As a provider of raw materials for a host of industrial activities the chemical industry in 2013 will follow economic growth. That said, the industry is experiencing structural changes. The abundance of natural gas is providing cheap feedstock for both chemical and plastics industry. A number of global chemical manufacturer’s giants are strategically planning their relocation to US (especially PA) to benefit from this cost effective energy/ natural resource.

1. Chemical Industry
INTELLIGENCE REPORT
2008
CHEMICAL INDUSTRY
MARKET FORECAST AND ANALYSIS
NAICS 3251 / 3252 / 3253 / 3256 / 3259
© 2008 DVIRC
Growing BusinessValue

2. Strategic
View:
• Mature Industry1
• Business Cycle Reaction – Cyclical Industry2
• Opportunity – export chemical products to developing countries (China and India)
• Product innovation – highly specialized technology – nanotechnology, environmentally conscious products
• Domestic market in a state of maturity (low margins)
• Procyclical Industry – will be affected by weak GDP growth in 2008
• Major customers: Housing, Automotive, Agriculture and Manufacturing
Financial
Trends:
• US Projected Revenues in 2008: $485 Billion
• Forecast revenue growth for 2008: 5.2%
• Operating Expenses will increase by 6.6% in 2008 (safety conscious legislations)
• Profit margins will weaken in 2008
• Average Hourly Earnings will experience small growth $19.9 in 2008 from $19.7 in 2007
• US still dominates the global marketplace
• Chemicals and plastics will experience increase in exports volume from $166 billion to $182 billion in 2008 (weak US dollar)
• 2008 will bring growth to: Inorganic Chemicals (2.5%); Synthetic Chemicals (1.4%); Pharmaceuticals & Medicine Chemicals
(2.1%)
• 2008 will bring decine to: Agricultural Chemicals (-6.1%); Artificial & Synthetic Fibers (-7.9%)
Market
Trends:
• Global commodity market tends to favor European companies more than their US counterparts
• Inventories have increased – low domestic demand
• Pharmaceutical inventories increased dramatically – lack of demand/supply balance (appx 12 block buster drug patents are
expected to expire by 2012)
• Basic Chemicals, Pesticides and Paints will experience a decrease
• Stiff local competition in Latin America - Venezuela taking aggressive action to become regional hub for chemicals
• US firms should act quickly to gain market share in India and China (chemical industry in infancy stage)
• Change in housing market trend could drive demand upward - consumer spending and demand for paints and
adhesives (housing market will start to recover in Spring, 2009)
CHEMICAL INDUSTRY
1. Growing industries are those in which normal expansion in sales and profits occurs independently of the business cycle.
2. Business Cycle Reaction – Defensive industries exhibit stable performance during both expansionary and contractionary periods.
© 2008 DVIRC

3. Macro
Drivers:
• Continually declining housing market will affect demand for paints, coatings and adhesives
• Slower non-residential construction will have a further negative effect on the players from construction industry supply chain
• Weak US dollar will further benefit exports
• Slow customer spending will keep having negative effect on the industry (Customer spending accounts for over 70% of
US GDP)
• Automotive industry downturn will lower demand for paints and adhesives
• Increasing demand for US chemicals from developing countries - China economy will still grow at almost 9.5% in 2008, driven
largely by manufacturing and construction
• China’s domestic market is underdeveloped - does not meet local demand
Industry
Drivers:
• Increasing security – governments around the world tighten their control over the industry
• Pro – environmental government legislation
• Tougher environmental regulations for local chemical producers will push up costs
• Product safety – chemicals in every-day products – will require higher safety standards – cost increase
• Higher safeguard for chemical plants (possible terrorist strike) – cost increase
Pricing: • Chemical producer prices will experience an increase of over 2% in 2008
• Natural gas (primary feedstock for US firms) – $12 mmbtu in 2008
• Crude oil (primary feedstock for the EU firms) - over $110 a barrel in 2008
• Transportation price increased by 8%-10% of total value of shipments
• Producer Pricing power will decrease in 2008
• Paint prices will experience stronger pressure (low demand – weak housing market) & (increasing commodity prices)
INTELLIGENCE REPORT
© 2008 DVIRC

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Source: Bureau of Labor Statistics; Moody’s Economy.com; Lexus Nexus; Integra; Deloitte; Department of Commerce, Global Insight, Inc.; Hoovers; Integra; McKinsey
Quarterly, ING Foreign Exchange Wholesale Banking, Economist Intelligence Unit; Harvard Business Review; Edgar; Federal Reserve Bank; PricewatherhouseCoopers
Healthcare Indicators, Hospital Statistics; Bruegel Brussels Belgium.