THE FUTURE OF THE CHEMICAL INDUSTRY 2009 The … · THE FUTURE OF THE CHEMICAL INDUSTRY 2009 THE FUTURE OF THE CHEMICAL INDUSTRY Strategic Assessment of the Industry and Dow Chemical

THE FUTURE OF THE CHEMICAL INDUSTRY Rafael Cayuela - Northwood MBA

The Future of TheTHE FUTURE OF THE CHEMICAL INDUSTRY 2009

THE FUTURE OF THE CHEMICAL INDUSTRYStrategic Assessment of the Industry and Dow Chemical by 2050

Final Paper for Northwood MBA

CHAPTER II Global Mega Trends Impact on the

Chemical Industry

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This chapter will review the potential impacts of the previously introduced global mega trends into the Chemical Industry.

In order to that we deemed necessary to start this chapter by providing a short introduction into the Chemical Industry. Therefore we will start reviewing the origins of the chemical industry and its current status to conclude reviewing the impact of these upcoming mega-trends in the industry and analyzing how the industry will look like in 2050.

Chapter 2 Index

I. Introduction to the Chemical IndustryII. Current Status of the Chemical Industry in 2009III. Analysis on the Impact of the Mega Trends in the Chemical Industry

After this Chapter we continue our journey in In Chapter 3, where we will evaluate how the Chemical Industry will look in 2050 to FINALLY conclude in Chapter 5, with a short view on how the The Dow Chemical Company could look by 2050.



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THE FUTURE OF THE CHEMICAL INDUSTRY 2009

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INDEX

INTRODUCTION METHODOLOGY CHAPTER 1 GLOBAL MEGA TRENDSOverview of the major mega trends - economical, political, social, & energetic,etc.. affecting the future of the Chemical Industry

CHAPTER 2IMPACTS ON THE CHEMICAL INDUSTRYThis chapter evaluates the impact of these trends on the Industry

CHAPTER 3THE CHEMICAL INDUSTRY IN 2050 CHAPTER 4 IMPACTS ON THE DOW CHEMICAL COMPANY

CHAPTER 5 DOW CHEMICAL IN 2050

CHAPTER 6 CONCLUSION

BIBLIOGRAPHY

APPENDIX


I. Introduction to the Chemical IndustryThe chemical industry with more that 70,000 products, more than $ 2.5 Trillion Sales in 2007 (5 % of Global GDP) and its global and ubiquity in our world; has made of it, one of the most important industries in our societies and economies. Relevance that could become even bigger in the future, and even if remaining as existing today, could create a huge industry in 2050 of almost $ 20 Trillions (this figure will be re-calculated in chapter V with more detail, to just $ 17 Trillions)

Table 80 : Chemical Industry as % Of World GDP

1950 2000 2007 2050

World GDP 10.8 31.7 54 450

Chemical Ind 166 1.7 2.5 22

% World GDP 1.50% 5.30% 4.60% 4%

Source: IMF, GS, Chemische Industry, Volume IV, October 1952 (pp. 890-891) Haber, 1958 & 1971

VCI The German Chemical Industry in Figures. Historical summary 1977

CEFIC Historical Sequence. American Chemical Council Guide to the Business of Chemistry, 2001

Its ability to serve as an “enabler” of many industries and specially into these more related to human progress, (health, construction, textiles, automotive, aerospace, etc..) have made of this industry a key component for other industries and for the competitive advantage of any given economy and country.

Chart 81: Global Chemical Industry Sales in 2007

Source: CEFIC and Eurostart Analysis.

1%2%3%4%5%

5%5%

6% 6%14%

18%

30%End UserPharmaServicesAgricultureTextileConstructionAutomotivePaper PrintingElectical GoodsMetal ProductsInd. MachineryOffice Machines



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Chapter 2: Impact on The Chemical Industry

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BIBLIOGRAPHY

APPENDIX


I. Introduction to the Chemical IndustryThe tremendous need of the Chemical industry of large amounts of energy, (fuel, electricity, steam, others.. and feedstocks, mainly Oil and Gas, have made of these industry another reason for major focus of attention and study.

The fact that some of the most advanced economies are also the largest chemical producers have also being subject of intensive study, studies that have being trying to understand the relation between economic development, innovation and chemistry. Indeed among the major producers of chemicals we found countries like Germany, USA, UK and or Japan. Needless to say that these countries also count with the largest chemical companies in the world.

TABLE 82: World Chemical Industry Sales in $ Billion

Source: Chemische Industrie, Volume IV, October 1952 (pp. 890-891) Haber, 1958 & 1971

VCI The German Chemical Industry in Figures. Historical summary 1977


Notes: The second column for each country indicates the world production share for the particular

country. Figures are on billion US $ except: 1870, 1913, 1927, 1935, 1939 in billion Reichsmark

1951 in billion German Mark

Because the statistical definition of the chemical industry was not always the same in each country,

the numbers in this table need to be interpreted as estimates rather than exact figures. The U.S. share

in 1913 is exaggerated because it includes petroleum refining, which is not included in the European

figures. Haber (1971) puts American production in 1913 at around 1.53 billion Reichsmark (my

calculation), placing it about half way between Germany and Britain. Fig Germany

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APPENDIX


I. Introduction to the Chemical Industry

Chart 82: World Chemical Industry Sales in $ Billion

Source: Chemische Industrie, Volume IV, October 1952 (pp. 890-891) Haber, 1958 & 1971


This table illustrate how the Advanced Economies (Europe, US and Japan) have been among the largest producers of chemical products, since chemicals started being produced in an massive and industrial way.

It is also interesting to remark that during the last 100 years most of these countries have seen declining their % share on the global production of chemicals, in detriment of countries like, Japan and others. One of the major changes occurred after World War II, when the German Chemical Industry, quite affected by the war, lost significant % of its global share in favor of US. However during the last 30 years, it has been actually the BRIC & REST Economies how have growing at the expense of the Advance Economies..

The major declines have been in Germany (from 24% to 6%), UK, (from 11% to 4%) or France (from 9% to 4%). In some cases the explanation come from a simple change in the accounting procedure, in others this due to a re-shuffle of assets from this companies into new emerging areas or more advanced feedstocks areas (i.e Middle East or Asia) and in other due to lack of competitiveness of these countries, their industries (UK and France) and in others that has been due to a mix of factors.

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I. Introduction to the Chemical IndustryAnother key area to be reviewed in this introduction area, and before entering into the current business structure of the industry, it has been the technological and regulatory aspects of the industry.

TABLE 83 : Technological Milestones - Recent History Chemical Ind.

✦ 1850 — synthetic dyes from coal for textiles✦ 1869 — plastics/celluloid✦ 1909 — synthetic fertilizers (Am. Cyanamid Co)✦ 1914 — rayon from wood fibers✦ 1928 — nylon (DuPont)✦ 1930s — rise of petrochemicals✦ 1940s — synthetic rubber✦ 1990s — increased focus on specialty chemical products✦ 2000s — assets rationalization and de-localization ✦ 2000s — entrance of new players from emerging areas

TABLE 84 : Increasing Importance of Environmental Regulations

✦ Pre-1950’s - environmental concerns are a local phenomena✦ 1950s - growing concern about toxic waste spurred by environmental

illnesses in Minamata, Japan ✦ 1962 - “Silent Spring” focus on toxics in environment. ✦ 1970 EPA established, Clean Air Act passed, concerns become national✦ 1984 -- Bhopal disaster & growing concern about env. regulation✦ 1990’s -- shift to a “beyond compliance” philosophy begins; industry

sustainability initiatives, concerns become global✦ 2001 - Growing concern over plant security✦ 2007 - EU REACH enters in place and stands for Registration,

Evaluation, Authorization & Restriction of Chemical substances.✦2050. Regulation would become transnational if not global.

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I. Introduction to the Chemical IndustryThe key take away from these tables, although both are based on an oversimplification of the reality, are in our opinion the following:

I. No major technological breakthroughs have been achieved since the 50s. That has leave the last 50 years of the last century to work on the optimization of the returns and performance of the industry.

II. Secondly and in a complete opposite direction, the focus on Environmental Regulation as been increasing globally. Regulation went from local to national and now from national to global.

These are critical conclusions to keep in mind, specially when analyzing the impact of the upcoming mega in the future of the chemical industry.

Lets conclude this quick introduction to the Chemical Industry by analyzing the business structure of the industry. In order to do this, lets start presenting the key conclusions in this area, before we see the details:

Table XX : Assumptions on the Structure of the Chemical Industry✦ The Chemical Industry is very fragmented, specially vs. other industries

✦ Top 10 global companies have less than 20% of the industry

✦ Chemical Industry tends to represent a large % of national GDP✦ That % fluctuates per country but could be at min of 5%

✦Consolidation happens very fast in the chemical industry.✦ Of the top 10 world chemical companies in 1950 only 4 remains

Chart 85: Top 10 World Chemical Firms in 2008 % Share of Total

Source: Dow Chemical Investor Relations June 2008.

Note INEOS figures are for 2007



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18%

82%

TOP 10Rest

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0

25

50

75

100

BASF +

CIBA

DOW + R

OHM & H

AAS

LYONDEL B

ASELLBA

YER

INNEOS

SABIC

DUPONT

AZKO

NOBEL

L’AIR L

IQUIDELIN

DE

18192230

4045485465

95

$ Bi

llion


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✦ Top 10 global companies have less than 20% of the industry ✦Consolidation happens very fast in the chemical industry.

✦ Of the top 10 world chemical compannies in 1950 only 4 remains

Chart 86 : % Share of Top 10 Firms per key Industries in 2008

Source: Different Ind. Associations, Data gathered from Dow Chemical and Wikipedia..

This high level of fragmentation has been characteristic of the industry. The reasons are multiple and star from the fact that many firms were local & highly protected from their governments, or the fact that under the word “chemical” there is space for many different kind of companies. Indeed pharmaceuticals, or oil companies can belong to the chemical industry, and it is not strange to find Oil companies with chemical divisions, (i.e Exxon) or Chemicals Companies with some Oil capabilities, (i.e BASF).

This important characteristic bring two key consequences for this industry: • 1. there is a lot of space for further consolidation• 2. the strong purchasing buying power from the chemicals value chain can put

huge pressure on the industry sustainability and profitability.

That is why the industry in the last decades have been battling on fight that reduction of profitability via consolidation in the commodity side, increasing its selling power and focusing in innovation and specialty products where margins where higher / more sustainable.



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OIL RESERVES CHEMICAL S. RUBBER TIRE AUTOMOTIVE

90%

10%

Raw Material Flow

Purchasing Power

Selling PowerHIGH

HIGHHIGHLOW

LOW LOW

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18%

82%

55%

45%

80%

20%

80%

20%


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APPENDIX




✦ Top 10 global companies have less than 20% of the industry ✦Consolidation happens very fast in the chemical industry.

✦ Of the top 10 world chemical companies in 1950 only 4 remains

Chart 87: World Top Chemical Companies Sales from 1960-96

Source: Different Ind. Associations, Data gathered from Dow Chemical and Wikipedia..

Analyzing the composition of the top global chemical producers and contrasting the above chart with the Chart 85, where we could see the Top Chemical Producers in 2007, the first thing to notice is the large proportion of companies that have been dropped from that list.

Of the top nine chemical companies in the nineties, only six still remain “alive”. Hoechst went to Aventis, now Sanofi-Aventis, ICI was bought by Azko Nobel and Union Carbide was bought by Dow Chemical. These only illustrate the fast consolidation that occurred in the industry with a large list of companies that have been changing hands: GE Plastics to SABIC, Ciba to BASF or Rohm Haas now to Dow, and that will keeping changing hands and consolidating in the future.



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DUPONT

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APPENDIX


I. Introduction to the Chemical IndustryII. Current Status of the Chemical Industry in 2009

Lets start this segment by reviewing which major characteristics of the chemical industry has changed or not during the last two centuries, since 1850, as a presented in the previous introduction to the industry.

TABLE 88 : Major features of the Chemical Industry

UNCHANGED from the 18 / 19 Century vs. current ✦Major Economic relevance, proxy. 5% of the World GDP.✦Technological Relevance a source of economic growth and innovation.✦Highly fragmented and local, despite its global ind. leaders.✦Sales distribution per industry remains fairly equal.✦Oil and Gas remain the key major raw materials (vs. 19 century)✦US, Germany and Japan, remain as the largest “chemical” countries.

CHANGED from the 18/19 Century vs. current

✦Change I : Production Shift: Asia, specially China gained significant share during the last decades.

✦Change II : Major inputs (feedstocks) and outputs:✦Oil & Gas replaced Coal as the major input by the end of the 18th century✦Chemicals and plastics, replaced alkalis & acids as major outputs.

✦Change III : Social awareness and Regulation, also increased during the 19th century, moving from local to national and global

✦Change IV : Industry profitability / perception moved from the specialty and innovative to a more commodity one and that was reflected

Source: Own Elaboration

Let’s now elaborate on some the most recent characteristics of the industry, developed during the last decades and during the last century, and that shape the current featured of the chemical industry. For additional information on the current structure of the Chemical Industry Structure, from feedstocks to market, please refer to Annexes II and III.



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Change I : Production relevanceDuring the last 30 years, the emergence of the BRIC economies and their voracious need of basics materials , has fostered a very strong growth of Chemical production and sales in some of these countries, specifically in Asia and India. Pls. see Chart 89.

According to CEFIC, in 2007, world chemical sales reached the staggering amount of 1,800 Billion Euro, an increase of 4% compared to 2006. With 537 Million Euro, the European Chemical Industry, with Germany at the top, remained still in a top position globally, however has lost its first place in the ranking versus Asia, (including China and Japan). That was mainly due to the rise of China and India. At the same time, Europe, Asia and NAFTA (incl. USA, Canada & Mexico) accounted for almost 90% of the world turnover.

Chart 89 : World Chemical Sales Evolution

!

In that sense, the emergence of some of the BRIC countries,appears already as one of the major recent and relevant features of the chemical industry.



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Change I : Production relevanceIndeed, analyzing the growth sales per country during the last 10 years we can observed most of the BRIC countries & Asian economies are at the top of the list, while the advanced economies have been growing more moderately.

Chart 90 : World Chemical Sales in 2007 by major Country

!

This massive growth has served to re-shape the chemical industry, making of Asia, the largest producer and consumer of chemical globally.

Chart 91 : World Chemical Sales in 2007 by major Country

Source: CEFIC, Statistical Report 2008.

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BRIC

REST

ADVANCED

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BRIC

REST

ADVANCED

2007 CHEMICAL INDUSTRY

ADVANCE = 1048 B Euro = $ 1,446 B

- EU 27 = 537 B Euro

- USA = 295 B Euro

- Japan = 136 B Euro

- Canada = 75 B Euro

BRIC = 418 B Euro = $ 576 B

- Brazil = 40 B Euro

- Russia = 63 B Euro

- India = 40 B Euro

- China = 275 B Euro

REST = 354 B Euro = $ 488 B

WORLD = 1,820 B Euro = $ 2,511 B

Exchange Rate = 1,38 $/Euro

Source: CEFIC, plus own calculations

THE FUTURE OF THE CHEMICAL INDUSTRY Rafael Cayuela - Northwood MBA38

Chart 5.1: EU chemicals* industry energy consumption by source


Change II : Oil and Gas replaced Coal as major inputAs Oil production and the technologies needed for its efficient production and consumption developed, the World Economy, started its gradual transition from less efficient and effective energy alternatives (i.e coal, salt, pyrites and sulfur, etc..) to Oil . To illustrate this global energy transition, pls see below the following two charts that shown the increased use of Oil vs Wood and Coal in US during the last century (Chart XX) as well as the increase of World Oil Production during the 19th century, as Oil was becoming not only more efficient but more competitive vs other major feedstocks.

Chart 93: USA Energy profile Chart 94: World Oil Production

Indeed today, the chemical industry, see in both Oil & Gas its major feedstocks (inputs) and in the Gas, Electricity & Heat remains as its major power sources.

Chart 95 : Major Feedstock and Energy for the Chemical Industry



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Source: USA Energy Information Agency and ARC Financial.

100% of Feedstock are Oil & Gas

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Change II : Oil & Gas replaced Coal as major FeedstockAnother key feature specially when discussing about the future of the Industry, is the understanding of its current feedstocks (Oil & Gas) and its potential alternatives. According to CEFIC, in 2007 Oil (85%) & Gas (10%) were the two largest chemical feedstocks.

Since in 2050, the major energy sources, namely Oil & Gas, could be different vs. the current one, the understanding of the upcoming energy trends & its impact in the chemical feedstocks appears vital to us. Lets start by mapping out the existing Energy Alternatives as existing today and lets continue by mapping how the Chemical Industry is currently using these resources as feedstocks.

Chart 96 : 2008 Existing Energy Alternatives

!

Currently the major feedstock for the industry are fossil fuels. The recent developments in oil & gas prices, specially in oil, in combination with the fact that oil access is somehow limited, has put additional pressure on the industry to star looking for alternative feedstocks.Indeed multiple studies are starting to carefully analyze all these alternatives and as the industry moved from Coal to Oil, we believe the new feedstocks of the industry as starting to have better options.



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CURRENT CHEMICAL FEEDSTOCK FUTURE CHEMICAL l FEEDSTOCKS

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Change II : Oil & Gas replaced Coal as major FeedstockLets now continue by reviewing, the major feedstocks and its potential alternatives for the Chemical Industry as known existing now.

Chart 97: Conventional & Alternative Routes for Chemicals 2008 (based on Oil, Gas, Coal and biomass derived Naphtha)


Currently the major ways to produce petrochemicals are via Naphtha and Methanol. The above chart maps out the production of petrochemicals via naphtha with the existing and potential alternative feedstocks. Next page will show the production process for petrochemicals via methanol. Both ways (via Naphtha or Methanol) have already feedstocks solutions, however Oil & Gas remain as the major ones. Price, efficiency & feasibility are, among others, the major reasons to keep the current feedstocks, however as we will see later these conditions could change in the future, opening the door to new feedstocks .



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OIL

GAS

FOSSIL ENERGY

NAPTHA CRACKER

COAL

BIOMASS

PETRO-CHEMICALS

TODAY

ALTERNATIVES

OTHERS

REFINERY

METHANE TO NAPTHA

LIQUEFACTION

SEVERAL

GREENER FEEDSTOCKS

TODAY

FUTURE?

85%

10%

100%

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Chart 98 : Conventional & Alternative Routes for Chemicals 2008 (based on Oil, Gas, Coal and biomass derived METHANOL)


As discussed before the production of petrochemicals, largest production share of the chemical industry, has already today alternative feedstocks to its basic production.

For different reasons, as we will see later, some of these options are still not in full use, but in the future we expect some of these alternative energies sources to pay a large role in the chemical industry. Meanwhile lets conclude this change by emphasizing two points: I. the chemical industry during the last century changed its major

feedstock from Coal to Oil & Gas and secondly, the industry, for good reasons, is already looking at the next change in feedstocks, so changes in this area should be expected again in this area and indeed, should even be needed.

II. As the world face climate change, the industry might be forced to look for “green’ feedstocks in compliance with the future requirements



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GAS

FOSSIL ENERGY

METHANOLMETHANOL TO OLEFINS

COAL

BIOMASS

PETRO-CHEMICALS

TODAY

ALTERNATIVES

BIOMASS

METHANOL

PRODUCTION

LIQUEFACTION

to Methanol

BIO to

METHANOL

GREENER FEEDSTOCKS

TODAY

FUTURE?

15% 100%

BIO to

ETHANOLETHANOL to

ETHYLENE

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Change II : Oil & Gas replaced Coal as major FeedstockIndeed, when we look at the Chemical Industry in 2050, we will analyze a little bit further the different alternatives, its major advantages and disadvantages as well as their odds to become successful.

As previously stated the current convergence of multiple trends, like the strong and recent (2007-2008) oil prices developments, and the growing and global pressure on CO2 emissions could certainly have an impact on this feature of the current chemical industry

Change III : Increase in Social Awareness & RegulationThe growing concerns on CO2 emissions, (as reviewed on Chapter I) and by default and in addition on environmental concerns, has increased significantly the social awareness on this issues.

Chart 99 : USA - Major CO2 Emissions by Energy and Industry

Source: U.S. Greenhouse Gas Emissions Inventory (y-axis units are teragrams of CO2 equivalent)

The Chemical Industry as one of the largest consumers of Oil & Gas and one of the largest industries globally has always been subject to a lot of attention from different social groups.

Furthermore, the recent and growing concerns globally on CO2 & climate change, has also served to further increase the social scrutiny into the industry and its external visibility.



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http://www.epa.gov/climatechange/emissions/usinventoryreport.html

http://www.epa.gov/climatechange/emissions/usinventoryreport.html


39

Chart 5.2: Energy intensity* in the EU chemicals** industry


Change III : increase in Social Awareness & RegulationIn that sense we believe this new feature of the industry will not change in the future, actually if any change will occurred here, would be to increase the social awareness on the industry . That in combination with the higher role of governments in the economy, as reviewed in Chapter I, present to us a great opportunity for the industry to increase its visibility into a positive way.

Indeed the American and European Chemical Industry Associations have been recently, launching very strong and effective campaigns to increase the exposure of the industry into the society, while taking the opportunity to show the contributions to humans life and progress. In 2008 and along these lines, Dow Chemical also launched global media to address also some of these concerns, the highly successful and recognized campaign is called the Human Element.

The further need for visibility and transparency on the Chemical Industry , is in our opinion a very positive thing, since in most of the areas of social concern, like energy consumption, CO2 Emissions. environmental issues, safety, security, etc, the chemical industry outperform most of the other industries. Lets use the following two charts for the EU Chemical industry, to clearly illustrate this point.

Chart 100 : Energy Intensity in Chemical Ind in Europe



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Chart 8.2: EU chemicals* industry greenhouse gas emissions per unit of energy consumption and per unit of production

53

Chart 8.1: EU chemicals* industry greenhouse gas emissions, energy consumption and production


Change III : Increase in Social Awareness & Regulation

Chart 101 : Green House emissions vs consumption and production



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Chart 102 : Green House Emissions per unit of Energy & Production

As clearly illustrated in these last three charts, the Chemical Industry, in this case the European one, not only has been reducing its energy intensity (Chart 100) and gas green house emissions (Chart 101) but also has been managed to do that in one of the most challenging conditions, that is to say, while increasing its total production.

That is why although this “feature” for the industry, increase on the Social Awareness, is traditionally perceived a a negative feature, we believe per contrary, it represents a huge opportunity for the industry. An opportunity to show, by being more expose and transparent with the society, the real value and contributions that chemical industry does to the society and human progress. So in other words, more social awareness, can only carry more positive interest into the chemical industry, so lets embrace it!

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Change IV : Industry ProfitabilityFinally the last major change in the features of the chemical industry it has been its constant decline in profitability during the last centuries. Although this point it is quite difficult to prove, since normally unprofitable firms tend to disappear (chart 87) and the profitable ones, specially in the “undefined” chemical industry, tend to upgrade or align themselves to other close industries, i.e pharmaceuticals, oil & gas, agricultural etc... the few data available shown a decline in the industry profitability.

Chart 103 : Avg. Op. Cash Flow Margin for Dow, BASF, DuPont & ICI

Source: Chemicals and Long Term Economic Growth by A. Arora, R. landau and N.Rosenberg/

The strengthening on global competition, the strong increases on feedstocks and the pressure to constantly innovate with new products and solutions have been fostering the decline of the industry profitability, as presented in the chart above, that measures Cash Flow Margin over time. Despite of the fact the industry still has multiple niches of value available, the tremendous pressure on margins have left these out of reach for the traditional chemical industry.

Indeed the commoditization of the industry and the reduced expectations for value creation, forced somehow the industry to start separating the already fragmented industry, btw basic, specialty & diversified chemicals.

If the existing definition of the chemical industry is somehow “blur”, with many mixed players, this new & recent category adds further complexity. For the sake of simplicity, we will continue talking about the chemical industry in general, however we should be aware that financial analysis has started to differentiate btw these two categories, and indeed the next chart will compare the chemical industry profitability vs others by making use of these terms.



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Change IV : Industry ProfitabilityAssuming Price / Earnings ratio as a good indicator of the current / future profitability of any given firm and industry, the following chart will show us the low expectations for the chemical industry bis a bis other industries, specially when we look at its basic and specialty segments.

Chart 104 : P/E Ratio per Industry in USA - Jan 2009

Source. David Margolis Professor at the Stern School of Business at New York University . Based on New York Stock Exchange & Nasdaq. http://pages.stern.nyu.edu/~adamodar/New_Home_Page

Although it could be right to argue that the chemical industry is a cyclical industry, and its P/E Ratios tend to vary across the cycle, previous data set consulted before shown similar results. The industry is perceived as mature, with cyclical low margins, subject to strong feedstock pressures, specially from oil and battling in a complex and unfavorable value chains.

Therefore this feature of low profitability, specially for the basic segment an in the Advance Economies will remain, with the only exception of chemical producers with cheap access to feedstocks. In parallel more and more chemical companies will try to upgrade from the basic to the specialty and diversified areas. However, upgrades on the P/E Ratios imply significant changes in the product mix and technologies used and require a lot of time. So we expect the chemical industry will remain with this declining and reduced profitability.



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http://pages.stern.nyu.edu/~adamodar/New_Home_Page





I. Introduction to the Chemical IndustryII. Current Status of the Chemical Industry in 2009III. Analysis on the Impact of the Trends in the Chemical Industry

Trying to forecast the future of the chemical industry by 2050 it is not only a complex task, that require significant imagination - but can also be a very subjective exercise.

That is why, and as presented in the Introductory Chapter: Methodology, the purpose of this paper is to remain as factual, rigorous and realistic as possible in this already speculative area. Although it is clear some of the results of this analysis can anyhow appear surprising to us and some time we might have different opinions, it should be considered that these results have been obtained under certain assumptions for both the major features of the chemical industry as well as for the major mega trends that will shape the world by 2050. Therefore the upcoming conclusions from this chapter and paper should be always put in the context of these assumptions.

It is clear that under different assumptions the results of these paper could be different, that is why during the course of the paper we have trying to stay as generic and focus as possible, considering the major features and trends for the chemical industry. That is why in the second phase of this paper we intend senior leaders in the industry about their views on the future of Dow Chemical and the industry by 2050.

Therefore in oder to foresee how the chemical industry will look like in 2050, we will analyze how each of the major mega trends, presented in Chapter I, will impact the chemical industry. In that sense we will start crossing each of the presented mega trends with each of the major characteristics of the chemical industry presented during this chapter.

The result and analysis of this data points, mega trends and major features of the chemical industry could serve us to anticipate the shape and characteristics of the chemical industry by 2050.



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I. Introduction to the Chemical IndustryII. Current Status of the Chemical Industry in 2009III. Analysis on the Impact of the Trends in the Chemical Industry

Lets start by summarizing the major characteristics of the chemical industry as presented in the last two segments of this chapter. But before doing that, lets clarify that these features are just some of the major and generic ones. It is clear that since we could look the industry from many angles we could find some new and different features. However and as mentioned before the ones below should be the most generic one.

In that sense we will summarize the features from Table 88, to create a list of features and reflecting the current features on the industry.

Table 105 : Major Characteristics of the Chemical Industry.

MAJOR FEATURES 1850 1900 2008

R E L E V A N C E

F L O W

S T R U C U T R E

S O C I A L

ECONOMICAL 4 to 5% globally *

TECHNOLOGICAL High Relevance

PROFITABILITY Medium to HighMedium Specialties

Low in Basics

Major inputs FEEDSTOCKS

Coal, salt, pyrites,

sulfurOil & Gas

Major Outputs PRODUCTS Alkalis and Acids Chemicals and Petrochemicals

Ind. Structure FRAGMENTED Highly fragmented - Top 10 only 20% of the industry

Top Countr ies PRODUCERS/ SALES

USA, Germany, Japan,

UK, FranceChina, US, Germany, Japan

SALES INDUSTRYEnd User, Pharma, Agriculture,

Automotive

REGULATION Local National Global

National

AWARENESS Medium HighHigh and

increasing

Source: Own ELaboration based on multiple sources previously sourced



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BIBLIOGRAPHY

APPENDIX


I. Introduction to the Chemical IndustryII. Current Status of the Chemical Industry in 2009III. Analysis on the Impact of the Mega Trends in the Chemical IndustryAfter that we will use this list with the major features of the chemical industry to cross it with each of the different trends and their respective characteristics, in just simple matrix and analysis. Therefore lets quickly remind ourselves on the major mega trends for the world as presented in Chapter I.

Table 106 : Major Global Mega Trends by 2050

MAJOR MEGA TRENDS KEY ASSUMPTIONS by 2050

S O C I A L

E C O

P O L I T I C A L

E N E G E R G Y

W I L D C A R D S

POPULATION (Massive Growth)

World Population will grow from 6 to 9 Billion people by 2050. Most of the growth will come into the REST & BRIC Areas (mainly in India & China) ADVANCED Economies will see older and declining populations.

DEMOGRAPHICS (Changing Pyramids)

All areas will have very different patterns: - ADV: slow population growth & older populations - BRIC: fast & younger - REST: fast & younger

URBANIZATION (more & bigger cities)

By 2050 the % of population living in cities would move from 47% to 70% globally. However the impact would be mainly in the BRIC & REST. (India, China, REST will X2 the urbanization.).

ECONOMIC (global growth)

The World GDP will be X 8. REST (38%) , BRIC (32%) will have highest share vs. ADV (30%). China will be the largest Economy. Growth in GDP X Capita: ADV = X 3, BRIC/REST X 10 times.

GOVERNANCE (Highest Corporate Social Responsibility)

In 2007, of the top 150 economies, 100 were companies. Since companies can grow faster than countries, due to their global capacities, in 2050 they could even become more relevant & bigger. Governments will increase social awareness, regulation and control on all companies.

GOVERNMENT (Higher Presence & Role - Economic, Social, Regulation)

National & International Governments, / Org. including some emerging ones, will become more present & relevant in many ways: economic, social, regulation etc... Additionally the new Int. Org will reflect the new economic / political order with more power for the BRIC / REST vs. the ADV group.

RENEWABLE ENERGIES (Oils vs. Clean Energies)

Oil & Gas would reduce massively their consumption, specially in ADV Economies in favor of CLEANER energies. ADV are expected to be more affected due to higher technological capabilities, “lack” of large Oil & Gas and higher social pressure.

CLIMATE CHANGE (Addressing CO2)

CO2 reductions will be a must globally. All industries will need to adapt. We expect a massive technological challenge and more reductions in the ADVANCE than in the BRIC & REST. Reductions are expensive, only ADVANCE can cope.

RESOURCE SCARCITY - excluding oil and gas

The large population growth (BRIC & REST) could trigger a huge need for basic resources, i.e. food,

water, raw materials. Technical challenges would be massive. In principle the ADV group will be less

affected with less people an wealthier but climate change can also change that

PANDEMICSThe large population & economic growth will connect even further the world. Illness will travel around

quickly, impacting more less developed areas. That create huge technical challenges for solutions.

TERRORISM

In a more connected world terrorism would be more difficult to defend against it, creating huge

technical challenges. As a wild card this trend is quite difficult to forecast, so lets just assume that

defensive technology will be more required globally,, where wealthier would have more access to it.

Source: Own ELaboration based on multiple sources previously sourced




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I. Introduction to the Chemical IndustryII. Current Status of the Chemical Industry in 2009III. Analysis on the Impact of the Mega Trends in the Chemical IndustryOnce summarized the major mega trends for the future and the key features of the Chemical Industry we will proceed to analyze the possible impact of these mega trends in the chemical industry.

In that sense we will proceed to cross both feature into a single matrix. Additionally and for each of the different mega trends we will analyze their effect in the four geographical areas that we have been using during this paper, that is to say, the WORLD, the ADV - Advanced Group, that includes USA, Canada, Japan and Europe. The BRIC group that includes Brazil, India, Russia and China and the REST group that includes all the remaining countries in the world.

In order to proceed with the analysis we will ask to each of the features of the chemical industry - left side of the matrix (see next page) - how each of the mega trends, on the top of the matrix, will affect this feature of the industry. For that purpose we have ranked each of the potential answers using the following methodology and code below:

• ANSWER VALUE COLOR • Positive with large impact 3 points • Positive with small impact 2 points • Negative or very small positive impact 1 Point

This questions will be answered first to each of the areas: ADV, BRIC and REST and then the average score would be used to calculated the WORLD impact. At the same time, the matrix will calculate for each of the the mega trend and feature of the chemical industry the total average, so we could see observe how a mega trend will impact each of the features in an absolute way, and for each of the different areas. Green boxes will denote positive impact or growth, while red one per contrary will show a negative impact or small growth.

Before continuing lets us clarify the reason why we have allocated under the red box both a negative impact with an small positive growth and negative growth. Although we are aware that this decision could drive the readers to some confusion, the fact that this paper expects a massive growth in the world economy during the upcoming four decades and only in few occasions we found combinations with negative growth, we still wanted to reflect in red, areas where the growth will exist but is deemed to be really minor.

Lets us illustrate this with a simple example, example that hopefully serve to clarify this point. For instance in the case of the Crude Oil as a feedstock for the chemical industry, we believe that oil consumption will certainly diminish significantly, specially in certain areas of the world, mainly in the Advanced economies. However this large expected decline might be more in per capita bases that in absolute bases, at least in global bases.

The simple fact that the world is expected to grow from 6 to 9 billion peoples and that will trigger globally all sort of demand, will certainly foster a increase in absolute consumption of crude oil, however its relative consumption might be lower, and could anticipate a real negative growth later on. In this case we will score with 1 points and with red color, however we might be aware that some absolute growth might be still occurring.

Finally for each of the potential combinations we will rank the final results with the intention to analyze which of the upcoming mega trends will affect the chemical industry as defined per this paper, and which of the current features of the chemical industry will be more affected positively and negatively by this trends. Therefore in the next pages we will proceed to go through all these combinations and analyzing how the chemical industry will look by 2050.

Finally due to the large number of combinations analyzed in this matrix, with more that 600 data points, this paper will focus on the major conclusions and some key highlights. Furthermore and for this readers with additional curiosity, a copt of the analysis in its real size will be provided in the appendix.

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Therefore please see below the analysis, in the from of matrix, used to analyze and forecast the future of the chemical industry. As stated before a copy of this analyst is real size is available in the Appendix V

MATRIX 107 : Impact of the Mega Trends in the Chemical Industry by 2050


Lets proceed now to review the results of the analysis and its major conclusions, but before doing that, let us explain how to read this matrix and the different extracts and views from it that we will use for our analysis and conclusions. In that sense we will measure these results in various ways, numeric, rankings and graphically. Please examples below:

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SET I - this set will allows us to to focus & understand the impact on each feature of the chemical industry from the different trends. This set will rank these impacts and present results numerically & graphically.

SET II - this view will allow us to go one level deeper, understanding how each trend affect a particular feature and allowing us to understand the rationality behind any particularly ranking.

SET III - will allow us to understand and rank which of the different mega trends will have a major impact on the chemical industry.

Let us remind that the results from this study largely depend on the choices this paper did in terms of mega trends for the future and the major “features” selected for the chemical industry,

SET I SET II

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SET III

SET I

SET II SET II

SET III

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CHART 108 : CONCLUSIONS - GLOBAL Chemical Industry by 2050 WORLD

Ranking of Impacts Growth Radar Detector




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MAJOR RESULTS : (based on the Ranking of impacts)• 1st - The chemical industry will enjoy a huge area of growth on developing technical solutions for the multiple and

upcoming challenges that the world will face, and its technological relevance will be emphasized in the future.• 1st - Finding renewable energies would be one of the largest opportunities for the industry (Rank 1st and 7th).• 2nd - The industry will see a reshuffling of its production & selling markets from the Advanced to the BRIC and the REST

Economies. That statement will be qualified later when reviewing other areas and with the Radar Detector.• 3rd - Regulation and Social Awareness on the industry will increase globally, specially in the ADV and BRIC Group.• 3rd - The industry will remain very fragmented. On one hand the emergence of new players in basic chemicals from the

BRIC & REST Group and in the performance side in the ADV group will foster fragmentation. Per contrary the migration from commodities to added value products, products with high needs of R&D and resources will foster consolidation in the ADV Economies. in both the Commodities and performance side. Therefore Basics will consolidate while performance chemicals will become more fragmented, so all in all, the industry will remain quite fragmented.

• 4th - Basic Chemical & Plastics will enjoy massive growth, thanks to the BRIC & REST expected huge growth• 5th - Advance materials will also enjoy growth, mainly in the Advance economies, but also in other areas too• 5th - Overall Industry profitability will improve slightly thanks to the massive growth in basics and the need for

performance materials. The ability of the industry to maximize the first impact (Rank 1st) unleashing the full potential of the industry and creating innovative solutions to solve the upcoming world issues could improve the outlook of the industry substantially. Opportunities would be certainly available and very profitable.

• 6th - The relevance of Oil as a feedstock would be minimized globally but specially in the Advance Economies.

Note (++) growth or impact (+) growth or impact ( - ) growth or tiny (+) growth

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CHART 109 : CONCLUSIONS - Chemical Industry by 2050 WORLD

Key Drivers Radar Detector - Sensitivity Analysis per feature Ranking of Impacts

Growth Radar Detector




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MAJOR MEGA TREND DRIVERS PER FEATURE (F) - Sensitivity Analysis • F1 - ECONOMIC RELEVANCE - the Economic and Social Trends are the major drivers of this increase on economic

relevance, followed by the potential opportunities coming from governments. Climate Change appears as the major and only trend affecting negatively this increase in economic relevance of the industry.

• F1 - TECHNICAL RELEVANCE - all trends, without exception, appear to be on strong support of an increased relevance of the technological side of the chemical industry. Only economic growth, since that will come mainly from the BRIC and the REST economies appear to be a little bit less supportive, still with an strong score of 2,5 over 3.

• F1 - PROFITABILITY - Economic growth, and the increase in population tend to be the major supporters of this increase, per contrary all the energy trends tend to reduce this outlook, especially the climate change one.

• F2- FEEDSTOCK OIL - all trends with the exception of economic growth, support a reduction on the use of oil as feedstock globally, but especially in the Advance Economies. Energy trends have here an strong role to reduce its use.

• F2 - OUTPUT - BASICS - basics plastics and chemicals, in general, are expected to keep growing globally but slowly. • F2 - OUTPUT ADV MATERIAL - all trends with the exception of urbanization with 2,0, strongly support this feature. • F3 - FRAGMENTATION - Strong Government intervention, the need of renewable energies & the changing in

demographics foster further fragmentation. The need to address climate change & economic growth go against it, perhaps assuming that size will be critical to exploit and face successfully the upcoming opportunities globally

• F4 - REGULATION + SOCIAL AWARENESS both features tend to appear reinforced by most of the trends with some minor exceptions, so more of this feature should be expected to growth. Only Economic growth see in

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Mega Trend Sensitivity Analysis




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SENSITIVITY ANALYSIS : (based on the absolute impact of the trend in the industry)Analyzing the sensitivity of the industry to the different upcoming trends & its subcategories, we found out some interesting conclusions. Lets start by reviewing from global to the areas what are the trends with highest impact in the industry.

Global MEGA TREND Ranking• 1st Wild cards• 2nd Social Trends• 3rd Political Trends;• 4th Economic Growth• 5th Energy Trends

Analysis per MEGA TREND GLOBALLY • The most surprising result from this analysis is the fact that the most impacting trend for the industry, are Wild Cards.

The potential explanation for this could be that since wild-cards can put at serious risk the world & human beings, these should be priority one for any industry, beside of the fact that margins would be extremely hight . However since these are the less predictable of all the trends., we will propose to focus more on the impact of the other mega trend.

• The following most impacting trends for the industry appear to be those linked to the changes in population and economic growth, since these are the core of the changes of the world in the future, these appears reasonable to us.

• In the next level and some how surprisingly as well, we found out that the Political Trends (4th in the ranking), appear to have a even higher impact in the industry that the Energy Trends (5th). Taking into consideration the challenges and changes the industry could experience in this area, appears to us very reveling to see that the political trends could even be more important to the industry.n the energy trends. One potential explanation for that is the fact that Energy trends are supposed to inpact more the BRIC / REST Economies that the REST Economies.

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CHART 111: CONCLUSIONS - GLOBAL Chemical Industry by 2050 WORLD





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SENSITIVITY ANALYSIS : (based on the absolute impact of the trend in the industry)Analyzing the sensitivity of the industry to the different upcoming trends & its subcategories, we found out some interesting conclusions. Lets start by reviewing from global to the areas what are the trends with highest impact in the industry.

RANKING - Global SUB TREND • 1st Population Growth, Pandemics & Resource Scarcity.• 2nd Change in Demographics & Governance• 3rd Increase in Gov. Role & Urbanization • 4th Renewable Energies• 5th Economic Growth• 6th Climate Change

ANALYSIS - SUB TREND PER AREA • Also in this ranking we can observe some very surprising conclusions. The fact that climate change (6th) Economic

Growth (5th) and Renewable Energies (4th) appear so low in the ranking appears to us quite revealing, specially when these should in theory plat a large role on shaping the chemical industry.

• The potential explanation for this interesting result, could be that since the large part of the growth will occur in the BRIC and REST areas, where the major focus would be to keep up with all the need for their large populations and their massive economic growth, their focus now in climate change and renewable energies would be still relative minor.

• Another explanation could be that the set of features established for the industry are not the right ones.• Finally it is also surprising the strong impact of both Political Trends, specially the one related to governance. In that sense

the developments in globalization and the unique capacity of companies to fully benefit from it, creating the bases for massive global organizations, would create a massive attention globally., specially form the society and the governments.

• Indeed as the world has been focusing on the economic decoupling of the Emerging Economies from the Advance ones, the reality is multinationals manage to “decouple” their fate from their home bases long term ago.

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RANKING - SUB TREND Per AREA

• 1st BRIC & REST - Scarcity, ADV - Pandemics and Terrorism • 2nd BRIC & REST - Population growth, Demographics & Urbanization • 3rd BRIC - Governments, Pandemics and Terrorism. ADV - Renewable Energies.• 4th BRIC & REST - Renewable Energies, Population & Governance ADV - Population Growth, Governments, • 5th BRIC - Economic Growth - ADV - Demographics, Eco, Politics, Scarcity• 6th BRIC & REST - Climate Change, Governments (REST) - ADV - Climate Change• 7th REST - Climate Change ADV - Urbanization

ANALYSIS - SUB TREND PER AREA • The first observation from the results is the strong impact Wild Cards have in the Chemical Industry. The BRICs having a

major impact from potential scarcity issues - something somehow logical due to the large populations an massive growth - and the ADV economies with their concerns on Pandemics & Terrorism,. Also something logical considering that the wealthier part of the world, - expected GDP Capita $ 110,000, envision concerns on its basic needs like peace or health.

• However and once we exclude the Wild Cards from the analysis, in reality what we see is the upcoming mega trends will first affect the Chemical Industry in the BRIC and the REST Economies and them the ADV Economies.

• Indeed the first major impact into the Chemical Industry in the ADV Economies is on the need to use renewable energies, however this come with a relative “low” impact for the industry, perhaps due to the fact that the global chemical industry will be more focus on providing basic materials to the BRIC and the REST Economies and Advance materials to the Advance Economies. Advance materials that will address the massive issues that the large growth in population and the economy carry with them,. including climate change.

• That is why we will then could easily forecast that the focus and structure of the chemical industry by 2050 will vary significantly depending the areas (BRIC, ADV and / or REST) that we will be looking at.

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CHART 113 : CONCLUSIONS - Chemical Industry by 2050 ADVANCED ECONOMIES





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MAJOR RESULTS : (based on the Ranking of Impacts)• 1st - The chemical industry will enjoy a huge area of growth on developing technical solutions for the multiple and

upcoming challenges that the world will face, and its technological relevance will be emphasized in the future.• 1st - The growing need of Advance Materials in a mega wealthy society - ADV Economies will tripe its GDP per capita

to up $ 110,000 - will create huge biz opportunities, to the point that the earning profile of the whole industry could be completely upgraded to levels of P/E of above 20.

• 1st - Governments and International organizations are expected to have a huge role in the industry, providing business opportunities, guidance and challenges, as well as regulating and controlling the size of it.

• 1st - Social Awareness will be increased. The industry should be ready to be fully transparent and melt in the society.• 2nd - The technical challenges the industry will face will foster further fragmentation in the industry, specialty in the

specialty size, with new small companies emerging in new business areas However a large round of consolidation will occur in the commodity area, indeed that will be a must to keep being competitive vs. emerging regions.

• 2nd - The overall profitability of the industry, with is focus in technology, advance materials a low consolidation will improve is its overall profitability.

• 3rd - The economic relevance will increase (as % of GDP), mainly due to its value component rather than quantity.• 4th - Basic Chemical and Plastics still will play a key role but much minor than today• 5th - Crude Oil relevance would be massively diminish, being replaced by Gas and Alternative feedstock, such as

biomass and other greener feedstocks.


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CHART 114 : CONCLUSIONS - Chemical Industry by 2050 ADVANCED ECONOMIES

Key Drivers Radar Detector - Sensitivity Analysis per feature




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MAJOR MEGA TREND DRIVERS PER FEATURE (F) - Sensitivity Analysis • F1 - ECONOMIC RELEVANCE - both governmental trends in combination with economic growth & the energy

trends are the major drivers for economic growth. Climate Change appears to have the lowest positive impact in this feature. So, the higher economic relevance will come more form the value and quality size that from the volume size.

• F1 - TECHNICAL RELEVANCE - all trends with the exception of the urbanization trend to support positively a highest technical relevance of the industry in the future. The high levels already of urban population with large mega cities in the Advance Economies could easily explain this low expected positive impact in this feature.

• F1 - PROFITABILITY - Economic Growth and Governmental Biz appears as the largest supporters for this feature, followed by the change in demographics & energy renewables. Climate change will have negative impact in this feature

• F2- FEEDSTOCK OIL - all trends with the exception of economic growth, support a reduction on the use of oil as feedstock in the Advance Economies.

• F2 - OUTPUT - BASICS - basics plastics and chemicals, in general, are expected to keep growing but moderately. • F2 - OUTPUT ADV MATERIAL - all trends with the exception of urbanization with 2,5, strongly support this feature. • F3 - FRAGMENTATION - Strong Government intervention, the need of renewable energies & the changing in

demographics foster further fragmentation. The need to address climate change & economic growth go against it, perhaps assuming that size will be critical to exploit and face successfully the upcoming opportunities globally

• F4 - REGULATION + SOCIAL AWARENESS both features tend to appear reinforced by most of the trends with some minor exceptions, so more of this feature should be expected.

Ranking of Impacts


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CHART 115 : CONCLUSIONS - Chemical Industry by 2050 BRIC ECONOMIES





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MAJOR RESULTS : (based on the Ranking of impacts)• 1st - the major impacts in the chemical industry in this area, is the fact that the BRIC Economies will become

the largest chemical market in the world. That will trigger a vast need of feedstock (specially gas and oil) and of technology to be able to produce all these products, specially Basic plastics and Chemicals.

• 2nd & 3rd - Technology in combination with Regulation and Social Awareness appear also as a critical components on the shape of the BRIC chemical industry. Technology would be short and the BRIC will need access to it. The relevance of the chemical industry in these countries will increase substantially and it would be key component of the industry. Massive growth will foster new players and with that higher fragmentation.

• 4th - Advance Materials will also positively impacted, however not the extend that Basic Chemicals and Plastics will do. That somehow makes a lot of sense since these countries will enjoy lower GDP per capita vs for instance the Advance Materials. However we should be cautious to ignore this market since by 2050 the BRIC average GDP per capita would be similar to current one in the Advance Economies. That comparison could provide a good hint on how much Advance materials per capita could be expected in the BRIC Economies.

• 5th - Profitability would be drove by the sales “mainly based” on commodity products and that will be lower in unit bases vs. the one in the ADV group, pulling down their current & high P/E Ratios the BRIC chemical industry enjoy today (aprox. 20 for Basic Players). These indeed reflect the BRIC market potential, in the future we will expect P/E ratios for the BRIC Chemical Ind. close to the ones now in the ADV Economies.


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Ranking of Priorities



CHART 116 : CONCLUSIONS - Chemical Industry by 2050 BRIC ECONOMIES





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MAJOR MEGA TREND DRIVERS PER FEATURE (F) - Sensitivity Analysis • F1 - ECONOMIC RELEVANCE - all Mega trends and specially Economic growth tend to support and emphasize this

feature of the chemical industry. Climate Change appears to have the lowest positive impact in this feature. So, the higher economic relevance will come from the fact that these booming economies will enjoy the largest chemical market in the world, mainly devoted to Basic materials.

• F1 - TECHNICAL RELEVANCE - all trends with the exception of the economic growth, that is more focus on securing basic materials, will support the increase of the technological relevance of the industry in the society.

• F1 - PROFITABILITY - As described before all the trends supporting growth will foster a higher profitability in the industry, however sine the industry will foster more on commodity products the increase would not be as strong as in other areas, specially in the ADV Economies

• F2- FEEDSTOCK OIL - all trends, with the exception of the Energy ones, strongly support oil as a key feedstock• F2 - OUTPUT - BASICS - basics plastics and chemicals will grow massively, all trends in strong support. • F2 - OUTPUT ADV MATERIAL - Energy trends are in support. Growth will be solid but moderate, specially compared

to basic materials. • F3 - FRAGMENTATION + TOP SALES /PRODUCERS: the largest chemical industry market in the world will certainly

foster new entrance of competitors. Although in the basics ind, size matters, the industry will remain quite fragmented.• F4 - REGULATION + SOCIAL AWARENESS both features tend to appear reinforced by most of the trends with

some minor exceptions, so more of this feature should be expected.

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CHART 117 : CONCLUSIONS - Chemical Industry by 2050 REST OF THE WORLD





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MAJOR RESULTS : (based on the Ranking of Impacts)The situation in the REST is quite similar to the one in the BRIC Economies, although with clear differences. Indeed the impacts from the trends are very similar, that is why we focus on explaining these differences & similarities vs. the BRICs.

EQUAL TO THE BRIC ECONOMIES• The REST Economies by 2050 would be also growing extremely fast, becoming, some of them, the new BRIC group.

Countries like Korea, Indonesia, Mexico, Iran, Pakistan, Vietnam, Turkey, Nigeria, Egypt, Philippines and Bangladesh, part of the so called NEXT 11 (N11) will be growing very fast now & at that time when they will be at their full potential.

• Albeit some of these N11, part of the REST Economies, enjoy smaller populations vs the BRIC, specially versus India or China, they still enjoy very young and dynamic populations that will see how their life expectancy grow very fast at the same time their populations keep growing fast in an environment of heavy economic growth.

• On top of the N11, many other countries in Africa and Latin America will start reaching the conditions and potential for massive growth too, and that is why we believe the REST Group in the future will need to be followed carefully, including the fact that we will need to start separating some of this fast grower from it.

• Therefore this REST economies will eager for growth on Basic Chemicals and thirsty of technology & cheap feedstockEQUAL TO THE BRIC ECONOMIES• One major difference vs. BRIC is that is a very large / heterogeneous group, well, also the BRIC is, but here there are so

many countries that all generalizations would be wrong. However we tend to assume that their political systems are less robust, with less regulation and further instability.

• We also belie that their clear need to grow, will foster them to really secure their basics needs before they focus too much in things like climate change or sustainable growth.


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Ranking of Priorities



CHART 118 : CONCLUSIONS - Chemical Industry by 2050 REST ECONOMIES





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MAJOR MEGA TREND DRIVERS PER FEATURE (F) - Sensitivity Analysis • F1 - ECONOMIC RELEVANCE - All trends and specially the Economic and Social ones and with the exception of the

Energy related, and specially of Climate Change, tend to support a strong increase of the Economic Relevance of the Chemical Industry in the REST Economy. The Basic Industry present a very positive outlook for higher relevance.

• F1 - TECHNICAL RELEVANCE - all trends, with the exception of Economic growth more worry to access basic materials, tend to have a strong positive impact in the technological relevance of the chemical industry.

• F1 - PROFITABILITY - As in the BRIC economies, profitability tend to increase, although not as much as in the ADV Economies, specially in units bases. Of course since these group is so large & heterogeneous is up to us to determine if an specific country within this group fit better in the profitability model of the BRIC or ADV Economies. For instance if we look a one member of the N11 like Mexico probably its profitability model will resemble more to the ADV one, while if we look at Angola, this one will probably fit better to the one of the BRIC model in a lower level

• F2.- FEEDSTOCK OIL - all trends support the massive oil and specially gas as key feedstock..• F2- FEEDSTOCK OIL - all trends, with the exception of the Energy ones, strongly support oil as a key feedstock• F2 - OUTPUT - BASICS - basics plastics and chemicals will grow massively, all trends in strong support. • F2 - OUTPUT ADV MATERIAL - Energy trends support. Growth will be moderate, specially compared to basics. • F3 - FRAGMENTATION + TOP SALES /PRODUCERS: the largest chemical industry market in the world will certainly

foster new entrance of competitors. Although in the basics ind, size matters, the industry will remain quite fragmented.• F4 - REGULATION + SOCIAL AWARENESS both features tend to appear reinforced by most of the trends with

some minor exceptions, so more of this feature should be expected.

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Once summarized and analyzed the potential impacts of the each upcoming mega trends, at global level and for all the selected areas, we would like introduce the next chapter.

Chapter 3 will provide the opportunity to use all the output from this analysis to try to forecast how the Chemical Industry could look by 2050 at a global level and for each of the different selected areas.

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