Executive Summary

The chemical industry in this report is primarily concerned with a review of the following industry sectors and product areas:

• Basic organic chemicals
• Inorganic chemicals
• Synthetic resins and plastics
• Man-made fibres
• Dyestuffs and pigments
• Paints, varnishes and painter's fillings
• Fertilizers
• Formulated pesticides
• Printing inks
• Soaps and synthetic detergents
• Perfumes, cosmetics and toilet preparations
• Photographic materials and chemicals
• Chemically treated oils, fats, essential oils and flavouring materials
• Formulated adhesives and sealants
• Synthetic rubber
• Miscellaneous chemicals.

In 1991, apparent UK demand, measured by UK manufacturers' sales, less exports, plus imports, amounted to £27.8bn. Investment in plant and equipment in the same year was approximately £2bn at 1985 prices and the number of employees in the industry was 300,000.

In common with many other industries in the UK, the chemicals market has been badly affected by prolonged recession, which is slowly easing, and a period of high interest rates that increased the cost of plant modernisation that is now essential to meet higher environmental standards, and of totally new projects. Although maintenance and work in progress has continued many of the capital projects that were once likely to be approved by chemical manufacturers have either been cancelled or postponed until the domestic economic situation becomes clearer. This is clearly illustrated in the Chemical Industries Association's analysis of investment intentions which show a drop in expenditure in real terms up to 1994/1995.

Chemicals manufacturing in the UK is not, however, entirely dominated by the UK market, although it is of importance to have a strong and reliable home base. The dependence of ICI sales on the UK market has steadily dropped over the years and is now around or below 20% of the value of its chemicals output, but at the same time importance of its other European markets has increased. Manufacturers are driven by the constant necessity for technical innovation in an international environment where there are virtually no restrictions on international trading. Consequently there is a strong emphasis on research and development in all the many large and medium-size companies in Europe, the US and Japan which are competing strongly between themselves in their home markets and for overseas trade.

An outcome of this competition is that there is a great deal of duplication of similar products in laboratories and in manufacturing plants which are replicated around the world. Periodically there is overcapacity in bulk chemicals, which provide many of the building blocks for the rest of the industry, with too many suppliers outstripping the needs of their markets. Lack of co-ordination has often resulted in oversupply and low prices for the producers but the `go it alone' attitude is changing in favour of more co-operation in the 1990s either through joint ventures between rival companies or plant exchanges, e.g. the recent ICI/Du Pont fibres for acrylics agreement.

Other European companies are arranging similar types of deals to co-produce similar products and concentrating production at new or the most efficient existing plant. New and powerful sources of competition in chemicals production are beginning to emerge from what were once regarded as developing countries. A number of these countries, particularly but not exclusively in the Far East, have invested heavily in indigenous petrochemical complexes and are entering the bulk chemical market, initially to meet local demand, but from the size of the complexes eventually in world markets as well. Taiwan and South Korea are in the forefront in building new plant and these countries are attracting chemical investments from many European, North American and Japanese companies. Inevitably this shift in emphasis from the mature economies to the more dynamic developing countries and their potential high rate of growth in demand for all types of chemicals, will draw more investment from the low growth areas in Europe, including the UK. It is already apparent that during the course of this decade there will be a fundamental realignment in the priorities given to investment by all the major world class chemical companies and the Far East will receive priority attention as a new key market area.

The market scenario for basic chemicals in Europe is likely to be the continuation of supply by fewer of the existing established producers, operating smaller size but more productive plant and working closer together. Their output will be supplemented by a steady growth in imports from countries with cheap feedstocks and low energy and environmental costs, i.e. Saudi Arabia and Turkey. In western Europe, which the major companies in the UK chemical industry now virtually regard as an extension of their own home market, more emphasis is being placed on developing speciality and fine chemicals for a diverse range of niche markets. Speciality chemicals have a higher added value than bulk chemicals and are usually more difficult to replicate by other companies in the short term, but to be successful they require even greater expenditure on research and development. Their function is to narrowly focus on the opportunities for providing new, more technologically-advanced products for existing markets and more importantly to penetrate new ones as product life cycles are becoming shorter.

It is likely that the number of chemical sites will be drastically reduced as companies concentrate more on their core businesses and eliminate the weaker, uneconomic and peripheral businesses from their portfolio. This will reduce the number of employees needed to run a plant, expenditure on maintenance and produce large savings on environmental conversion costs. Expenditure on installing more effective environmental controls in the updating of plant equipment is rapidly increasing as a proportion of total investment. It is anticipated that retrofitting of new components into existing plant could account for up to a quarter of capital expenditure by the UK chemical industry in the mid 1990s before they automatically become an integral part of the designs in all new installations.

In accordance with the terms of the international agreement to control ozone depletion called the Montreal Protocol, the world chemical companies are committed to phasing out the use of the more dangerous chemicals such as CFCs. These include the blowing agents used for insulation foams, coolants in refrigeration and air-conditioning units, halons in fire extinguishers, methyl chloroform for cleaning printed circuit boards and engineering components and carbon tetrachloride cleaning agents. They are being replaced with more benign products such as Klea 134a produced by ICI for refrigerants, and other cleaning solutions which eliminates the use of harmful solvents in their formulations.

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