CHEMICAL INDUSTRY OVERVIEW

WORLD

At the end of 2002 Europe held a 32% market share of world chemicals production.

However this share will continue to erode and the highest grow market will be the Far East.

Chemical production in the emerging countries will grow much faster than in advanced economies

Whereas anemic growth rates will be experienced in other sectors, Asia will enjoy 7% growth rates this year and next.

Chemical Production Forecast

Real changes from previous year (%)

EUROPE

The chemical industry is an important sector for the European Industry:

• it is a big sector (accounting for 10% of the industrial Value Added),
• it is one of the two innovative sectors where Europe still has a world leadership (tough at risk),
• with a large and increasing trade surplus, it is more and more important for European overall trade balance (even if what is increasing the most is especially the pharmaceuticals part),
• thanks to its still important innovative and technological content, Chemical Industry particularly fits an Advanced Economy as Europe,
• it provides intermediate goods and in fact transfers innovation to all the industrial sectors.

Early indications are that output in the European chemical industry in 2003 showed a slight decline of 0.5%. That was in sharp contrast to the bullish outlook presented by the European Chemical Industry Council (CEFIC) late in 2002, when economists predicted growth in chemical production of 2.4%. Problems with the economy had already become apparent by mid-2003, however, when projections were slashed to 0.7% growth for the full year.

 European production is likely to fall to 16-23% of the world total by 2015.

World Chemical Outlook - Europe

ONE OF THE FEW countries to show strong growth in production in 2003 was the Netherlands. That growth, however, said C. A. Linse, chairman of the Association of the Dutch Chemical Industry, was due in part to the commissioning of a number of new installations throughout the year, as well as the optimization of the production capacity and efficiency of a number of existing installations.

The chemical industry in the Netherlands had an annual revenue of $35 billion in 2002 and employed around 75,000. This represents 15 percent of the industrial output of the country and 10 percent of industrial employment. Basic chemicals account for about 60 percent of this revenue and specialty chemicals for 40 percent. Basic chemicals, which provide the shoulders for the specialty chemicals industry to stand on, are produced in several clusters located in Delfzijl, Heerlen/Geleen, Rotterdam, and Terneuzen. Specialty chemical producers are located throughout the country. The European Union is the home market for the Dutch chemical industry. It exports about 70 percent of its products. The Dutch chemical industry accounts for over 6 percent of the chemical production in the European Union.

In France, production of detergents and personal care products showed similar growth, at 6.3%. Commodity organics were up 0.6%, whereas commodity inorganics production fell by 0.8%; production of specialty chemicals managed 0.4% growth.

Production of chemicals in Germany, the largest economy within Europe, was up a meager 0.5% in 2003 over 2002. And for 2004, it is projected to show only a modest growth of 1.5%.

Russian investments in the chemical and petrochemical industry reached $312 million in the first half of this year.

According to Cefic,  the European Chemical Industry Council, In 2005, the overall output in the EU chemical industry (excluding pharmaceuticals) is forecast to grow by 2.7%, attaining 3.1% if pharmaceuticals are included (Chart1). Most EU chemicals sectors will see better growth than in 2004, especially polymers and specialty and fine chemicals (Chart2

Chart 1. Chemical Prospects: EU versus US

Chart 2: European Chemical Industry: Sectoral Outlook: 2004-205

US

 Emerging from a four-year slump, U.S. chemical makers are enjoying a rare confluence of strong demand and soaring retail prices that analysts see lasting through year-end, despite rising raw-materials costs.

Second-quarter 2004 profits showed striking gains as the improving economy stimulated demand for chemicals essential to manufacturing, agriculture and consumer products.  

"We're very bullish on the outlook for chemical companies in the second half," said Fulcrum Global Partners analyst Frank Mitsch. "Positive second-quarter performances should continue as economic demand continues to improve, albeit more slowly."

The U.S. chemicals industry generates $460 billion a year in revenue and accounts for 10 cents of every U.S. export dollar, according to the American Chemistry Council.

Dow Chemical reported a 74 percent profit jump on a record $9.84 billion in sales. The Midland, Michigan-based company told investors to expect continued strong earnings in the second half, though it declined to be more specific.

DuPont, which carries a $42.6 billion market value and is one of 30 companies in the Dow Jones Industrials index, also posted higher net sales and raised its full-year earnings forecast..

BASF reported its North American operations saw an 11 percent sales increase on higher volumes and retail prices.

Many chemicals plants are now running flat out since the industry slashed production capacity in 1999 as economic crises overseas, deteriorating demand, and a strong U.S. dollar triggered a market slump.

On an annual basis, in 2004 US Chemicals will grow 3%, less than overall industry (3.5%) and GDP (4.1%). Even with a strong macroeconomic recovery, the chemical demand is not very dynamic.

CHINA

Compared with European and US chemical companies, most domestic Chinese chemical enterprises have remained technologically challenged with productivity lagging behind international levels.

China's entry into the WTO regimen in September 2001 has since enabled the chemical industry to harness the benefits of a globalized economy.

The Chinese chemicals industry is now expected to maintain an annual growth rate of nine per cent through 2005. Rising foreign investments have aided domestic chemical companies in creating globally competitive products. However, the entry of foreign participants into the Chinese chemical market has challenged the previously existing monopoly status of local refining and chemical production industries.

Sinopec Corp. is the largest producer of chemicals in China.  Summarized below are the capacity, production and market shares of its major chemical products by the end of 2003.

Sinopec Corp. has five ethylene plants, with a total capacity of 2.865 million tpa in end of 2003, accounting for 51.9% of the nation's total. The Company produced 3.1691 million tones of ethylene in 2003, with a utilization rate of 111.29%.  Among the five, ethylene crackers in Shanghai Petrochemical, Beijing Yanshan Petrochemical, Qilu Petrochemical and Yangtze Petrochemical are above 450,000 tpa, and the biggest one is in Shanghai with a total capacity of 845,000 tpa.

There are 16 synthetic resin producers under Sinopec Corp. with a total capacity of 4.28 million tpa and the actual output in 2003 was 4.691 million tons. The domestic market share of polyolefin is 36.72%. The high-quality specialty grades account for 53.4% of the total polyolefin products.

There are 10 producers of fiber raw materials and polymers under Sinopec Corp. with a total capacity of 4.77 million tpa.  In 2003, we produced 4.418 million tons of monomers and polymers for synthetic fiber, accounting for 23.1% of the domestic market, being a market leader in China.

There are 7 synthetic fiber producers under Sinopec Corp., the capacity of polyester fiber, acrylic fiber, polyamide fiber and polypropylene fiber totals 1.43 million tpa. In 2003, we produced 1.28 million tons of synthetic fibers, among which 37.31% were special-purpose differential fibers. The domestic market share of synthetic fibers is 10.45%. Sinopec Corp., with the country's largest synthetic fiber production capacity, advanced facilities, strong technical support, economies of scale and is in a leading position in the domestic market. Sinopec Corp. has 3 synthetic rubber plants, with a capacity of 455,200 tpa. In 2003, we produced 501,900 tons of synthetic rubber, acquiring 22.79% of the domestic market share.

Sinopec Corp. has 7 urea plants, with a capacity of 3.73 million tpa.  In 2003, we produced 2.02 million tons of urea, accounting for 6.09% of the domestic market

In 2003, the Company continued to coordinate and optimize supply of chemical feedstock, and actively promoted its operational experience in a long run and thus maintained the high utilization of chemical facilities. As a result, the production of its major petrochemical products has all increased in dramatically. In 2003, the Company produced 3.169 million tonnes of ethylene, up by 16.67% over that in 2002. Accordingly the production of its major chemical products, such as synthetic resins, synthetic fibers, monomers and polymers for synthetic fibers, and synthetic rubber, etc., have all increased significantly. Since the Company resorted to scientific and technological advancement to improve its product mix, the production of high value-added products was further enhanced. Furthermore, the Company actively tapped the market, and managed to register a growth in terms of the production outputs, prices and distribution volumes of its chemical products. In addition, the Company proactively carried forward the reform to its distribution system of chemical products, and established Acrylic Fiber Sales Company,, thus making a solid stride forward in terms of reforming its chemicals marketing system.