Chemical: An Increasingly Positive Mood

Chemical manufacturers are getting more positive, according to the most recent survey by the Synthetic Organic Chemical Manufacturers Association. Speaker Diane McMahon, a vice president with SOCMA, reported that an annual survey taken of the organization’s members found that 53% said the state of the industry was “excellent/very good.” That compares to 41% in 2005 and just 35% in 2004.

“Almost half of our members also said they expected sales increases this year of 20% or more,” McMahon reported.

One thing that has bothered chemical professionals, however, is increased competition from global players. In 2003, 22.4% of members said the U.S. market had disadvantages over other locations in the world. By 2006, that gap had spread to 31.7%.

The player with the most potential is China, McMahon said, while India has fallen to the No. 2 spot mostly because it cannot keep up with infrastructure needs.

“In China, when they see a need for a road, they build a road; they are proactive,” she says, which she compared to India, where she recently was four hours late for a meeting because of a 90-mile drive.

Still, McMahon predicted the lower quality coming out of China may cause problems down the road and pointed out that members who felt products from emerging market suppliers were “not as good as” U.S. products has risen from 52% in 2004 to 60% in 2006.

Other positive indicators included:

• 95% of respondents felt the number of leads would stay the same or increase.
• 70% anticipated a greater number of outsourcing projects over the next three years.
• The average length of time that respondents felt new business would continue has reached 5.5 years (compared to 2005 when that figure was 4.8 years).

One of the areas that many chemical companies, especially in the pharmaceutical industry, are focusing on is increased reliance on outsourcing. For example, Pfizer recently announced it is prepared to commercialize at least two new products per year brought in from outside smaller research and development companies from now until 2010. Some pharmaceuticals are also looking to close expensive manufacturing sites so they can focus efforts on R&D, she said. Almost 73% of respondents to the SOCMA survey said they will look for profit growth by introducing new products.

Meanwhile, the likelihood these companies will invest in capital projects is increasing. McMahon said American Chemistry Council figures show the chemical industry invested $25.72 billion in plant and equipment for 2006, which is 9.4% over 2005.

FORECAST: The U.S. fine/specialty and batch chemical industry expects to increase sales, outsourcing and spending on capital projects.