. Nova is also seeking to tap into U.S. natural gas shale. It has signed supply agreements with Range Resources and Caiman Energy for ethane from the Marcellus Shale and a deal with Sunoco Logistics to transport the ethane from Pennsylvania to its chemical complex in Corunna, Ontario. By lining up these agreements, Nova beat U.S. competitors to the punch, says Grant C. Thomson, Nova’s president of olefins and feedstocks. “It was a coup for Nova to really be in there first and put the first agreements together,” he notes. The company is executing a $250 mil-
CROP PROTECTION: HIGH PRICES ON THE FARM SUSTAIN DEMAND
Healthy profits in the farming sector worldwide supported demand for crop protection products for the past year, and demand is likely to remain high in 2012. Farmers tend to spend more to protect their crops when agricultural commodity prices are high, says Gautam M. Sirur, principal consultant at the crop protection market research firm Cropnosis. This year “could be quite strong in terms of demand for agrochemicals,” he says. “Profitability has been strong for farmers in Europe and Asia-Pacific, as well as in North America and Latin America. Farmers will be more willing to spend on protecting whatever crop there is in the ground.” Strong demand for pesticides and other crop protection products should translate into healthy profit margins for large agrochemical companies. Farmers worldwide tend to be conservative and to stick to reliable and proven products rather than try to save money by switching to a generic formulation. “Even when Dow or DuPont or Syngenta has a patent that expires, they still can push these products at a premium because they have invested in formuMODERATION Growth in sales lations, technology, manufacturing quality, and so on,” Sirur of Canadian basic chemicals and says. resins will slow in 2012. The major crop protection companies reported strong financial results in 2011, and they expect their performance to remain positive for at least the first part of 2012. In the first nine months of 2011, Bayer CropScience’s sales improved nearly 12% compared with the previous year. At Syngenta, sales were up 16%. But predicting the future in agriculture is never easy. In recent years, the prices of grain and other agricultural commodities have fluctuated wildly. For instance, soybeans sold for around $10 per bushel early in 2010 but for more than $14 last summer. Corn went from $3.50 a bushel in the summer NOTE: Sales figures are based on 2002 constant Canadian dollars converted to U.S. dollars of 2010 to almost $8.00 a year later. Grain prices have eased at the average 2011 exchange rate of $1.00 in recent months but remain generally higher than in 2009. U.S. = $0.99 Canadian. a Estimates. SOURCE: Chemistry Industry Association of Canada The volatility is due partly to increased investor participation in the grain futures markets since the financial crisis lion revamp of the Corunna of 2008, Sirur says. But farmers are increasingly protecting themplant so it can handle the selves from volatility by selling forward contracts to lock in favorextra ethane feedstock. able pricing, he notes. In addition, growers have built warehouses to Nova is now conducting store crops during market slumps. “Farmers can have control over feasibility studies for potenthe price of the commodity, and this increases their profitability,” tially $1.5 billion in projects Sirur says. to expand the Corunna facilFor agrochemical producers, demand is likely to be strong in ity and build polyethylene 2012 for reasons besides good profits on farming. On the basis of plants in Ontario and Alberta. weather patterns, climatologists see a good chance of an early thaw It expects to complete the this spring that would encourage fungal growth. After two years studies by mid-2012.—AHT in which disease was not a major problem worldwide, fungus may come back with a vengeance in the spring.—JFT WWW.CEN-ONLIN E .ORG
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BAY ER CRO PSC IEN C E
HUNGRY WORLD
DOW CHEM ICA L
COVER STORY
CONSTRUCTION: ACTIVITY WILL LAG IN DEVELOPED ECONOMIES BUT WILL GROW IN EMERGING ONES
STICKY SITUATION Slow
growth is expected for construction chemicals in developed markets.
HOUSING, COMMERCIAL, and civil construction projects will
continue to abound this year in Asian countries such as China, Thailand, Vietnam, and India. With economic growth in the high single digits, paint demand will continue to rise in those booming economies. In developed countries, the opposite will be true. In the U.S., for instance, economic growth rates of 2–3% over the next few years and a nearly comatose residential construction market mean paint sales will lag, according to Phil Phillips, managing director of paint industry consultants Chemark Consulting. The situation will be worse in Europe, where debt woes will likely translate into little or no growth. Andrew Bonham, president of W. R. Grace’s construction chemicals business, predicts Europe will display a split personality next year. In Northern Europe, where government debt has been better managed, demand for construction chemicals will grow 1–2%. But demand will likely contract 2–4% in Southern Europe where Greece, Italy, Spain, and Portugal have serious debt problems. Government austerity programs in those countries will force cutbacks in civil projects, he adds. In China, where the government is putting the brakes on economic expansion, Bonham expects that construction chemical demand won’t be as robust as it was in the past few years but will still grow 6–8% in 2012. His prediction for Japan, which is still recovering from last year’s earthquake, is for growth of 2–3%. As Bonham sees it, the Japanese government is likely to focus more on repairs
to the country’s energy and distribution network in 2012 and less on civil projects. Dow Chemical predicts construction industry growth this year of 7% or more in China and South Asia. Colin Gouveia, general manager of Dow Construction Chemicals, says an increase in quality requirements in Asia for premixed mortars, tile adhesives, grouts, and cement-based plasters is boosting demand for cellulose ethers, which thicken products and increase adhesion. About 70% of the firm’s global cellulose ether output goes into construction, he adds. The rest is used in markets such as pharmaceuticals and personal care, which are also growing. Overall demand for cellulose ethers in construction rose about 15% in 2011 over year-ago levels, outstripping supply, Gouveia says. Dow now has a feasibility study under way to determine a site in Asia where it might build a plant to supply regional customers.— MSR
MIDDLE EAST Chemical producers aim to maximize value from resources moving forward with plans to build plants for butyl, butadiene, styrene-butadiene, and ethylene-propylene-diene rubber in Saudi Arabia.
branes and other high-tech products. At last month’s Gulf Petrochemicals & Chemicals Association forum in Dubai, SABIC CEO Mohamed H. Al-Mady stressed the need for the technology push. “Comparative advantage is not static but is dynamic, and industries must maintain continuous improvement,” he said. Leslie McCune, managing director of the Middle East-focused consulting group Chemical Management Resources Ltd., offers several reasons why officials see value-added chemicals as imperative. “It is an attempt to capture value that is currently being added elsewhere in the world, principally in China and Asia,” he says. Moreover, ethane feedstock isn’t quite as abundant for new projects as it once was, and producers now are increasingly resorting to other feedstocks, such as naphtha. Saudi officials are looking to lower unemployment among the kingdom’s young population, McCune adds.—AHT BOREALIS
The Middle Eastern petrochemical industry is growing up. It started in the 1980s as a way to convert the ethane by-product of oil production into exportable commodities such as ethylene glycol and polyethylene. Today, local companies want to do more than make simple chemicals and are spending billions of dollars to diversify into more specialized chemistry. A spate of recently completed plants shows the trend. Saudi Kayan Petrochemical, an affiliate of Saudi Basic Industries Corp. (SABIC), opened Saudi Arabia’s first polycarbonate plant in 2011. A few months earlier, Borouge, a joint venture between Borealis and Abu Dhabi National Oil, started up a polypropylene unit in the United Arab Emirates that derives its propylene feedstock from ethane in a route that uses olefin metathesis. Recent announcements are focused even more intensely on value-added products. SABIC and ExxonMobil are
NOW OPEN Borealis’ new complex in the
United Arab Emirates makes polypropylene. Sadara Chemical, a $20 billion joint venture between Dow Chemical and Saudi Aramco planned for Saudi Arabia, will produce sophisticated chemicals such as polyurethane raw materials and amines. It will also host an industrial park where Dow will make reverse-osmosis mem-
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technician at Axyntis monitors a reaction at the company’s manufacturing facility in France.
LATIN AMERICA High growth is set to mellow
in 2012
The past few years have he expects Brazilian debeen boom times for Latin mand for thermoplastics America. Countries such as in 2011 to remain even with Brazil, Argentina, and Chile 2010 at about 4.8 million have been raking in profits metric tons. He blamed by exporting agricultural the results on imports of and mineral commodities. At finished goods that have the same time, people have displaced locally made prodbeen lifted out of poverty, ucts. “Our customers are FINE CHEMICALS: CAUTIOUS and with their newfound dislosing share to the imported cretionary income, they have goods,” he said. OPTIMISM WASHES OVER SECTOR been nurturing local markets The lack of growth for and homegrown economic plastics was unprecedented, The fine chemicals sector was strong in 2011, with many companies development. and for 2012 growth should claiming to have rebounded from losses incurred in 2009 and 2010. In fact, the International return to levels of 1.5 to 2.0 Producers remain optimistic about 2012 but mix, as usual, a good Monetary Fund is concerned times GDP growth, Fadigas dose of caution with that optimism in a market that historically that Latin American econopredicted. experiences sudden ups and downs. mies are showing signs of Rina Quijada, CEO of Companies that in the past two years invested in new technolooverheating. Among the consulting firm IntelliChem, gies—ranging from high-potency active pharmaceutical ingredient indicators are high inflation, notes several reasons the (API) manufacturing to finished-dose drug formulation—are countstrong local currencies, and competitiveness of the ing on their investments to kick in as growth engines in 2012. Others high prices for real estate Brazilian chemical industry are looking to build on rebounding nonpharmaceutical businesses. and other assets. Governhas dulled and fallen prey to For example, Lonza acquired Arch Chemicals last year in an effort to ments are likely to respond imports. Brazil’s currency, take the top position in microbial control. by reining in the monetary the real, is strong, making Michael Reinhard, Lonza’s head of key accounts management supply and tightening conimports cheaper. High taxes for North America, reports that the fine chemicals business is trols on the flows of credit and import duties have been picking up in the U.S. “It’s mostly in the early stage,” he says, referand capital. “The outlook raising the cost of producing ring to the small quantities of APIs needed at the start of the drug is still strong, aldevelopment process. Likewise, David Ager, principal though downside scientist at DSM, says he sees increased activity in SLOWING Growth is expected to cool in 2012. risks have come pharmaceutical company R&D pipelines. to the fore and At Cambrex, CEO Steven M. Klosk expects the commodity prices company to report 5–7% growth in 2011. “There is will provide less a strong backlog for our generic APIs,” Klosk says. momentum in Business is slower on the branded-drug side. Klosk the future,” IMF says he is enthusiastic about Cambrex’ finished-dosreports. age facility in Hyderabad, India, where the company Already there is producing the API and finished product for a nicoare signs of a tine replacement drug. slowdown. AccordThe exit of major drug companies from manufacing to IMF, Brazil’s turing continues to drive business for fine chemicals a Estimates. SOURCE: International Monetary Fund economic growth makers. But Aslam Malik, president of Ampac Fine fell from a heady Chemicals, cautions that a rise in outsourced produc7.5% in 2010 to 3.8% in goods in the country. And tion of established or generic drugs may not mean increased busi2011, and it will likely conmost petrochemical producness for Western API suppliers, since much of that production will tinue at the lower level in tion in Brazil is based on go to China. 2012. Argentina, which expe- naphtha, which has become A more solid upside, Malik says, lies in the uptick in drug approvrienced growth rates above a relatively costly feedstock als by FDA in 2011. The active ingredients in newer products are 8% in 2010 and 2011, will since the advent of natural generally potent and complex, meaning lower volumes but more likely see 4.6% growth this gas from shale in the U.S. specialized manufacturing technology. year, IMF predicts. The bottom line, Quijada More rigorous supply chain management on the part of pharmaDuring a recent confersays, is that costs are escaceutical companies should benefit Western API makers, with drug ence call, Carlos Fadigas, lating across the board. “Evcompanies instituting policies of establishing a Western backup to CEO of the Brazilian chemierything is very expensive,” any key product manufactured in Asia. Some fine chemicals comcal producer Braskem, said she says.—AHT panies say business is coming back from China, in particular, be-
cause of quality concerns and Asia’s eroding cost advantage.—RM
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