Chemicals
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Industry Overview
About 10,000 companies produce chemicals in the US, with combined annual revenues of $500 billion. Although large companies like Dow and DuPont produce hundreds of chemicals, most companies specialize in one or two product lines. The typical chemical company has annual revenue under $10 million. While the industry as a whole is fragmented, the concentration in many segments is very high: just a handful of manufacturers hold 80 percent or more of the segment.
Competitive Landscape
Demand is driven by the health of the US economy because chemicals are used to make a wide variety of industrial and consumer products. The profitability of individual companies is closely tied to efficient operations. Big companies have large economies of scale in production. Small companies can compete effectively by producing specialty products, of which there are a large number, or by operating a single plant highly efficiently. The industry is highly automated: average annual revenue per employee is over $500,000.
Products, Operations & Technology
Basic chemicals include petrochemicals, industrial gases, dyes and pigments, alkalies and chlorine, alcohols, and various other organic (based on the chemistry of carbon and oxygen) and inorganic chemicals. These basic chemicals are made from mined materials like crude oil, natural gas, and minerals, or from crops and other natural substances. The raw materials are called feedstocks. Chemicals companies use basic chemicals to produce intermediate products like polyethylene; polyethylene oxide (PO); ethylene oxide (EO); and ethylene glycol, or final products like phosphate and nitrogen agricultural fertilizers.
Basic and intermediate chemicals are collectively referred to as commodity chemicals. Commodity chemicals are produced mainly by large companies, often as byproducts of petroleum refining, using widely-known manufacturing processes. Margins on commodity chemicals are usually low because the chemicals are so widely produced. Commodity chemicals account for about 45 percent of industry revenue.
Commodity chemicals are used to produce more complicated chemicals, known as specialty chemicals, which include resins, plastics, synthetic fibers, pesticides, lubricants, paints, coatings, adhesives, soaps and cleaners, pharmaceuticals, and a huge number of other products with special applications. Margins are generally higher on these products, which account for 55 percent of industry revenue.
The manufacturing process usually involves mixing various raw materials and adding heat to produce a series of chemical reactions, then using various physical techniques to isolate the finished product. Production may involve dozens of intermediate steps. Many specialty chemicals are produced in batches, while commodity chemicals are often produced in continuous-flow operations. Special reaction vessels, valves, piping, and control instruments are used to produce different chemicals. Companies generally employ a large number of engineers to manage the manufacturing process. There are usually waste products to be disposed of, and energy inputs are often high. Large amounts of energy are typically used to drive chemical reactions, and natural gas or petroleum is used as feedstock for many chemicals.
Manufacturing process technology is important in securing a high product yield from the raw materials. For the production of complex chemicals in particular, precise control of chemical reactions is required. Most manufacturing plants are highly automated. The design of esoteric chemicals such as drugs may be done with sophisticated computer systems.