The Global Chemical Industry: US, China and Global Status and Opportunities, 2015

August 28, 2005American Chemical Society

Martha Gilchrist MooreMoore Economicsmmoore@mooreeconomics.com

Opportunities in China Over the Next Decade

China will be the growth driver for global manufacturingPopulation of 1.3 billion growing at 0.6% per yearGrowing per capita sales position China for explosive growth in chemicalsNew capacity situated near low-cost feedstocks or proximity to markets

Global Chemical Shipments by Segment

Petrochemicals17%

Polymers14%

Coatings5%

Consumer Products

12%

Pharma.26%

Ag. Chemicals

5%Other

Specialties14%

Adhesives1%

Ind. Gases2%

Inorganics4%

Source: ACCGlobal Shipments: $2.2 trillion

Global Chemical Shipments by Country/Region, 2004

United States23%

Western Europe

34%Japan10%

Canada/Mexico2%

Latin America6%

Central/Eastern Europe

4%

India2%

China6%

Africa & Middle East4%

Other Asia/Pacific

9%

Global Shipments: $2.2 trillionSource: American Chemistry Council

Global Chemical Shipments by Country/Region, 2014

United States19%

Western Europe

26%

Japan8%

China12%

India3%

Canada/Mexico2%

Latin America6%

Central/Eastern Europe

4%

Africa & Middle East5%

Other Asia/Pacific

15%

Global Shipments: $3.5 trillionSource: American Chemistry Council

Brazil

Other Western Europe

Other East Asia

India

Other Asia-Pacific

United StatesJapan

China

Italy (hidden)

Canada

United Kingdom

Germany

France

Other Latin America

Mexico (hidden)

Africa & Middle East

Other Central & Eastern Europe

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-2% 0% 2% 4% 6% 8% 10% 12% 14%

Average % Growth (2005-2015)

Ave

rage

% G

row

th (

1994

-200

4)

Russia

Source: American Chemistry Council

Global Chemical Industry Prospects

Chemical Sales per Capita (2004)

$0

$500

$1,000

$1,500

$2,000

USJa

pan

Fran

ce

Germ

any

Cana

da UKBr

azil

Mexico

China Ind

ia

Source: ACC, Census

Projected Global Chemical Industry Growth Rates

0% 2% 4% 6% 8% 10% 12%

JapanGermany

FranceUKUS

CanadaMexicoBrazilRussia

Africa/MiddleOther East Asia

IndiaChina

Source: American Chemistry Council

Ethylene Consumption Growth(2004-2014)

0

10,000

20,000

30,000

40,000

2004 2009 2014

mill

ion

met

ric

tons

US Middle East China

US: 1.7%/yrMiddle East: 10.3%/yrChina: 10.8%/yr

Source: SRI

Direct Investment

Currently, China accounts for less than 2% of direct investment in chemicals by US companiesDirect investment in China has grown 6-fold since 1994, while direct investment in the chemical industry in China has grown by 7.5 times.

US Direct Investment Abroad in Chemicals (2004)

Canada13%

European Union58%

Japan3%

China2%

Africa/Middle East1%

Latin America

10%

Other Asia/Pacific

9%

Other Europe4%

Source: Bureau of Economic Analysis

Chemical DIA: $107.8 billion

Direct Investment in Chinese Chemical Industry Accelerating

0200400600800

1,0001,2001,4001,6001,800

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source: Bureau of Economic Analysis

$ million

New Ethylene CapacityAnnounced and Speculative (2004-2014)

North America

9%

Other8%

Other Advantaged

3%

Asia42%

Middle East38%

Source: SRI

Structural Changes in US

US market mature Competitive advantage from low energy prices lostUS chemical industry now a net importerManufacturing base shifting abroadGrowth in service sector, less chemical useChemical capital investment lagging compared to rest of world

Natural Gas Costs around the World($US per million BTUs)

USA: $9.70

Canada: $8.25

UK: $5.65

Belgium: $5.65

Russia: $1.20

Qatar: $0.70

Trinidad: $1.60

North Africa: $0.80 Japan: $5.20

South Korea: $5.20

Taiwan: $5.10China: $4.85

India: $3.25

Bolivia: $1.65

Argentina: $1.60

Indonesia: $2.70Singapore: $3.30

Australia: $3.85

Kuwait: $1.25Iran: $1.25

Saudi Arabia: $0.75Oman: $1.00

Turkey: $2.65Ukraine: $2.10

Belarus: $1.45

Baltics: $2.70

Poland: $3.40

Source: American Chemistry Council

US Chemical Industry Trade Balance by Sector

-30

-20

-10

0

10

20

30

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Pharmaceuticals Basic ChemicalsAgricultural Chemicals SpecialtiesConsumer Products

Source: American Chemistry Council

$ billion

US Chemical Trade - China

01122334455

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Trade Balance Exports Imports

Source: USITC

$ billion

Direct and Indirect Chemistry Content of Selected Products

0% 20% 40% 60% 80%

Petroleum refining

Construction machineryComputers

Motor vehiclesNew Residential Construction

Upholstered furniture

Medical supplies (ex. Pharma)Paper

Grain farmingCarpet

Plastic bottles

Moore Economics

Chemistry Dependence by Sector

$0 $1,000 $2,000 $3,000

Agriculture

Trade & Transportation

Mining

Information

Construction

Nondurable Manufacturing

Health Care

Durable Manufacturing

Finance, Insurance & Real Estate

Services

($ billion)

Non-chemistry dependent Chemistry dependent

Moore Economics

US – China Trade: By Category

0 20 40 60 80

Computers & ElectronicsToys, Sporting Goods, Misc.

ApparelFootwear & Leather

Electrical Equipment & AppliancesMachineryFurniture

Fabricated Metal ProductsPlastics & Rubber Products

Textile ProductsTransportation Equipment

Nonmetallic Mineral ProductsChemicals

Primary MetalWood Products

Imports Exports

Source: USITC

US Innovation

Service innovation – Some US producers are offering higher value added services rather than molecules.Biotechnology – 8% of US chemical sales are derived from biotechnology.

Changes in US Chemical Industry Structure

0

100

200

300

400

500

600

700

2004 2014

Coatings

Agricultural Chemicals

Inorganic Chemicals

Consumer Products

Resins, Rubber & Fiber

Petrochem/Derivatives

Other Specialties

Pharmaceuticals

Source: American Chemistry Council

$ billion

Regional Chemical Sales, Per Capita Chemical Sales, and Population Growth

-$500

$0

$500

$1,000

$1,500

$2,000

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%

Population Growth Rate (Average % Change 2000-2050)

Per

Cap

ita C

hem

ical

Sal

es

Africa &

Middle East

Other Asia/Pacific

Latin America

Central & Eastern Europe

United States

Canada

Note: Bubble size represents chemical sales in billions of dollars

Japan

Other Western Europe

China & East Asia

United Kingdom

ItalyFrance

Germany

Source: American Chemistry Council

Conclusions

China will become a major producer of chemicals within the next decade, accounting for 12% of global chemicals by 2014Chinese manufacturing and export sectors will continue to strengthenLarge, increasingly affluent population will generate domestic demand

Conclusions

US will continue to be a leading producer, however its global share will declineUS will lead in innovation – new materials, processes and servicesUS production will shift towardspharma, with slower growth in basics and agricultural chemicals