See the complete list of trends that we analyze.

1. Introduction to the Chemicals, Coatings & Plastics Industry

The businesses of chemicals, coatings and plastics are closely linked, and those sectors, in turn, are closely linked to the oil and gas industry. Plastics comprise a branch of petrochemicals—that is, chemicals refined from petroleum. Total world consumption of oil for industrial uses is about 30 million barrels daily—mostly for use in chemical processes. Coatings, which include paints, are chemical concoctions. Other everyday chemicals products include pharmaceuticals, fertilizers, dyes, fibers, packaging, adhesives and explosives, among many, many others. Among the more visible end products are PVC (polyvinyl chloride) pipe for plumbing and other purposes, plastic bottles and other food containers, vinyl window frames, flooring and carpeting made from vinyl and other synthetics, as well as clothing of all types made from synthetic fabrics.

This is a research-based business that requires massive capital expenditures on the production end. According to the American Chemistry Council, U.S. chemicals companies invested $48 billion in research and development in 2008 alone. It is also a cyclical business, highly subject to costs for basic commodities (especially oil and gas) and open to rapid changes in fortune due to the ups and downs of the global economy. The global recession was disastrous for the chemicals industry as a whole, as demand plummeted for everything from plastic packaging to paint used on construction projects to industrial chemicals. The only good news from the recent economic bust, from a chemicals manufacturing point of view, was a drop in the cost of a barrel of oil.

The global chemicals industry will total about $3.5 trillion in 2010, or about 6% of global GDP. The U.S. chemicals, coatings and plastics sectors combined will generate about $703 billion in revenues in 2010, according to Plunkett Research estimates.

U.S. chemicals products shipments totaled $659.6 billion in 2009, according the U.S. Bureau of the Census. About 802,800 people were employed in the American chemicals manufacturing sector in 2009 (down about 60,000 from the previous year), 627,400 in the plastics and rubber manufacturing sector (down about 100,000), and 57,600 in the coatings manufacturing sector (down about 5,200). Employment has been declining dramatically in recent years, along with employment in most basic manufacturing sectors in America. This is due to increasing productivity and technology-based efficiency in manufacturing plants, along with a continued move of many types of manufacturing offshore. However, in 2008 and 2009, the decline in employment was very much driven by the recession. Large numbers of plants were closed or idled in 2008-2009. Global trade was off considerably.

For 2010-2011, the chemicals industry looks brighter, particularly if U.S. and American economies can shake off their doldrums and begin significant growth. Meanwhile, Asian economies, along with Brazil, were enjoying robust economic growth as of mid 2010, which boosted the chemicals sector. On the consumption end outside of Asia and Brazil, the currently slow construction industry in the U.S. and Europe will have a dampening effect, as building materials of a wide variety are based on chemicals.

While the chemicals industry is most definitely cyclical, gaining and losing ground with changes in the global economy, many long-term trends in the industry point to what will eventually be increasing demand for many types of chemical products once the global economy gets out of the doldrums. To begin with, a swiftly aging population with growing access to, and budgets for, drugs of all types is making demand for life sciences chemicals soar. Eventually, worldwide demand for the construction of new commercial buildings and new housing will once again fuel growth for chemicals used in building products of all types. The extremely rapid industrialization and commercialization of markets in China and India, two nations where an immense proportion of the world’s population live, is creating demand for industrial and consumer chemicals of all types. Finally, a rapidly-expanding transportation market worldwide, including the growing number of automobiles and trucks on the road, will create greatly increased demand for chemicals, coatings and plastics used in the manufacture of automobiles. (Lightweight plastics are extremely important for the manufacture of fuel-efficient vehicles.)

Growing demand for consumer products and convenience products, such as processed foods and beverages, is enhancing demand for plastic packaging on a worldwide basis. Meanwhile, makers of many components in major commercial and consumer products are switching to plastics due to the durability, light weight and long life of plastic. As industry leader BASF puts it, “In brief, plastics will be the materials of the 21st Century.” Global consumption of plastics is now in excess of 180 million metric tons yearly. (BASF invested 1.4 billion Euros in research and development during 2009, deployed by 9,300 employees at 70 R&D sites worldwide.)

Meanwhile, consumer concerns and environmental activism about packaging have come to the fore. Plastic grocery and shopping bags have become evil in the eyes of some. In the U.S. alone, plastic bags are about a $4 billion industry, with about 110 billion bags used yearly. In America and elsewhere, bags to a growing extent are seen as a big burden to landfills and an even bigger eyesore in the form of litter. Recycling is modest at best. Various answers are being developed. Biodegradable bags would be welcomed by many consumers, even if they drove up costs a bit, and reusable string, nylon or canvas bags are very much in vogue. Paper bags are now more in evidence; at least they are clearly biodegradable. Meanwhile, more than two dozen U.S. cities have proposed or legislated bans on the use of plastic bags, and the entire nations of Taiwan and Bangladesh have outlawed them.

Next, a crisis in plastic bottles occurred in early 2008 in the U.S., Canada and elsewhere. Consumers are concerned about the use of BPA or bisphenol-a, which is commonly used in the manufacture of the hard, clear polycarbonate plastic bottles used for juices, drinks and other liquids. Many manufacturers promptly announced they would no longer use BPA. Environmental concerns, health concerns and consumer backlash regarding packaging will grow in coming years.

Watch for rapid changes within the chemicals sector, as many factors with the potential for driving the industry in new directions are at work. These include a growing use of biotechnology to create bioplastics and biochemical products such as enzymes and solvents; consolidation, mergers and acquisitions on a worldwide basis; relatively high raw components costs; increased environmental regulations and concerns; the rise of nanotechnology in chemicals sectors including composites, coatings and exotic materials; technological breakthroughs in such areas as ceramics; and the rapid rise of China as both a producer and consumer of chemicals and chemical products. BASF expected to sell 500 million Euros worth of products that incorporate nanotechnology in 2010, up from 250 million Euros in 2006. These products include nanochemicals for textiles, paints, cosmetics, electronics, insulation and lighting. The firm budgeted 180 million Euros for investment in nanotechnology from 2006 through 2008.

Many manufacturers of plastics products now find that they must move beyond basic offerings to become ODMs (original design manufacturers). This means that they must offer value-added services in addition to manufacturing, including engineering, design and perhaps increased logistics support. Also, watch for a rapidly growing use of outsourcing and offshoring in the plastics and chemicals fields. For example, Newell Rubbermaid, one of the best-known brands in business and consumer products made of plastics, moved the majority of its manufacturing to China starting in 2007.

Consolidation within many industry sectors continues. For example, global ethylene production is now concentrated in a handful of major firms. The most important recent example of the consolidation trend is the Dow Chemical acquisition of Rohm and Haas, which closed in the spring of 2009 despite a very difficult environment for financing such deals.