Globalisation Trends and Their Impact on the Chemical Industry

Globalisation Trends and their Impact on the Chemical Industry

by Frost & Sullivan's leading Chemicals & Materials analysts:Brian Balmer, Robert Outram, Leo Dokos and Chris Shanahan

2

Focus Points

• An Overview of Globalisation Trends impacting the Chemicals & Materials Industry

• Globalisation Trends in Construction & Utilities

• Globalisation Trends in Transportation

• Globalisation Trends in Health, Nutrition & Personal Care

• Conclusions

3

An Overview of Globalisation Trends

Putting "Global" in Context

4

Globalisation in Context Frost & Sullivan's assessment of the key megatrends for 2010

Globalisation

Health &Wellness

Low CarbonEconomy

Functionality &Performance

5

Globalisation in Context What did our clients say?

0%

5%

10%

15%

20%

25%

30%

35%

Low Carbon Globalisation Func.& Perf.

Health &Wellness

"Which megatrend to you see having the greatest impact on Chemicals in 2010?"

Source: Frost & Sullivan

Results of poll question askedduring previous Analyst Briefing,Dec 2009

0%

5%

10%

15%

20%

25%

30%

35%

Low Carbon Globalisation Func.& Perf.

Health &Wellness

"Which megatrend to you see having the greatest impact on Chemicals in 2010?"

Source: Frost & Sullivan

Results of poll question askedduring previous Analyst Briefing,Dec 2009

6

What is Globalisation?

Geographic expansion opportunities for Western companies and brands

Population movements - in particular Urbanisation

Global DemographicChange

New competitors from Asia

The increasing need for food and land on which to produce it

Intensive & unsustainable agriculture causing desertification

Pressure on land use e.g. to build homes on flood plains

Global Competition

Global Communication

Population growth

Global aspiration to liveto "Western" standards

7

Globalisation Statistics

3% of the world's population lived in cities in 180047% in 200067% forecast for 2025 (UN)

Total population in 1900: 1.65 billionIn 2000: 6.1 billionUN's "Medium" 2050 forecast: 8.9 billion

Global Population Growth Forecast to 2050

Asia

Latin Am

Europe

Africa

N America

Oceania

-0.5%

2.0%

-200 1,800

Absolute Change (millions), 2000 to 2050

CAG

R (

2000-2

050)

Source: Frost & Sullivan / UNESA

World Population Growth Forecast

0

2,000

4,000

6,000

8,000

10,000

12,000

1960 1975 1990 2005 2020 2035 2050

Popula

tion, m

illions

Historic

Low

Medium

High

Source: Frost & Sullivan / UNESA

Africa's population to more than double between 2000 and 2050

8

Chemical IndustryRegional Shifts in the Balance of Power

• Past decade has seen some movement in the base of the companies in the global top 25 of chemicals producers

• Main change in this time has been the growth in a few specific companies:

• Sinopec: 25th to 8th

• Sabic: 26th to 7th

• US and European companies have in the same period massively increased their presence in Asia and other regions

0

5

10

15

20

25

2000 2008

Year

Location of Top 25 Global Chemical Companies, 2000 to 2008

Middle East

China

Japan

USA

Europe

Source: ICIS / Frost & Sullivan

0

5

10

15

20

25

2000 2008

Year

Location of Top 25 Global Chemical Companies, 2000 to 2008

Middle East

China

Japan

USA

Europe

Source: ICIS / Frost & Sullivan

9

What does it mean for Chemicals?

Health, Nutrition & Personal Care• Will the growth markets of India & China

continue to crave "Western" luxuries such as personal care and cosmetic goods?

• Will their ethnicity affect the design and formulation of these products?

Transportation• Will the auto industry move production to

global centres such as Chennai?• Will global trade patterns change the way

other raw materials and consumer goods are shipped around the world?

Construction & Utilities• How can we maintain a healthy urban

environment as cities get bigger and bigger?• Will electricity distribution become globalised

as centres of sustainable energy generation are linked to large urban centres of demand?

10

Globalisation Trends in Construction & Utilities

and their impact on Chemicals & Materials

11

Challenges and Barriers to Globalisation

GlobalisationGlobalisation

Global Market Challenges

EnergySecurity

EnergySecurity

Climate Change& Global Warming

Climate Change& Global Warming

Safe DrinkingWater

Safe DrinkingWater

Barriers to Globalisation

FiscalFiscal LegalLegal CulturalCultural Infrastructure &Operational

Infrastructure &Operational Intellectual PropertyIntellectual Property

Cost Competitiveness& Demand Pattern

Cost Competitiveness& Demand Pattern

Housing& Infrastructure

Housing& Infrastructure

Growing Global Marketplace

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Globalisation and Global Challenges

Energy Security- Indigenous supply that hedges against geopolitical risks

- Addresses growing global energy demand – 45% increase by 2020

Climate Change & Global Warming

Cost Competitiveness &

Demand Pattern

- Kyoto Protocol: CO2 emissions to reduce by 5.2% of 1990s level by 2012

- EU: 20% of renewable energy by 2020

- USA: 22 States with 10% to 20% RPS (Renewable Portfolio Standards) mandates

- China: 100,000MW from renewable energy sources by 2020

- India: 10 States with 2% to 10% RPO (Renewable Purchase Obligation) mandates

- Further cost reductions are required

- Stable lifecycle power costs

- Demand pattern for chemicals and materials in Construction & Utilities has changed the last 10 years

Housing & Infrastructure

- Affordable residential housing

- Energy efficient buildings

- Infrastructure development in emerging regions and countries

Safe Drinking Water- Provision of safe drinking water (and wastewater treatment)

- Competition with other industries for the use of raw materials and chemicals

13

Globalisation: 2009 was a Difficult Year for Renewable Energy Worldwide…

Positives Negatives

Lower raw materials and equipment prices (steel,

other metals, polysilicon)

Difficulties in obtaining credit and turning to public markets;

high interest rates

Project valuations back to reasonable levels, good

time to invest or buy

Tighter budgets, slowdown in asset finance

Strong players get stronger, trim costs, enhance their

proposition

Fiercer competition, price wars, shrinking profits

• 2009 was a difficult year for renewable energy exhibiting a slowdown due to:• financial turmoil curbs investment• high interest rates• shattered investor’s confidence

• A repeat of the 1970s and 1980s scenarios when investment in the renewable energy ceased after the oil prices collapsed is highly unlikely:

• oil prices are unlikely to fall to the 1990 level• renewable energy is much more mature now than 20-30 years ago and is able to deliver

power nearly at the same cost as the conventional power sources

• renewable energy is a major tool in curbing the CO2 emissions and many governments around the globe have reiterated their will to support the industry through the hard times

14

Globalisation: The Demand Pattern is Changing…

• The US and Europe were the only two major global

markets for chemicals and materials in construction

and utilities in 1990

• China, India, South Africa and Brazil were important

regional markets but on the global landscape the

volumes sold never came close to the EU and US

• As a result Western companies did not focus heavily

on that region

• China has become one of the leading markets for

chemicals and materials in construction and utilities

importing raw materials

• The global demand for chemicals and materials

utilised in the construction and utilities sectors is no

longer concentrated in the West

• Western preferences no longer solely drive demand

and greater attention needs to paid to the individual

specifics of each regional market

Rapid evolution of China as an importer 1985-2005:

Stock-piling of raw materials

Developing-country share of the global economy will rise in coming years

15

North America• Global leadership in IT integration• Growth in green buildings (driven by LEED), but

challenging construction market• Major investments in fuel cell markets• Solar power, driven by support at state level• Smart grid investment and interest booming since

2007/8

North America• Global leadership in IT integration• Growth in green buildings (driven by LEED), but

challenging construction market• Major investments in fuel cell markets• Solar power, driven by support at state level• Smart grid investment and interest booming since

2007/8

Latin America• High growth in fast evolving economies (e,g,

Brazil) driven by growth in energy demand• Historically favoured low technology, but

sophistication of buildings is increasing• Small and medium scale biomass waste to

energy microgeneration is widespread

Latin America• High growth in fast evolving economies (e,g,

Brazil) driven by growth in energy demand• Historically favoured low technology, but

sophistication of buildings is increasing• Small and medium scale biomass waste to

energy microgeneration is widespread

Asia Pacific• Unprecedented energy demand growth• High-tech cities emerging in China, Vietnam and

India• Small hydroelectric market in China and India• Fuel cell market in Japan exhibits global

leadership

Asia Pacific• Unprecedented energy demand growth• High-tech cities emerging in China, Vietnam and

India• Small hydroelectric market in China and India• Fuel cell market in Japan exhibits global

leadership

Europe• Growth opportunities in Central & Eastern Europe driven by EU

legislation and enlargement• Green Buildings in Germany, Austria and Scandinavia• Energy from wastewater emerging across Europe• Renewable energy in Germany - France, Spain and Italy

playing catch up• Smart Buildings taking off with projects in France and Spain• Sluggish construction market since 2008, but long term green

drivers remain strong.

Europe• Growth opportunities in Central & Eastern Europe driven by EU

legislation and enlargement• Green Buildings in Germany, Austria and Scandinavia• Energy from wastewater emerging across Europe• Renewable energy in Germany - France, Spain and Italy

playing catch up• Smart Buildings taking off with projects in France and Spain• Sluggish construction market since 2008, but long term green

drivers remain strong.

Global Outlook in Construction & Utilities Markets

Middle East & Africa• Massive construction activity in the Middle East• Solar technology taking off in the Middle East• Environmental investment accelerating in South Africa• World-leading levels of building sophistication and

technology leverage in Middle East• Energy demand growth outstrips supply in much of

Africa



Africa



Africa



Africa

16

Globalisation Trends in Transportation


17

0.0 2.5 5.0 7.5 10.0

Suzuki Group

PSA Group

Honda Group

Hyundai Group

Fiat Group +Chrysler

Ford Group

General MotorsGroup

Porsche-VWGroup

Renault-NissanGroup

Toyota Group

2008 2015

OEM Re-positioning : Chinese Manufacturers will Overtake the Koreans, Renault-Nissan to be the 2nd Largest Manufacturer, Tata Group to Grow at a CAGR of 10.2%

Source: JD Power Forecasting; Frost & Sullivan Analysis

4.2%

4.4%

3.7%

-1.5%

2.3%

12.2%

4.1%

4.0%

2.7%

3.6%

Global Light Vehicle Sales Across OEMs (World), 2008 – 2015

Fiat + Chrysler combined entity is

expected to propel sales of the group

beyond 5 million units

Restructured GM will be a smaller

company with Cadillac, Chevrolet,

Buick and GMC; Chevrolet expected

to be largest

Romanian Dacia and Russian Lada

brands expected to grow at more than

8% CAGR, constituting 25% of sales

in 2015

Hyundai-Kia is expected to join the

league of 5 million cars in global

sales, with sales almost doubling in

China and Europe

Excludes Volvo

CAGRMillion Units

Tata Motors

0.6m

1.2m +10.2%

Tata Motors – One of

the fastest growing

companies organically

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The Middle Range Car Sector is Being Polarised Between Low Cost Models and the Luxury Sector

“People just want a clean and cheap method to get from A to B. This is driving the market towards cheaper, more basic,

vehicles”

Source: DSM Engineering Plastics

Low Cost End Luxury End

Squeeze

19

More Than 4.3 Million Cars to be Produced in Asia by 2015 – India to Emerge as the Low-cost Car Production Hub

Low Cost Car Production Volumes – by Country (World), 2005 and 2015

Note: CAGR calculated for 2005 to 2015; All figures are rounded; the base year is 2008. Source: Frost & Sullivan

20050.0

1.0

2.0

3.0

4.0

5.0

Africa Asia EasternEurope

Middle East NorthAmerica

SouthAmerica

UnitsUnit Shipments in 20153.8 m Units

7.1 m Units

2005 – 2015: CAGR : 7.1 %

Un

its (

Mil

lion

)

0.25 m

3.44 m

1.87 m

0.24 m

1.1 m

0.23 m

Vehicle Segment Price Range ($) Region Model Name

Ultra LCC US$ 2,500 – 3,000 India Tata Nano, Renault Bajaj

LCC < US$ 7,500 China Chery QQ3, Changhe Ideal

LCC <US$ 10,000 Eastern Europe Renault Logan

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Growth in use of plastic materials

increasingly driven by

legislation in the next 13 years

Regulations on CO2 emissions

and vehicle fuel consumption

Light weighting vehicles is regarded by the industry as the main way to reduce fuel consumption

• EU, Japan and Korea to meet target of 120 g/km CO2 per car by 2015

• US: CAFE reform and EPA to legislate on compulsory measures by the end of 2008

End of life recycling regulations

More plastics used, especially thermoplastics

• EU: ELV legislation current 80% recyclability rate raised to 85% in 2015

• Japan and US : recycling laws render manufacturers responsible for the recycling of their own vehicle

Regulations on SafetyTechnology switches and increase in plastics use, especially composites

• Euro NCAP tests• Pedestrian Safety Legislation (EU

legislation effective from 2012)

Global Standards

The legislative trends affecting the use of plastics is increasingly uniform worldwide

• UN’s World Forum for Harmonization of Vehicle Regulations is aimed at creating uniform set of regulations covering vehicle safety, environmental protection and energy efficiency

So

urc

e:

ind

us

try

pa

rtic

ipa

nts

; F

ros

t &

Su

lliv

an

an

aly

sis

Regulations: Three Key Areas are Regulated and Will Go Global in Nature

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North America• Light weighting and technology upgrade• Export market for fuel efficient vehicles• Dieselisation

North America• Light weighting and technology upgrade• Export market for fuel efficient vehicles• Dieselisation

Latin America• Biofuel powered cars

Latin America• Biofuel powered cars

Europe & Japan• Innovation and Design centre• Electric vehicle production

Europe & Japan• Innovation and Design centre• Electric vehicle production

Asia Pacific• Hub for low cost manufacturing• ULCC

Asia Pacific• Hub for low cost manufacturing• ULCC

Russia & Eastern Europe• Low cost car manufacturing of mid-range models for supply into Europe

Russia & Eastern Europe• Low cost car manufacturing of mid-range models for supply into Europe

Globalisation – Leveraging Cultures & EconomiesChemical Supply Strategy Will Change by Region

22

European Electric Vehicles – A Huge New Materials Market

Battery MaterialsLaminatesElectrodesElectrolytesCasing

TransmissionCooling fluidsGear oilsClutch fluids

Electronics/wiringHigh tension cablesCharging portsCable sheaths

Passenger comfortHeaters (as no heat from engine)Insulation of interiors

Chassis and skinsLightweight plasticsCompositesBioplastics

GlazingPanoramic roofSide windowsPolycarbonatesAcoustic laminates

Rolling resistanceTyre additives

23

EU Pedestrian Impact Safety – Asian Exporters Must Comply

The European Pedestrian Impact Phase 2 standard comes into force in 2010. Malleable steel, polyurethane foams and other energy absorbing materials are being used in automotive bumper systems to meet pedestrian lower-leg impact requirements.

Two competing product

approaches. Alloys versus oil based products

•Valeo Malleable Steel Units

•Bayer Material Science Bayfill(R)Polyurethane

Euro NCAP Safety Standards

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Globalisation Trends in Health, Nutrition & Personal Care


25

Personal Care and Well-being Research 360 Degree Focus

Competitive TrendsCompetitive Trends

Global & Regional FocusGlobal & Regional Focus

Impact of the EconomyImpact of the Economy

Customer TrendsCustomer Trends

Integrated IndustryIntegrated Industry

Disruptive & Emerging Technologies

Disruptive & Emerging Technologies

Best PracticesBest Practices

Inactive Personal

Care Ingredients

Natural & Organic

Ingredients

Packaging Materials Sustainability

Active Personal Care

Ingredients

Cosmeceutical & Functional Ingredients

26

Personal Care & Well-being MarketThe Global Market is more than $310 Billion in 2009

• The Personal Care and Well-being Market was more than $US 310 Billion in 2009

• Growth varies by country, product category, but in general, the market is growing at an estimated 5 to 6 percent annual growth rate

• Nutricosmetics and Cosmeceuticals growing at a greater rate than Nutraceuticals and Cosmetics and Toiletries, suggesting an increasing overlap between the two primary market sectors

• The Personal Care and Well-being Market was more than $US 310 Billion in 2009

• Growth varies by country, product category, but in general, the market is growing at an estimated 5 to 6 percent annual growth rate

• Nutricosmetics and Cosmeceuticals growing at a greater rate than Nutraceuticals and Cosmetics and Toiletries, suggesting an increasing overlap between the two primary market sectors

Nutraceuticals Market

$US 65 Billion

Nutraceuticals Market

$US 65 Billion

Cosmeceuticals Market

$US 11 Billion

Cosmeceuticals Market

$US 11 Billion

Nutricosmetics Market $US 1.5 Billion

Nutricosmetics Market $US 1.5 Billion

$30.7

$15.3

$65.0

$12.7

$18.9

$6.3

$14.6

$0.00 $20.00 $40.00 $60.00 $80.00

Japan

France

US

Russia

Brazil

India

China

C&T Market Revenues ($ Billion)

Cosmetics & Toiletries Market (2009)

$US 250 Billion

Cosmetics & Toiletries Market (2009)

$US 250 Billion

Ann

ual G

row

th R

ate

(200

8 –

2009

)

> 10%

< 5%

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Personal Care & Well-being Global Industry Challenges Understanding the Global Marketplace Inside and Out

The Need for BeautificationThe Need for Beautification

• Anti-aging Solutions• Culturally-Specific

Personal care Solutions• Superfood Ingredients

Growth of Per Capita • Spending on Cosmetics

in Emerging Nations

• Anti-aging Solutions• Culturally-Specific

Personal care Solutions• Superfood Ingredients

Growth of Per Capita • Spending on Cosmetics

in Emerging Nations

Increased Use of Health Claims

Increased Use of Health Claims

• Key Health Claims• Heart Health • Digestive Health• Cognitive Health• Bone & Joint Health• Detoxification Solutions• Enhanced Immunity

• General Mistrust Health Claims

• Regulatory Constraints

• Key Health Claims• Heart Health • Digestive Health• Cognitive Health• Bone & Joint Health• Detoxification Solutions• Enhanced Immunity

• General Mistrust Health Claims

• Regulatory Constraints

Growth in Weight Management

Growth in Weight Management

• Urbanization and Obesity are Tied Together

• Hunger Control and Satiety Enhancement

• Calorie and Fat Burning Solutions

• Solutions that Assist in Calorie Intake Reduction

• Urbanization and Obesity are Tied Together

• Hunger Control and Satiety Enhancement

• Calorie and Fat Burning Solutions

• Solutions that Assist in Calorie Intake Reduction

Segmentation based on Demographics

Segmentation based on Demographics

• Increasing Demand for Women’s Health Supplement Solutions

• Personal Care for Men• Supplements for Senior

Citizens• Children’s Health

• Increasing Demand for Women’s Health Supplement Solutions

• Personal Care for Men• Supplements for Senior

Citizens• Children’s Health

Opportunities and ThreatsOpportunities and Threats

• Watch for new players entering the attractive personal care & well-being market place, especially from Asia• Beyond BRIC Look for increasing urbanization and economic development in emerging markets, especially in

Latin America and Africa, as these are future growth regions for personal care and well-being • Watch the global regulatory environment as this can either drive or inhibit the use of health claims in personal care

and well-being products• Look for markets/societies that are undergoing dietary changes (i.e. Diets shifting to increased consumption of

processed foods and/or corn syrups) as these markets will likely increasingly demand for personal care & well-being solutions

• Watch for new players entering the attractive personal care & well-being market place, especially from Asia• Beyond BRIC Look for increasing urbanization and economic development in emerging markets, especially in

Latin America and Africa, as these are future growth regions for personal care and well-being • Watch the global regulatory environment as this can either drive or inhibit the use of health claims in personal care

and well-being products• Look for markets/societies that are undergoing dietary changes (i.e. Diets shifting to increased consumption of

processed foods and/or corn syrups) as these markets will likely increasingly demand for personal care & well-being solutions

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The Need and Spending for Personal Care & Well-being Solutions Increase with Increased Urbanization

y = 0.0524x + 3.6258

R2 = 0.1831

0

5

10

15

20

0 20 40 60 80 100% of Urban Population

Tota

l expenditure

on h

ealth

as %

of G

DP

y = 0.3578x + 21.648

R2 = 0.1646

0

20

40

60

80

100

0 20 40 60 80 100% of Urban Population

% P

OP

w/B

MI >= 2

5 k

g/m

Â²

ChinaIndia

BrazilRussia

Japan France

USA

$0

$50

$100

$150

$200

$250

$300

0 20 40 60 80 100

% Urban Population

Pe

r Cap

ita C

osm

etic

s &

T

oile

tries

Spe

ndi

ng (

$US

)

Significant Correlation between Spending on Health Solutions and

Urbanization Suggests that Growth

Opportunities Exist in Regions with Growing

Urbanization

Correlation between Obesity and Urbanization Points to Opportunities in

Growing Cities

Need for Beautification Solutions also Increase

with Increased Urbanization

Globalisation Trends and Their Impact on the Chemical Industry

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