Chemicals

Global Industry Primer

What is the chemicals industry? value chain. With a strong compounded annual growth rate (CAGR),
it outperformed other industries. Over the long run, chemicals and
Industry definition petrochemical products show similar TRS performance.
The chemicals industry consists of companies that develop,
manufacture, distribute and sell products made by a chemical Around 30,000 chemicals are derived from petroleum, commonly
process.1 It’s part of a larger ecosystem that includes petroleum called oil. Some chemical compounds made from petroleum
and refining. The chemicals industry is critical to every person can also be produced from other fossil fuels, such as coal or
on the planet. Its products heat our homes, power our vehicles natural gas, or alternative sources, such as corn or sugar cane.2
and serve as a key ingredient in paints, detergents and clothing. In addition to petroleum, common inputs consist of natural gas,
Moreover, it serves as an intermediate supplier to virtually all oxygen and nitrogen, and sulfur dioxide.
sectors of the economy.
What are the key segments?
The chemicals industry is a highly competitive, global, legislatively
Key segments
and environmentally challenged business. Asia, particularly
China, is the world leader in the chemicals industry. It has the The chemicals industry is composed of the following segments:
strongest total return to shareholders (TRS) performance in its

Segment Definition

Commodity chemicals Organic and inorganic chemicals, plastic resins, and dyes and pigments, such as ethylene, polypropylene,
LLDPE and HDPE. Primary uses include feedstocks, intermediaries into products, such as plastics, shampoos and
fibers. Plastic resins have experienced growth by replacing traditional materials in the automotive, construction,
and packaging end-use markets. Commodity chemicals account for approximately 50 percent
of the industry’s output.

Pharmaceuticals Diagnostics, prescription drugs, vaccines, vitamins, and over-the-counter drugs for human and veterinary
applications. This subsector also includes biotechnology products. Strategic investment in companies, facilities,
and research and development is especially important for this subsector.

Specialty chemicals Complex designer chemicals that are used to make glues, dyes, adhesives, sealants, water treatment chemicals,
plastic additives, catalysts and coatings. These chemicals are performance-oriented and typically include
customer and technical servicing as an aspect of their sales. Specialty chemicals account for approximately
35 percent of the industry’s output.

Agro chemicals These play a crucial role in the farm economy and food processing sector. Thanks to modern agriculture, farmers
have doubled the production of world food supplies since 1960, tripled the output of foods like cooking oils and
meats, and increased per capita food supplies in the developing world by 25 percent.

Consumer products Soaps, detergents, cleaners, toiletries and cosmetics. While consumer products are an established segment of
the industry, technological innovation and product development are important due to short product life cycles.3

1. IBM Chemicals Segment Overview course: 0021522

2. IBM Chemical and Petroleum Industry Primer, Oct. 2016
3. IBM POV for Chemicals Webinar, Aug. 2016

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Industry size • Increasing competition has led to increased plant construction,

The chemical industry is one of the largest and most diverse expansions and exports.
industries in the world. Although large companies, such as Dow • Emphasis on operating expenses (OPEX) efficiency and Six
and DuPont, produce hundreds of chemicals, most companies Sigma is improving catalyst usage efficiency, yield maximization,
specialize in one or two product lines. The typical chemical advanced process control (APC) and real-time optimization
company has annual revenue under USD 10 million. There are (RTO).
thousands of companies in the industry concentrating in many • Greenfield project margins are decreasing due to higher
segments and customer sets.4 costs and lower product prices.
• Regulatory and environmental sustainability compliance
The turnover of world chemicals was valued at USD 39.22 trillion must always be maintained. These compliances include the
in 2015. Global sales grew by 14 percent from USD 34.40 trillion Sarbanes-Oxley Act of 2002, 21 CFR part 11, the Transportation
in 2014 to USD 39.22 trillion in 2015. Sales in world chemicals Recall Enhancement, Accountability, and Documentation
grew by USD 4.82 trillion in 2015 compared with 2014, marking (TREAD) Act, the Waste Electrical and Electronic Equipment
a significant recovery in the world chemical industry. The growth (WEEE) Directive, the Restriction of Hazardous Substances
was largely driven by China, where the sale of chemicals grew (RoHS) Directive and others.
from USD 12.03 trillion in 2014 to USD 15.64 trillion in 2015, • Increasing demand for innovation and shorter product lifecycles
which equated to a 30 percent increase in value.5 6 for specialty chemicals is accelerating time to market.
• Advances in digitization, the Internet of Things (IoT), big
Key trends data, analytics, cognitive and high-performance computing
The chemicals industry is experiencing the following trends: is changing the way the chemical industry does business.
• Increasing focus on extracting higher returns from research
• Fluctuating oil prices are creating a volatile environment for and development (R&D) investments.
chemical companies.
• The growth of shale gas in the US has led to better feedstock Key terms
availability and lower prices. It has also led to the resurgence
reagent.co.uk/chemical-glossary
of the American chemical industry.

4. IBM Chemicals Industry Overview

5. The European Chemical Industry Council, Chemical Industry Profile
6. Original values presented in euros and calculated to USD using a 1.109729 EUR/USD exchange rate from USForex Yearly Average Rates

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What drives performance in the • Mergers and acquisitions (M&A) activity is rapidly redefining
competition across the global chemicals industry.
chemicals industry? – Heightened M&A activity. In 2016, there were 16 M&A
Chemicals strategic imperatives transactions valued over USD 1 billion, the highest level
Three industry-wide imperatives are essential to building in the last 6 years.
˚ Dow Chemical and DuPont: USD 130 billion deal
8
a more competitive chemicals enterprise:
˚ ChemChina and Syngenta: USD 43 billion deal
9

1. Drive enterprise productivity, cost reduction and ˚ Bayer and Monsanto: USD 57 billion deal
10

operational excellence
– Establish an efficient, variable cost structure and operational – Market domination. As of 3Q16, the Asia and Oceania region
agility to quickly sense and respond to the market. continues to dominate the market in terms of deal volume,
while the highest deal value remains in fertilizers, agricultural
2. Improve core competency, and enhance the customer and specialty chemicals in the North American and
and employee experience European markets.11
– Drive topline growth with differentiated high-value offerings,
timely introduction of innovative specialty chemicals and new – Race to digital reinvention to stay competitive.
customer engagement models. ˚ To cope with market challenges, chemical companies
– Monitor worker health and safety in real time. also need to prepare for transformation around new
– Identify, train and retain talent to enable stronger knowledge digital technology.12
retention in the organization.
• Environmental protection and risk management
3. Maximize asset utilization and optimize supply chain – The environmental climate continues to exert significant
– Increase asset reliability through analytics. impact on the business. Companies are under pressure from
– Have a resilient and faster supply chain to proactively regulatory agencies and the public to adhere to regulations
address changes in the market dynamics.7 and protect the environment. There are also significant
challenges in cross-border movement of chemicals, which
Drivers of change
is caused by variations between geopolitical borders.
The following forces are affecting the chemicals industry today: Manufacturers and distributors need to be conscious of
these variations when it comes to specifications, shipping
• Declining oil prices, along with high production levels in China,
protocols and labeling.
have contributed to falling prices for many chemicals globally.
– Stagnant or declining margins and shrinking markets • From the chemicals and petroleum Chief Executive Officer
Intensifying competition has been compressing chemical (CxO) perspective: When asked what top three global trends
company margins. Proliferation and increase of supply will most likely transform wider stakeholder expectations of
through new manufacturing and distribution facilities closer businesses within the sector over the next five years, the
to consumer locations is outpacing demand growth and responses included:
undermining margins. – Resource scarcity and climate change: 68 percent
– Technological advances: 66 percent
– Shift in global economic power: 65 percent13 14

7. IBM C-P white paper, Chemicals Digital Reinvention

8. Forbes, Dow and DuPont Merge in $130B Deal That Will Create DowDuPont, Before Breaking It Apart, December 2015
9. Wall Street Journal, ChemChina-Syngenta $43 Billion Deal Approved by U.S. Security Panel
10. Wall Street Journal, Bayer-Monsanto Deal Would Forge New Agricultural Force
11. PricewaterhouseCoopers (PwC), Global Chemicals M&A Deals Insights: Q3 2016 Update
12. IBM, Innovating Chemicals and Petroleum, August 2016
13. PwC’s, 19th Annual Global CEO Survey, January 2016
14. IBM, Chemicals and Petroleum Industry Primer, Octocber 2016

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What is the competitive landscape of the chemicals industry?

Market conditions
IT spending in chemicals will continue to remain heavily When considering the gross merchandise value (GMV), the
dependent on volatile oil prices even as cost management chemicals industry IT opportunity for 2016 stands at USD 10 billion.
remains a key focus area. Capital expenditures in IT that The opportunity is projected to grow at a CAGR of 4.7 percent
reduce costs are preferred over cost-intensive solutions. reaching USD 12 billion in 2020.15

Major companies
As of 2015, BASF, Sinopec, and Dow Chemical are the top three companies in the world.16

The ICIS top 20 chemical companies

Rank Company Sales Operating Net income Total assets R&D Capital Employees
2015 profit expenditure
$m, change in reporting currencies
2015 % change 2015 % change 2015 % change 2015 % change 2015 % change 2015 % change 2015 % change
1 BASF 76,554 -5.2 6,789 -18.1 4,332 -22.7 76,974 -0.7 2,122 3.7 6,316 9.7 113,292 0.8
2 Sinopec 1 50,238 -23.7 3,030 - - - - - - - - - - -
3 Dow Chemical 48,778 -16.1 10,805 74.4 7,783 102.7 68,026 -1.0 1,598 -3.0 3,703 3.7 49,500 -6.6
4 SABIC 39,450 -21.6 7,597 -24.4 5,000 -19.6 87,438 -3.5 601 19.3 - - 40,000 0.0
5 Mitsubishi Chemical Holdings 2 34,005 4.6 2,491 69.0 413 -23.8 36,131 -6.0 1,231 4.7 1,804 -26.8 68,988 1.1
6 LyondellBasell Industries 32,735 -26.8 6,122 6.7 4,476 7.2 22,757 -6.0 102 -19.7 1,833 27.3 13,000 -0.8
7 ExxonMobil Chemical 1 28,134 -26.3 5,698 -0.1 4,418 2.4 28,410 4.3 - - 2,843 3.7 - -
8 INEOS 25,678 15.2 3,828 83.9 - - - - - - - - - -
9 DuPont 25,130 -11.5 2,933 -37.5 1,953 -46.1 41,166 -18.5 1,898 -3.1 1,705 -17.3 52,000 -3.7
10 Linde Group 19,499 5.3 2,220 8.4 1,360 7.7 22,631 0.8 143 24.5 2,234 0.3 64,538 -1.6
11 Toray 2 18,719 4.7 1,374 25.1 802 26.9 20,266 -3.4 523 -1.2 1,149 0.5 - -
12 Sumitomo Chemical 2 18,695 -11.6 1,463 29.1 1,000 58.1 23,680 -7.6 1,386 5.3 923 23.3 - -
13 Air Liquide 17,799 6.7 2,880 -3.9 1,997 6.6 6,216 8.2 306 1.4 2,491 18.7 51,050 -
14 Total 1 17,500 -28.9 - - - - - - - - - - - -
15 LG Chem 17,181 -10.5 1,551 39.1 977 34.5 15,797 2.5 - - 1,445 6.3 - -
16 AkzoNobel 16,147 3.9 1,709 59.4 1,158 72.5 17,346 -2.1 377 -4.4 707 10.7 45,600 -
17 Johnson Matthey 2, 5 15,407 6.5 602 -21.4 468 -23.8 5,834 -2.9 270 10.7 370 33.4 12,325 0.5
18 PPG Industries 15,330 -0.2 1,968 26.7 1,406 -33.1 17,076 -2.6 486 -1.2 476 -18.9 46,600 5.0
19 Agrium 14,795 -7.8 - - 988 37.2 16,377 -4.3 - - 1,315 -40.2 15,200 -1.9
20 Evonik 14,677 4.6 1,904 39.5 617 667.6 18,479 8.4 472 2.6 - - - -

22 Ecolab 13,545 -5.1 1,561 -20.1 1,002 -16.7 18,642 -4.0 191 -3.0 771 3.0 47,145 -0.6
23 Syngenta 13,411 -11.4 1,841 -12.5 1,344 -17.1 18,977 -4.8 1,362 -4.8 - - 28,704 -2.2
24 Covestro 13,129 2.7 739 31.5 383 27.1 11,444 1.3 279 21.2 - - 15,761 9.8
25 Yara International 12,638 17.4 1,593 36.9 913 6.0 13,425 -10.9 - - 1,088 37.2 12,883 6.7
26 Reliance Industries 1
12,453 -14.9 1,545 23.3 - - - - - - - - - -
27 Solvay 12,004 3.9 905 27.8 493 3392.3 - - - - - - - -
28 Mitsui Chemicals 2
11,955 -13.3 631 68.8 205 32.9 11,199 -10.8 280 -3.1 386 -8.6 13,447 -6.4
29 Braskem 11,937 2.7 1,780 97.6 732 299.1 15,138 21.3 45 27.5 1,024 -23.5 7,995 -1.6
30 Shin-Etsu Chemical 2
11,384 1.9 1,855 12.5 1,338 15.8 18,506 3.4 473 12.7 1,199 22.6 - -
15.
31 IBM,Sherwin-Williams
MD&I Industry Insights: Chemicals 11,339
& Petroleum, 1.9 Sept. 2016 21.9
1,611 1,054 21.7 5,792 1.5 58 15.4 234 16.4 40,706 2.6
32 Independent
16. PTT Global Chemical 11,104
Chemical Information Service (ICIS)-27.4
list of top788 55.2
100 chemical 569 33.1
companies 10,477 -1.0 - - - - - -
33 Praxair 10,776 -12.2 2,321 -11.0 1,547 -8.7 18,319 -7.3 93 -3.1 1,541 -8.8 26,657 -4.0
34 Persian Gulf Petrochemical Industry 10,357 4.0 2,075 11.0 2,394 -0.1 16,049 15.0 66 50.0 652 196.4 14,055 26.5
35 Huntsman 10,299 -11.0 405 -36.0 126 -63.5 9,820 -10.1 160 1.3 663 10.3 15,000 -6.3
36 Lotte Chemical 9,959 -21.2 1,370 359.1 842 589.6 9,751 11.1 44.8 32.2 - - - -
37 Air Products 9,895 -5.2 1,699 27.9 1,278 28.9 2,911 -11.7 139 -1.6 1,654 -1.7 19,700 -7.1
38 Internal
IBM Henkel Adhesive
UseTechnologies
Only 9,771 10.6 1,589 8.7 - - - - IBM- Chemicals
- -Industry
- -
Primer |- 4
39 Sekisui Chemical 2
9,749 -1.5 799 4.7 504 6.9 8,326 -3.3 - - - - - -
40 DSM 9,709 -3.7 706 5.3 100 -7.1 12,761 -3.2 359 8.6 619 -7.5 20,750 -2.8
 Chemicals

Key success factors Partnerships with key customers and suppliers.

Innovation. Innovation is necessary for chemicals organizations • Establish and maintain long-term partnerships to lock in
to recognize market trends, needs and assess the urgency of prices at sustainable levels and ensure a strong and continual
change by: source of demand within fluctuating markets.
• Adopt vendor-managed inventory (VMI) to enable better

• Improving chemicals manufacturing efficiency. control, forecasting and visibility to demands.

• Aligning materials and specialty chemicals formulation with • Incorporate information on the extended value chain into

the needs of the market. decisions affecting manufacturing and distribution and, in
• Adopting new engagement models with distributors and the some cases, R&D.
extended value chain.17
Management of large capital expenditures (CapEx) and
Research and development (R&D). associated return on investment (ROI). Successful
• Increase the leverage of R&D in market capture. operators seek to continually reduce the capital costs of their
• Increase time to market of R&D outcomes. operations, often through technical innovation or process
• Adopt early identification mechanisms to forecast material restructures. IBM is positioned as the main information
demands, thereby increasing the efficiency of R&D efforts. contractor (MIC), where information is managed across
• Align R&D with product lifecyle management (PLM) engineering, procurement, construction (EPC) and operators
techniques to enable smoother, faster transition to operations. through the transition and handover.

Resilient, optimized and dynamic operations. Risk management. Managing financial and operational risk.
• Streamline internal processes to lower costs and expand
Financially, capital investments are enormous in the chemicals
margins, allowing operators to maintain profits in diverse industry. It’s essential to fully understand the prospect of a new
market conditions. chemical plant, and manage the costs to build an infrastructure
• Maximize operation efficiency and enhance safety standards.
and operations to develop it. Operationally, industry incidents,
• Be flexible enough to address market variations in a
such as spills and accidents, can be catastrophic to people
timely manner. and the environment, resulting in loss of life, ecological damage
• Adopt efficiency measures in terms of processes and
and billions of dollars spent in cleanup and restitution. Hence,
organization alignments using current technology capabilities. risk-management strategies addressing the environment, security
and worker safety will not only mitigate costs, but can also evolve
to create a competitive advantage.18

How are chemical companies organized and what are the key functions?
Marketing Building brand image, getting products to market and managing point of sale.19
R&D Innovating new products and improving existing products. Also includes improving or creating new production processes.
Procurement Obtaining raw materials, including air, minerals and oil.20
Manufacturing All processes and engineering that go into manufacturing the product, including managing product quality and yield,
and engineering equipment maintenance, safety and environmental regulations.

Production Products can be final, to be consumed directly by the end-user for the defined purpose, or intermediates, to be blended
or mixed with other products, depending on the desired formulation.
Supply chain Moving chemicals products from one location to another, while maintaining safety, quality and following environmental
regulations. Also includes managing logistics, inventory management and optimization, and managing product quality.

17. IBM, Innovating Chemicals and Petroleum, Aug. 2016

18. IBM, Chemicals and Petroleum Prime, Oct. 2016
19. Chemicals Industry POV 2016, Chemicals Segment Overview course: 00215221
20. The Essential Chemical Industry, http://www.essentialchemicalindustry.org/the-chemical-industry/the-chemical-industry.html

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What are the IBM chemicals industry Supply chain optimization. This solution brings together the
right processes, assets, facilities and technology to achieve
solutions and proof points? optimum performance, availability and decision making for
Chemicals industry solutions delivering the best total-value product in a zero-incident,
IBM is focusing on the following solution areas of the zero-emissions environment. These results are achieved through
chemicals industry: blockchain and integrated supply chain (ISC) foundations:

1. Drive retail and commercial loyalty through a transformed • Integrated business processes. Utilizes best practices and
digital and energy experience. standardized processes, including planning, scheduling,
2. Grow agribusiness insights to feed the world’s optimization, production and execution
expanding population. • Digitized environment. Uses IoT, Cloud (PaaS, SaaS) and
3. Leverage the digital ecosystem to optimize global operations. mobility solutions to enable digital reinvention throughout the
supply chain
These objectives are achieved through the following • Predictive analytics. Produces accurate models for predictive
industry solutions: decision making and operation
• IBM Watson solutions. Combines unstructured information
Digitalized transformation. This solution encompasses
with enterprise data to enhance supply chain management
developing analytics-led, IoT-enabled business and operating
• IBM ILOG® optimization. Provides integrated execution of
models for optimized efficiency, customer centricity, economic
supply, manufacturing and distribution21
growth and maximized asset productivity.

• IoT gathers, analyzes and distributes data across interconnected Risk mitigation. This solution includes maintaining worker health
devices for real-time insights and actions. In the chemicals and safety through technologies, such as wearables, mitigating risk
industry, this can be used for predictive analysis of asset failure, to the environment through proper environmental reporting, and
manufacturing asset optimization, smart quality management helping to ensure security through IBM’s security solutions.
and process analytics.

Cognitive analytics solutions. Cognitive analytics combines

unstructured information with enterprise data to provide value
throughout the chemicals industry value chain. Industry use
cases include:

• IBM Watson® for natural resources market intelligence

• Crop yield analytics

21. IBM C-P white paper, Chemicals Digital Reinvention

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Where can I learn more about the chemicals industry and what IBM offers?
Educational resources
References, case studies and assets
• Search for chemicals and petroleum references | IBM Client Success Central and Strategic Wins
• Use the latest client-facing assets and offers | Industry Top Assets

Learn and build your eminence

• Understand chemicals and petroleum industry solutions | Industry solution sales kits
• Learn about the chemicals and petroleum industry | Know Your Industry
• Understand market trends | Chemical & Petroleum bluemine

Connect with industry experts

• Join IBM’s chemicals and petroleum community | Chemicals and Petroleum CollaborationHub
• Know key IBM chemicals and petroleum contacts | Experts

Client-facing links you can share

• Bookmark the chemicals and petroleum home page | IBM.com - Chemicals and Petroleum
• Join the Chemicals & Petroleum in the Cognitive Era group on LinkedIn | LinkedIn
• Share insights | Chemicals & Petroleum Industry blog - Insights on Business

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