Is the worst over? - A cautious but growing consensus among economists and industry analysts suggests that after more than two years of turbulence, the global economy in general and the chemical industry, in particular, are entering calmer waters.

At the same time, this recovery presents its own set of challenges for U.S. chemical companies. The growing size and diversity of emerging markets, the increasing influence of chemical producers in the Middle East, Asia and Latin America, the increased burden of environmental regulations and many other factors have created a new global playing field in which U.S. companies are no longer taking their technical, financial and market advantages for granted. In fact, "business as usual" will never be the same again as the U.S. chemical industry moves into a post-recession global economy. U.S. chemical companies are redefining their traditional role as chemical producers and literally reinventing themselves as the global industry's leading science and technology companies for the 21st century.

The U.S. and Emerging Markets

U.S. chemical companies are increasingly focused on emerging markets, recognizing their tremendous market potential. China is expected to add approximately 500 million consumers between 2005 and 2020. These consumers will have an estimated annual income of at least $10,000.As consumer spending increases in China, the demand for differentiated products is expected to follow suit, driving the chemicals market toward specialty chemicals.

Equally significant market opportunities exist in India. The country is currently the second-biggest market in Asia with a population of 1.12 billion. However, by 2025 the population of India will approach that of China due to the Chinese government's policies restricting births. Meanwhile, India's population will continue to drive increased levels of consumption. By 2015, over 63 million Indian households are expected to reach a household income of over $6,500 annually, ensuring greater demand for food and healthcare products as well as consumer goods like automobiles, housing, home appliances and items for personal care.

For the moment, most U.S. chemical companies see Asia and Latin America primarily in terms of market opportunities, not competitive threats. However, that perspective will most likely change in the near future. The American Chemistry Council (ACC) expects chemical industry output in emerging nations to increase 7.6% in 2011, surpassing expected growth rates for the U.S. To maintain their competitive advantage, many U.S. chemical companies are taking steps now to realign or expand their global initiatives and strategies. Recent activities include the following:

• In November of 2009, Air Products opened a new specialty amines plant in Nanjing, China, which will complement its existing local capabilities.
• ExxonMobil Chemical has announced that the majority of growth for its products in the near future will be in Asia, especially China and India. The company intends to supply these markets from its global network, including its Singapore manufacturing facilities.
• Chevron Phillips Chemical Company (CPChem) is increasing its production capacity in the Middle East with two new joint ventures between affiliates or subsidiaries of CPChem and companies in Saudi Arabia and Qatar. CPChem already owns three plants in the region, with another one under development.
• In March of 2010, Eastman Chemical Company announced the acquisition of Genovique Specialties Corporation, a global producer of specialty chemicals. Through the deal, Eastman acquired operations in the U.S. and several countries overseas, including a joint venture in Wuhan, China.
  New oil and gas discoveries in Brazil have put the petrochemicals sector and the country on a path to strong growth and development. The promise of Petrobras' pre-salt hydrocarbons program, demand from China and the success of tax reductions for autos and consumer appliances have increased confidence in the region. By 2014, Brazil is estimated to receive investments of over $26 billion for the chemicals industry, according to a survey by the Brazilian Association of Chemicals Manufacturers (Abiquim). The investment is expected to generate 5,800 direct jobs.
  Opportunities in Brazil have not been overlooked by U.S. chemical companies. In the first quarter of 2010, Dow Chemical's sales in Latin America increased 25.5% year- over-year from $1.13 billion to $1.41 billion. DuPont witnessed a 21% increase in its Latin American sales in the first quarter of 2010, to $800 million. Latin American sales contributed 9% of the company's global sales.
  The growing economic importance of Brazil to the U.S. is reflected by the complex trade relationships between the two countries. Of particular importance to the U.S. chemical industry is a long running dispute between Brazil and the U.S. over U.S. cotton subsidies. This dispute has led to the possibility of "cross-retaliation" penalties by Brazil involving the suspension of patent and intellectual property rights on goods including agricultural chemicals, biotechnology products, and pharmaceuticals.

The Evolution of Science in the U.S.

Although the U.S. chemical industry is clearly recovering from the global recession, production facilities in China and the Middle East are being built at a rapid pace. Global overcapacity, particularly at the commodity end of the industry, is therefore a strong possibility, even with increased demand from emerging markets.

To an extent, the U.S. industry is sheltered from these dynamics by its feedstock advantage. Natural gas, which in 2010 enjoys a cost advantage of 20 to 1 over crude oil provides the basis for approximately 70% of U.S. ethylene, while in Europe, for example, 70% is derived from oil-based products. If the U.S. chemical industry becomes more proactive at identifying and rationalizing un-economic plants than its European competitors, it may be better placed to face these new challenges.

Undoubtedly, however, global overcapacity and emerging market competition will continue to change the market dynamics of the U.S. chemical industry. At the same time, the U.S. chemical industry is being presented with huge areas of opportunity by the emergence of a number of global mega trends, such as climate change, sustainability and population growth. The U.S. chemical industry has not remained idle in the face of these challenges, and many companies have already started to adapt through rigorous portfolio rationalization and a drive to advanced specialty chemicals, which focus on providing the solutions for the needs of a changing world. Science and technology have been key elements in this process, reflecting an industry-wide focus on R&D.

The ACC reports that the U.S. chemical industry is responsible for 10% of all U.S. patents. The industry also invests almost $50 billion in R&D every year. Major areas of research by U.S. chemical companies include biotechnology in chemical production, nanomaterials, water-based coatings, sustainable chemistry and new fibers based on bio-materials such as corn.

Conclusion

The actions taken by U.S. chemical companies during the downturn may have given them a head-start over their European counterparts in terms of realigning their business models to fit the needs of their long-term strategic goals. To remain competitive, U.S. chemical companies must continue and even increase their drive to develop and productize world class scientific research and technology.