(CHEManager International 9/2015)     Cost structure     The US is a global leader in chemical production, providing over 15% of the world’s chemicals and representing 14% of all US exports. According to the Guide to the Business of Chemistry, published annually by the American Chemistry Council, the business of chemistry is also one of the US’s largest manufacturing industries, an $801 billion enterprise providing 804,000 jobs. Figure 1 presents typical cost structures over the business cycle for four of the five major segments of the chemical industry. Basic chemicals are dominated by costs for feedstock and materials. Pharmaceuticals and consumer products spend much more on advertising, research and development (R&D), and other sales, general, and administrative (SG&A) expenditures.



Capital investment     The chemical industry has consistently been one of the largest US private-sector investors in new plants and equipment (P&E). Capital investment is comprised of two basic components: structures (e. g., buildings) and equipment (fig. 2). The equipment category is composed primarily of traditional process equipment such as storage tanks, heat exchangers, pipe, pumps, etc. A sizable portion of equipment spending in the business of chemistry is for information processing technologies. Investment in structures is mostly for industrial buildings and related structures, but also includes some minor spending for office buildings. Equipment is notably more important to long-term growth potential for the manufacturing sector and the business of chemistry as it is directly involved in the production process and embodies the latest in process technologies.



Trade balance     From the 1920s through the early 2000s, the business of chemistry in the US maintained a trade surplus. The trade balance in chemicals reached a peak of $20.5 billion in 1995. In 1997, the pharmaceutical segment posted a trade deficit for the first time, and that number has grown over the past two decades (fig. 3), indicating a continuing surge of imports of finished pharmaceuticals, especially from Western Europe. In 2001, for the first time since reliable records were kept, the US (total) business of chemistry posted a trade deficit, a trend that continued over the subsequent decade. However, the United States’ net trade in chemicals excluding pharmaceuticals has consistently achieved a trade surplus.



Determinants of investment     Profit margins and capacity utilization rates are key drivers for P&E investment. One of the factors that drive the magnitude and composition of investment are after-tax profits (fig. 4). The 1990s were a period of slow and steady growth for companies engaged in the business of chemistry. In the early part of the 2000s, chemical companies were especially hard hit, as reduced capacity utilization, rising energy and other raw material costs, falling real prices, a downturn in end-use markets, and oversupply all contributed to declining margins. By 2010, the US business of chemistry began to experience another wave of growth, spurred in part by developments in shale gas, which made the US increasingly more attractive as a place to manufacture chemicals. (rk)