COVER STORY
WORLD CHEMICAL OUTLOOK It looks like a CHANCY YEAR, with winners and losers in different areas as supply, demand, and politics shift
SHUTTERSTOCK/C&EN
WITH EACH PASSING year, chemical
executives must look back with increasing fondness at 2010, a year when chemical output rose 5% in the U.S. and 10% in Europe. Since then, growth in the two largest chemical markets has slowed to a crawl. The outlook is for more of the same in 2013. This year, U.S. chemical production is expected to grow by a modest 1.9%, not much better than the 1.5% increase in 2012, according to the American Chemistry Council, a trade group. The European Chemical Industry Council predicts that European chemical production will rise 0.5% in 2013, an anemic figure, although an improvement compared with the 2.0% contraction experienced in 2012. Back in 2010 the industry roared out of the Great Recession with low inventories and streamlined operations. But since then, economic malaise has stifled growth in the developed world. Last year growth even slowed in developing countries in Latin America and Asia, depriving Western
manufacturers of outlets for goods they couldn’t sell at home. In 2013, demand in the developing world will rise, but not enough to spark significant activity in the West. Economic growth in Brazil, for example, should reach 4.0%, an improvement over 2012 but well below the fiery 7.5% expansion of 2010. Likewise, although Chinese growth should notch up a bit to 8.1% this year, the double-digit expansion of 2010 is a distant memory. Several bright spots dot the generally overcast landscape. U.S. chemical manufacturers can look forward to another year of low-priced natural gas to fuel their facilities and provide cheap raw materials. The recent teeter at the edge of the fiscal cliff doesn’t seem to have worsened the U.S. industry’s prospects. Executives in the fine chemicals sector, who monitor their drug industry customers more so than the general economy, are optimistic about 2013. Likewise, scientific WWW.CEN-ONLINE.ORG
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instrumentation manufacturers are upbeat about prospects for the energy, environmental, forensics, and food markets. And global demand for specialty chemicals should increase a healthy 3.1%. But Europe’s financial instability continues to cast a long shadow over the chemical enterprise, and industry executives are bracing themselves for another round of budgetary brinkmanship in the U.S. at the end of February. With uncertainties like these, the future of the industry sometimes seems no more predictable than the results of a pull on a slot machine. World Chemical Outlook was compiled by Assistant Managing Editor Michael McCoy, Senior Correspondents Marc S. Reisch and Alexander H. Tullo, and Senior Editors Melody M. Bomgardner, Lisa Jarvis, and Rick Mullin in New Jersey; Senior Correspondent Jean-François Tremblay in Hong Kong; Senior Correspondent Ann M. Thayer in Houston; and Senior Editor Alex Scott in London.
ASTRAZENECA
COVER STORY
U.S. Domestic manufacturing slowdown will be offset by shale gas upside The U.S. chemical industry should see a slight uptick in demand this year as end markets such as vehicles and housing gain modest ground. In addition, as production enabled by cheap natural gas comes on-line, domestic manufacturers will be equipped to produce more chemicals for export to growing economies. This year, U.S. chemical production, excluding pharmaceuticals, is expected to grow by a moderate 1.9%, compared with a 1.5% increase in 2012, according to the American Chemistry Council, a trade group. Last year’s slow, tentative growth will continue into the early part of 2013, due to slowing momentum in U.S. manufacturing, the recession in Europe, and weakness in
PHARMACEUTICALS: COMPANIES WILL FOCUS ON EXTERNAL PARTNERSHIPS TO IMPROVE PRODUCTIVITY IF THE BUZZWORD for the pharmaceutical industry in 2012
was “patent cliff,” the key theme for 2013 is “partnership.” With smaller R&D organizations and budgets, drug companies are putting more emphasis on working relationships with biotech firms or with academia. “Everything we hear, everyone we talk to, has one word. It’s ‘collaboration,’ ” says Patrick Flochel, global pharmaceutical leader for the consulting firm Ernst & Young. The urge to partner is driven by a desire to share risk and lower research costs while at the same time improving productivity. Partnerships are extending across the entire life cycle of a drug, Flochel notes, from precompetitive collaborations related to elucidating targets all the way to commercial relationships that leverage a partner’s marketing network. They run the gamut from deeper ties with academic institutions—such as Biogen Idec’s new SHALE GAS EFFECT academic consortium to identify treatments for amyotrophic New chemical investments are lateral sclerosis—to more pacts with biotech companies and expected to boost U.S. output. consortia with governments, nonprofits, and other drug firms. The focus on collaboration comes as drug companies try Annual growth, % 8 to move beyond several years of patent expirations on some ■ Baseline outlooka ■ With additional production of their biggest selling products. Along with the patent losses 6 came overhauls to drug company R&D organizations and painful job cuts. In 2013, industry observers expect, compa4 nies will focus on executing new R&D strategies. They say 2 the worst of the pharma layoffs is likely over. While trying to make their own research efforts more 0 productive, companies are filling gaps in their drug pipelines 2012 13 14 15 16 17 through acquisitions. Merger and acquisition activity in 2013 a Outlook without the effect of additional should keep to the tone set last year: modest purchases and an shale-gas-based chemical production. SOURCE: American Chemistry Council emphasis on mitigating risk. Transactions will be creative, with drug firms offering less money up front but promising bigger benefits as a project reaches key milestones, notes Michael Latwis, an exports to Asia, ACC’s chief analyst with the health care consultancy Decision Resources. economist, T. Kevin Swift, Industry experts say big pharma companies will continue to shun reports. megamergers like those seen in 2009. An exception may be AstraCaution by downstream Zeneca, which lost its patent for the antipsychotic drug Seroquel and customers will crimp orders was hit hard by generics competition. “AstraZeneca is in a pretty dire for basic chemicals including situation,” Latwis says. Last year, Pascal Soriot, former chief operatinorganics, petrochemicals, ing officer of Roche’s pharmaceutical business, took on the unenviplastics, and synthetic rubable task of turning AstraZeneca around after the ouster in March of ber. In contrast, production CEO David Brennan. Soriot “hasn’t ruled anything out yet,” Latwis of specialty chemicals will be notes, and industry watchers are awaiting an update on the comdriven by consumer demand pany’s strategy that’s expected at the end of January.—LISA JARVIS WWW.CEN-ONLINE.ORG
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for new passenger vehicles and houses, Swift outlines. To expand business, chemical firms will find growth markets beyond China and Brazil, says Garrett Gee, U.S. chemical advisory services director at the consulting firm PricewaterhouseCoopers. Companies will target countries such as Vietnam, Indonesia, Turkey, and Argentina in order to access “incremental increases in demand as the emerging middle class evolves,” Gee says. Certain megatrends will also continue, according to Gee. The chemical industry will look to benefit from spending on energy and natural resources, urban infrastructure, consumer goods, health and nutrition, animal and life sciences, clean water, transportation, and communication. DuPont CEO Ellen J. Kullman mentioned some of the same trends in a December speech. “Our current outlook,” she said, “calls for our 2013 earnings to grow low- to mid-single digits over 2012 as the investments we are making in agriculture and nutrition, industrial biosciences, and advanced materials continue to deliver results, offset by the weakness in titanium dioxide markets.” Meanwhile, 50 facilities have been announced to capitalize on the country’s new shale gas advantage, according to ACC. They will turn out basic chemicals including ethylene, polyethylene, methanol, and ammonia and are likely to push chemical production higher than consensus estimates this year.—MELODY BOMGARDNER
W.R. GRACE
CONSTRUCTION: THE ACTION, ONCE AGAIN, IS IN DEVELOPING COUNTRIES
NO STONE UNTURNED
W.R. Grace’s lab in Singapore supports research on construction materials.
EXPECTATIONS FOR home, commercial, and civil construction
this year are pretty similar to what they were last year: Projects will increase by 4% or more in developing countries such as China and India but will lag in mature economies such as the U.S., Western Europe, and Japan. For suppliers of concrete additives, waterproofing agents, and other construction chemicals, China “is a good place to be” this year, says Andrew Bonham, president of W.R. Grace’s construction products business. Demand for such chemicals in the country this year will grow 7–8%, outpacing the Asia-Pacific region’s overall growth of 4–5%. Bonham expects continued “decent” construction chemical growth in India of 6–8%. In Europe, the sovereign debt crisis means that construction markets in Portugal, Spain, Italy, and Greece will continue to struggle, Bonham says. Demand for construction chemicals in Austria, Switzerland, and France will be flat to slightly down, whereas the stronger economies of Germany, Belgium, the Netherlands, and the Scandinavian countries are likely to experience a 1% uptick in demand. In the U.S., Bonham expects demand for construction chemicals to grow at about 2%. Most of that growth will take place in the housing market, with some of the spending increase linked to the recovery from Hurricane Sandy. Economist Frederick M. Peterson of Probe Economics points to a recent bump up in housing starts, which also bodes well for construction chemicals. However, the current uncertainty over the U.S. government’s
tax and spending plans for 2013 means that other infrastructure spending will be flat at best, Bonham notes. He also predicts that state and local government spending on buildings, roads, and other things will continue to dwindle in the face of the weak economy. As goes the construction market, so goes the large market for architectural paints, adhesives, and sealants, says Phil Phillips, managing director of paint industry consulting firm Chemark Consulting. If the U.S. government takes action to deal with its fiscal problems, then attitudes on growth will improve and housing starts could rise 3–4% this year, he says, and paint along with it. With much of Europe already in recession, Phillips expects paint demand there to be flat or to decline slightly. Demand in South America should grow 6–8%. Paint demand will rise 5–8% in Asian countries such as India, Thailand, and South Korea, and an even more robust 7–9% in China, he predicts.—MARC REISCH
EUROPE Economy and chemical industry are expected to stagnate Key indicators point relentless,” Bock says. SLUGGISH European to a period this year of CEFIC is forecasting chemical production little or no growth for that the region’s chemiis expected to pick up the European chemical cal output will “remain slightly in 2013. industry, analysts say. stagnant in 2013.” Fiscal belt-tightening Specifically, the orgaAnnual production change, % across many countries nization predicts that 12 has increased unemchemical production will 10 ployment, reducing deincrease 0.5% in 2013, 8 mand for goods and the well below prerecession 6 chemicals used to make levels. That is, however, 4 them. The European an improvement com2 Commission predicts pared with an estimated that the collective econcontraction of 2.0% in 0 omy of the European 2012. –2 Union’s 27 countries will The automotive and –4 shrink by 0.3% in 2013. construction industries, 2010 11 12a 13a “The current EU two huge chemical NOTE: Chemical data exclude phardownturn is weighing markets in Europe, were maceuticals. a Estimate. SOURCE: European Chemical Industry Council down on the chemical “a drag on chemical industry in Europe,” demand in 2012” and says Kurt Bock, chairman of BASF and offer few encouraging signs of improving, president of the European Chemical CEFIC says. Government-backed incenIndustry Council (CEFIC). The sector tives to encourage consumers to buy new faces “increasing uncertainty as the cars have run their course, and fallout domestic market continues to struggle from overcapacity in the construction and overseas competition remains sector is set to continue.
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In an outlook survey conducted in the third quarter of 2012, consulting firm KPMG found that chemical executives in Europe are more concerned about the economic environment than they were a year ago and more worried about the economic outlook than their Asian and U.S. counterparts. The biggest concern among European executives is the potential collapse of the eurozone if some countries pull out of the common euro currency. Despite their reservations, 74% of European chemical executives surveyed expect their companies to increase sales in 2013, thanks mainly to business outside of Europe. Still, Martin J. Evans, a stock analyst with JPMorgan Cazenove, expects the economic conditions to hamper industry growth. “At a high level we remain cautious on the European chemical sector going into 2013,” Evans tells C&EN. “The sector suffered significant pricing pressure in the third quarter, and we do not anticipate a reversal of this in the short term with uncertain macroeconomic conditions and capacity increases.”—ALEX SCOTT
BIG DEAL Cambrex
signed a major contract in 2012 that will keep its plants busy in 2013.
FINE CHEMICALS: OPTIMISM PREVAILS OVER UNCERTAINTY THE FINE CHEMICALS sector is showing strength going into 2013.
Manufacturers of active pharmaceutical ingredients are optimistic about the year ahead. Agricultural chemicals are on track for another good year, and some industrial fine chemicals manufacturers, especially electronics industry suppliers, see a particularly strong 2013. There is, however, an air of wait and see regarding investments in the sector. That is due to the volatile regulatory and tax landscape in the U.S. at year’s end. “We had a strong, but not a recordbreaking, year,” says Lawrence D. Sloan, CEO of the Society of Chemical Manufacturers & Affiliates, a trade association. “Members are doing reasonably well considering all the uncertainty.” The society’s members, primarily small fine and specialty chemical companies, are concerned about changes in taxation, according to Sloan. He notes that many companies are “S corporations” according to the Internal Revenue Service’s tax code, where income taxes are paid by individual shareholders rather than the corporation. With the bill passed earlier this month to avert the fiscal cliff, family-owned companies with profits of more than $450,000 will see their taxes increase. That could lead firms to put off hiring and making investments, Sloan says. Although the fiscal cliff agreement extends R&D tax credits until the end of 2013, it also pushes off decisions on federal spending cuts, leaving manufacturers to guess which areas of the economy Congress and the President will protect or leave vulnerable to the budget knife, Sloan points out. Still, company executives agree that 2013 will be an up year for fine
chemicals. At Cambrex, CEO Steven M. Klosk says he is cautiously optimistic. In 2012 the company signed what may turn out to be the largest contract in its history. The deal, with a drug company, should bring in an estimated $20 million in revenue this year and continue into 2014. Business in the U.S. will likely be stronger than in Europe in 2013, Klosk says, although both regions should benefit from a return of outsourced manufacturing from China and India. The return of work from Asia is a significant factor in a turnaround at Ampac Fine Chemicals, according to the company’s president, Aslam Malik. So is the demand for more complex chemistry. Ampac has been installing semiworks—facilities that produce quantities between pilot and full-scale commercial output—Malik says, to boost its business in high-value, low-volume chemicals. David Ager, principal scientist at DSM, says his company is looking forward to a good year in pharmaceutical contract manufacturing, especially for products in early-stage development. “There is funding, and it’s full steam ahead,” he says.—RICK MULLIN
ASIA Slowdown in China, although mild, is cause for concern Most economists predict that Asia according to the Organisation for GDP Growth is likely to accelerate modestly this year. will experience faster economic Economic Cooperation & Developgrowth in 2013 than it did in 2012. ment. Confident about the future, China Still, after last year’s sluggishIndia’s biggest chemical producer, India ness, chemical executives remain Reliance Industries, is moving forwary of what 2013 will bring. ward with a major expansion of its Japan Nan Ya Plastics, a member of Jamnagar complex. Singapore ■ 2010 Formosa Plastics Group that proIn contrast, the outlook for South Korea ■ 2011 a duces a wide range of chemicals, Japan is not bright, and the Asian ■ 2012 Thailand ■ 2013a fibers, and industrial parts, is a Development Bank predicts lower –5 0 5 10 15 good representative of industry economic growth this year than Change in GDP from the previous year, % sentiment. “We are conservative in 2012. But Japan’s chemical a Estimates. SOURCE: Asian Development Bank in our outlook for 2013,” says companies may actually have a Tsou Ming-ping, Nan Ya’s spokesdecent 2013. In a research note, man. “Final consumer demand remains est in a decade due to a slowdown engiYoshihiro Azuma, a stock analyst at the weak, and this affects demand for our neered by the government to prevent inbrokerage firm Jefferies & Co., wrote that materials.” flation. The measure was successful, and aggressive spending by Japan’s new prime China, where Nan Ya sells most of its the government has already started to minister, Shinzo Abe, will boost demand products, is of particular concern, Tsou adopt a looser macroeconomic policy. The for petrochemicals. Asahi Kasei, a chemisays. In recent years, China has been the Asian Development Bank expects China’s cal company that produces construction world’s largest importer of chemicals. economy to expand by 8.1% in 2013. materials and residential homes, will also When the country’s economic growth The outlook for India, Asia’s secondbenefit, he wrote. slows from the 9–10% achieved in 2010– largest emerging economy, is also On the whole, 2013 will not be a bum11 to the 7.5% posted last year, it’s almost brighter. The Indian economy is gathering per year for chemical companies exposed a crisis for chemical companies. speed because of a loose monetary policy to Asia, but it is likely to be better than Growth in China last year was the lowand a recovery in the agricultural sector, 2012 was.—JEAN-FRANÇOIS TREMBLAY
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CAMBREX
COVER STORY
POET
PETROCHEMICALS: THE U.S. WILL SEE A BOOM AS EUROPE AND ASIA STRUGGLE THE PETROCHEMICAL WORLD is split in two. Companies in the
U.S. and Middle East are raking in big money converting cheap natural-gas-derived raw materials into ethylene derivatives such as polyethylene and ethylene glycol. Players in Europe and Asia aren’t so fortunate. High oil prices are driving up costs for the naphtha they use as feedstock, giving them little cushion to fend off less expensive imports. Sluggish growth, particularly in Europe, hasn’t helped matters either in these regions. “If the economy does not improve, you will see some pressure on those areas,” James R. Fitterling, Dow Chemical’s executive vice president for feedstocks and performance plastics and for Asia and Latin America, told investors last month. High-cost facilities might be shuttered or scaled back. In Northeast Asia, smaller, older ethylene crackers are the most vulnerable, he said. In Europe, facilities that are not integrated with refineries or with aromatic chemical production are in jeopardy. The situation in the U.S. couldn’t be more different, according to John Stekla, director of ethylene studies at market research firm IHS Chemical. In December, the cost of producing ethylene from ethane was about 10 cents per lb, the lowest level since 1999. The cost of producing it from propane was about 11 cents per lb, the lowest it has been since 2002. Ethylene sells for about 59 cents per lb. “U.S. producers of ethylene derivatives are really in a great place because they’ve got a strong domestic market that is consuming somewhere between 82 and 85% of the ethylene that is being pro-
FIRST CROP
Workers complete a cellulosic ethanol plant in Emmetsburg, Iowa.
CLEANTECH: NEW FUNDING WILL BE SCARCE, BUT SCALEUP PLANS CONTINUE THIS YEAR WILL BE one of cleantech contradictions, industry
watchers say. New technology start-ups will not be showered with venture capital funds, and existing firms will find it difficult to raise money with stock offerings. But some companies only a few years old will turn on commercial facilities in large numbers by year-end. The money challenges will be a continuation of the lull in excitement that the sector experienced in 2012. Cleantech venture funding in the first three quarters of 2012 decreased 15% to just under $2.8 billion compared with the same period in 2011, according to the National Venture Capital Association. NVCA’s December survey of venture capitalists showed 61% expect further reductions this year. In 2012, several cleantech companies withdrew plans for initial public offerings of stock, including biobased fuels and chemicals firms Enerkem, Fulcrum BioEnergy, Coskata, Elevance Renewable Sciences, and Genomatica. They SURGE U.S. chemical producers are readying massive new ethylene plants. were joined by solar firm BrightSource Energy and CAPACITY electric truck company Smith Electric Vehicles. All (THOUSANDS OF METRIC START-UP remain under private ownership. Cleantech firms COMPANY LOCATION TONS PER YEAR) DATE Chevron Phillips Chemical Cedar Bayou, Texas 1,500 2017 that wish to go public this year will likely have to show Dow Chemical Freeport, Texas 1,500 2017 significant sales to be seen as less risky by investors. ExxonMobil Baytown, Texas 1,500 2016 But new firms with compelling green technoloFormosa Plastics Point Comfort, Texas 800 2016 gies will not be passed over, says Murray McCutchOccidental Chemical Ingleside, Texas 500 2016 eon, an analyst at Lux Research. “We expect corpoSasol Lake Charles, La. 1,500 2017 rate partnerships and acquisitions to play a more Shell Chemicals Monaca, Pa. nd nd significant role in helping to fund technology develnd = not determined. SOURCE: Company documents opment, as more large companies take advantage of outside partnerships rather than relying on internal duced, and yet they have an incredibly low cash cost of production, research and development,” he explains. which supports exports anywhere in the world,” Stekla says. Meanwhile, many firms that attracted funding when cleantech Stekla sees 3 to 4% growth in ethylene consumption in the U.S. was hot are finishing work on their first commercial-scale facilities. in 2013, an increase from the 2% posted in 2012. U.S. profit margins Cellulosic ethanol producers including Abengoa, Beta Renewables, will be high next year, he expects, but perhaps not as high as they Enerkem, Fiberight, Ineos Bio, KiOR, and Poet-DSM Advanced Biowere in 2012. fuels plan completions between late 2012 and the end of 2013. BioLast year brought unplanned plant outages that drove up ethylbased chemical firms Myriant, BioAmber, Solazyme, Reverdia, and ene prices. But this year, companies are adding capacity. Dow, for Genomatica-Novamont should also be on-line this year. example, has restarted an ethylene cracker in St. Charles, La., that Given the need for fiscal belt-tightening, government support has been off-line since 2009. Eastman Chemical, LyondellBasell for unproven technology will be on the wane. But experts agree Industries, Williams Cos., and Westlake Chemical are also starting that private investors and consumers will be attracted to energyto increase production in incremental amounts. or fuel-saving opportunities such as green building materials. Assuming that economic growth holds up, conditions for petroSome of this year’s other successful areas may stretch the definichemical producers should improve until the market peaks in 2016, tion of cleantech. New technologies for nuclear energy, clean coal, industry watchers expect. Seven companies thus far are planning mining, and fuels made from natural gas are likely to steal attennew U.S. ethylene crackers that will commence operations around tion from solar and wind power, anticipates cleantech consulting that time.—ALEX TULLO firm Kachan & Co.—MELODY BOMGARDNER WWW.CEN-ONLINE.ORG
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NATALIYA HORA/SHUTTERSTOCK.COM
COVER STORY LINED UP Improved
employment and credit availability will drive up car sales in 2013.
CANADA After a so-so 2012, chemical firms
prepare for a brighter future The surge in U.S. chemical industry capital spending resulting from an abundance of shale gas is well-known, but, more quietly, America’s neighbor to the north is also experiencing sizable chemical investments. The investment is coming despite mixed performance last year for Canadian industrial chemical producers, which together generated revenues of $24.3 billion, a 2.7% decline from 2011, according to the Chemistry Industry Association of Canada. Prices declined about the same amount, and sales volume remained flat. “It was a holding pattern kind of a year,” says John Margeson, CIAC’s manager of business and economics. Profits didn’t hold: They dropped 21% from 2011 levels to $2.7 billion. Member companies surveyed by CIAC expect more of the same in 2013. Revenues will again be down slightly, they predict, and volumes
SPECIALTIES: GROWTH TO BE FUELED BY AUTOS, ELECTRONICS DEMAND FOR specialty chemicals will experience above-average
growth in 2013 as the automotive and electronics sectors recover, say American Chemistry Council economists in their year-end review of the chemical industry. Global specialty chemical demand is likely to increase 3.1% this year, double its 2012 growth, and then rise another 4.2% in 2014, according to the trade association. Accounting for the rise is a strengthening of the consumer economy, explains T. Kevin Swift, the council’s chief economist. Rising consumer demand in rapidly industrializing Asian and South American economies will boost specialty chemical use for consumer products, including automobiles. Not all segments of the consumer economy will do so well, though. For instance, Swift expects slow growth in the printing and textile industries to crimp demand for chemicals used by those sectors. Relatively low energy prices give an advantage to specialty chemical companies, says economist Frederick M. Peterson of Probe Economics. Because specialty chemical prices are relatively stable, the energy savings flow to the bottom line. One particularly beneficial phenomenon, Peterson notes, is the global demand for electronic devices, which should buoy electronic chemical sales. In the U.S., Swift expects light-vehicle sales will rise in 2013 and 2014 because of “pent-up demand, improved emSLUMP Growth in Canadian ployment, and greater availability of credit.” Each new vehisales of basic chemicals and resins cle uses on average about $3,650 in chemicals and plastics. plateaued in 2012. Overall global demand for fluid cracking catalysts used to refine oil into fuel should increase 2–3% annually for $ Billions 30 the next few years, says Shawn Abrams, president of W.R. 25 Grace’s catalyst technologies business. Catalyst demand in the Middle East will grow a more robust 5–6% owing to 20 local and export demand. Catalyst demand will grow at a 15 similarly strong rate in Asia but largely to satisfy the bur10 geoning economies of the region. 5 Customers can expect stable prices for refinery catalysts 0 in 2013 because of improved availability of the rare earths 2003 04 05 06 07 08 09 10 11 12a 13a used to make them, Abrams says. Prices came down toward NOTE: Currencies converted at average 2012 the end of 2012 after peaking earlier in the year. China, exchange rate of $1.00 U.S. = $0.9995 Canawhich still controls a large segment of the rare-earth market, dian. a Estimate. SOURCE: Chemistry Industry Association of Canada changed its policies on exports. Also, new rare-earth mines have opened or will soon open in Asia and the U.S., he notes. Catalyst makers are developing catalysts to meet the needs of rewon’t increase, though they finers and chemical makers that want to use alternative feedstocks. only expect a 3% decline in Catalysts that help convert biomass into transportation fuels or profits. Margeson, however, coal into olefins are a niche market now, Abrams says, but could desuspects members may be velop into a significant business in the future.—MARC REISCH WWW.CEN-ONLINE.ORG
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overly pessimistic. “I think they’re hedging their bets a bit with some uncertainty about what will happen in the U.S. with the fiscal cliff and also some uncertainty as to whether Europe will find some way to get itself out of its recession,” he says. Companies are spending money on new projects, however. Producers expect capital spending to increase 61% in 2013, to $2.7 billion. For example, Nova Chemicals will start bringing raw material ethane from the U.S. to its ethylene cracker in Sarnia, Ontario, next year. As part of the project, the company is converting equipment at the site so it can process the ethane instead of naphtha, its traditional feedstock. Nova isn’t alone in investing in Canada. Williams Cos. is planning a propane dehydrogenation plant in Alberta that could lead to investment in downstream propylene derivatives. And not all the money spent in Canada is from the petrochemical sector. Cytec Industries is doubling phosphine capacity in Welland, Ontario. Canexus is expanding hydrochloric acid in North Vancouver, British Columbia, and BioAmber is building a biobased succinic acid facility in Sarnia. With all the planned projects in Canada and beyond, Nova CEO Randy G. Woelfel is worried that the chemical industry is taking on too much. “One clear challenge that we, and all industry players who are investing for growth, are facing is substantial and increasing pressure on project costs,” he told analysts in November.—ALEX TULLO
AGILENT
INSTRUMENTATION: FIRMS PLAN FOR THE LONG TERM AMID SHORT-TERM UNCERTAINTIES AS INSTRUMENTATION companies plan for 2013, uncertainties
that fogged 2012 are still clouding the view. Fiscal pressures on U.S. spending, weakness in the economic-crisis-hit eurozone, and mixed signals from emerging markets remain troubling, at least for the short term. The total market for analytical and lab instruments was about $44 billion in 2012, according to the market research firm Strategic Directions International. For 2013, instrument makers are predicting that the rate of sales growth will stay in the low single digits, at least in the early months. Agilent Technologies is predicting about 3.5% revenue growth for its fiscal year, which will end Oct 31. “We’re assuming there will be no new financial crisis in the U.S. or Europe,” CEO William P. Sullivan told stock analysts in late 2012. “However, continued uncertainty will dampen demand until the second half.” Spending by academic and government customers likely will stay constrained, especially in the West, and industrial markets will be slow, suppliers say. Many are upbeat, however, about the megatrends in the global energy, environmental, forensics, and food sectors. And the drug discovery and diagnostics areas should remain stable, they say. Despite the short-term challenges, “there is long-term promise in many end-use markets,” says Mike McMullen, president of Agilent’s chemical analysis group. Although making a call on 2013 is difficult, the “megatrends are here to stay,” he adds. Many firms plan to expand further in emerging regions. Although China’s economy slowed in 2012, the country remains attractive. “Limited local competition and an intense government
focus on lab infrastructure build-out and academic research make the life sciences tools and diagnostics industries well positioned in China,” Goldman Sachs analyst Isaac Ro pointed out in a late-2012 report. Healthier growth rates in emerging versus mature markets are causing a shift in emphasis by suppliers, Thermo Fisher Scientific CEO Mark Casper told analysts in late 2012. “You’re going to see more investment in those markets and a tighter level of investment control in Western Europe and the U.S.” Thermo, for example, has been decreasing its manufacturing footprint overall but building in low-cost regions. “While we have a lot of initiatives in place to position the company for growth, we are also being prudent and carefully managing our costs,” Casper said. “We’ll closely monitor the market environment, and we’ll take additional cost actions as necessary.” Watching costs is important, but so too is investing in R&D and others areas, PerkinElmer Senior Vice President Dusty Tenney says. “If we don’t invest, we’ll end up losing windows of opportunities, not only in 2013, but ones that can help further the business in 2014 and 2015.”—ANN THAYER REACH OUT Agilent
recently opened a customer applications and training center in South Korea.
MIDDLE EAST After years of growth, a profits squeeze lies ahead
SA B I C
The chemical industry in the Middle East fetch lower prices, says Paul Bjacek, head faces a near-term shortfall of low-cost of research for chemicals and natural refeedstock, including ethane, and greater sources at the consulting firm Accenture. competition in its export Another problem is the markets in 2013. As a ethane shortfall, caused result, relatively few new by high demand from the petrochemical facilities region’s power generators are being planned for the and petrochemical producregion. And after three ers. Without a ready supply, decades of strong growth, Bjacek says, newer compaprofits in 2013 are expectnies are instead turning to ed to be lower than those refinery-derived naphtha as of the prior three years, a raw material. They are usanalysts say. ing it to build up their capacThe depressed economity for aromatics and other ic situation in Europe, a key LEADER Al-Mady cites chemicals with more than a need for greater market for chemicals from two carbon atoms, including emphasis on innovation the Middle East, is having a butadiene, propylene, and and technology negative impact on the repropylene derivatives. development. gion’s chemical producers. To ease their heavy reliEurope’s reduced need for polyethylene, ance on profit from basic petrochemicals ethylene glycol, fertilizers, and other and polymers, the region’s leading chemichemicals has redirected Middle East cal companies also will continue their exports to China. But in that country they policy of diversification into specialty
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chemicals, says Tony Potter, an analyst with IHS Chemical. Saudi Basic Industries Corp. is among the region’s leading companies in both profitability and product diversification. SABIC CEO Mohamed H. Al-Mady told delegates at a Gulf Petrochemicals & Chemicals Association meeting in Dubai late last year that the industry’s future now has more to do with technology and innovation than feedstock price. “We need to direct our efforts toward offering our customers more technologically advanced and complex products,” he said. A recent agreement between the carmaker Jaguar Land Rover and the government of Saudi Arabia to study plans for an automobile factory in the country indicates the level of industrial diversification that the region aims to achieve, Potter says. Change is happening, he adds, but it is “generally quite a slow process.”—ALEX SCOTT
BOEING
COVER STORY CARBON CAPTURE
Four Dreamliners are shown in final assembly at Boeing’s Everett, Wash., facility.
LATIN AMERICA Policymakers, industry seek
to boost competition
Economic growth in Latin America slowed in 2012 as Asian demand for commodities abated. More braking came as government measures—such as the Brazilian central bank’s earlier effort to tighten the money supply to prevent economic overheating—took hold. Brazil’s economy posted only 1.5% growth in 2012, the International Monetary Fund (IMF) reports, a decline from 2011’s already modest 2.7% expansion. The country’s chemical industry saw shipments decline by 2.7% in 2012 to $153 billion, according to the Brazilian industry association Abiquim. Argentina, which registered a China-like 8.9% surge in economic activity in 2011, had only moderate 2.6% growth in 2012. Mexico, which is tethered to the relatively strong U.S. economy, posted 3.8% growth in 2012, consistent with its 2011 performance.
ers. “The main near-term risks are related to an escalation of the euro area crisis and the U.S. fiscal cliff,” IMF reported in its most recent economic outlook. The biggest problem facing chemical makers in BraADVANCED MATERIALS: CARBON zil, Latin America’s largest FIBER, 3-D PRINTING, GRAPHENE economy, is a lack of international competitiveness. Rina TO MAKE INROADS Quijada, CEO of the HousSEVERAL EXOTIC MATERIALS, including carbon fiber and graton-based consulting group phene, will find new commercial applications in 2013. And growing IntelliChem, says the country use of three-dimensional printing will provide market opportunisuffers from high manufacties for suppliers of other advanced materials. turing costs. For example, The use of carbon fiber in cars is the big trend, says Ross Kozarnatural gas costs three times sky, head of the advanced materials service at consulting firm Lux more in Brazil than it does in Research. Carbon fiber is already well established in the aerospace the U.S. The strong Brazilian industry, thanks to the Boeing 787 airplane, now in mass produccurrency and high tax levels tion. But the auto market is far larger, Kozarsky points out. don’t help matters. The outlook is promising because major auto industry players The lack of competitiveare eager to find use for a material that is stronger and lighter than ness is evident in Brazil’s steel. In the past year, one partnership to develop carbon-fiber-relong-standing chemical trade inforced plastics for cars was formed by Teijin and General Motors, deficit, which grew last year and another brought together Dow Chemical and Ford Motor. to $28.1 billion, fueled by a Three-dimensional printing is another technology that, as it en1.9% increase in imports and ters the mainstream, is opening up a world of opportunity for maka 4.4% export decline, acers of advanced materials. It can be used to custom manufacture cording to Abiquim. small parts or by architects seeking a 3-D representation of a proj“Net trade of the country ect. In a typical application, a special printer deposits a polymer, is going in the wrong direcone thin layer at a time, to create a 3-D object based tion,” Quijada says. on a design stored on a computer. One company But she praises REBOUND Growth is expected to pick up in 2013. alone, Minneapolis-based Stratasys, claims to have the government for developed well over 100 different materials or comidentifying major Argentina ■ 2010 posites for use in 3-D printing. problems and try■ 2011 Brazil ■ 2012a Although the technology has a science-fiction ing to come up with ■ 2013a Chile quality, market watchers say it will soon become solutions, such as commonplace. The office equipment giant Staples encouraging more Colombia has begun to install 3-D printers at its stores in Euproduction of oil Mexico rope to make objects—architectural models, art, or and natural gas. Venezuela prototypes—out of paper. But it’s a small step to usThe Brazilian –4 –2 0 2 4 6 8 10 ing polymers, Kozarsky says. government also Change in GDP from the previous year, % Perhaps more tentatively than carbon fiber cars has dusted off a Estimates. SOURCE: International Monetary Fund or 3-D printers, graphene-based products are also a time-honored reaching the market. One example is a conductive ink method of aiding launched by Vorbeck Materials for use in printed electronics. Other IMF expects economic local manufacturers: raising firms are also promoting commercial applications of graphene. performance to improve in tariffs on imports. In the fall, Angstron Materials and XG Sciences sell a range of nanographene Latin America as governthe government substanplatelet materials for uses such as printing and batteries. ments ease monetary policy tially increased duties on Makers of graphene-based materials could be accused of overand engage in fiscal stimulus. 100 imported products. The hyping their products. The relatively small companies are often Economists warn, however, list included chemicals such compared to firms that not long ago tried to make a business out of about potential downsides as ethylene glycol, polyethcarbon nanotubes. But, coming on the scene later, graphene makers that are beyond the control ylene, and polycarbonate.— have had the chance to learn from past mistakes, Kozarsky says.— of Latin American policymak- ALEX TULLO JEAN-FRANÇOIS TREMBLAY WWW.CEN-ONLINE.ORG
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JANUARY 14, 2013
