Chemical Manufacturing - Industrial

Industry Overview

In the US, about 1,200 companies produce basic industrial chemicals, with combined annual revenue of $120 billion. Large companies include divisions of multibillion dollar companies like Dow, DuPont, and Occidental. The overall concentration of the industry is high: the 50 largest companies hold close to 70 percent of the market. Specific market segments are often dominated by just a handful of competitors. For example, eight companies control 85 percent of industrial gas production, eight control 95 percent of alkali production, and only six companies manufacture soda ash.

Competitive Landscape

Demand depends on the overall strength of the US economy, because most industrial chemicals are used in the manufacture of more-complicated products like fibers, plastics, paints, and paper. The profitability of individual companies is closely linked to efficient operations, because most products are commodities. Big producers have large economies of scale in production, which is why some chemicals are made by just a handful of companies. Small companies can compete effectively by making specialized or highly-purified products. The industry is highly automated: average annual revenue per employee is over $600,000.

Products, Operations & Technology

Industrial chemicals include gases like oxygen and nitrogen, dyes and pigments, chlorine and caustic soda, sulfuric and nitric acids, and thousands of organic chemicals. Unlike advanced chemicals that are manufactured through complicated chemical reactions, most industrial chemicals are made by extraction and purification from natural substances, including minerals, natural gas, petroleum, plants, air, and water. Oxygen and nitrogen gas are made by freezing air, phosphates from marine deposits, ethanol by fermenting corn, chlorine from salt water, and a large number of chemicals are made by boiling petroleum.

Manufacturing facilities are often located close to raw materials. Because production facilities often consist of equipment that is specialized for the product being made, and because of economies of scale, most companies operate a single large production plant and produce only a handful of related products. Manufacturing operations focus on obtaining the highest possible yield of finished product from the raw materials. Access to high-quality raw materials is a primary consideration. Many companies either own their raw material supply or acquire it under long-term leases. Most producers of soda ash, for example, obtain raw material under long-term leases from mining operations in the Green River area of Wyoming.

Extracting basic chemicals from raw materials typically requires large amounts of energy. For many products, the cost of energy can be 30 percent or more of the total manufacturing cost. In many industrial processes, energy is used in the form of steam, which often is generated from coal. Energy-intensive chemical plants are often located where the cost of energy is low, such as near hydroelectric plants or coal mining areas.

Because producing industrial chemicals is usually a purification process, many producers (especially those that use minerals as a raw material) must dispose of large quantities of waste materials, of which there may be many pounds for each pound of finished product. Some wastes, like the mash that remains after corn has been fermented to ethanol, can be sold as animal feed or fertilizer, but many have no economic value.

The technology used to produce most industrial chemicals is well known and relatively simple, involving basic chemical reactions. Phosphates, for example, are made by dissolving phosphate rock in sulfuric acid; chlorine is made by passing an electric current through salt water. Many plants are highly automated with computerized process control systems because the control of chemical reactions is critical in providing the best possible yield of product.

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