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Toll manufacturers serve a changing market

By Nick Basta, editor at large

ChemicalProcessing.com

Keywords: toll processing, chemical processing, chemical engineering, process engineering and process manufacturing

Custom chemical manufacturers anticipate increasing output this year but must contend with high domestic costs and rising imports.  Each type of chemical manufacturer has a different strategy for dealing with these issues.

This month’s Informex Show promises to be one of the biggest ever: the Synthetic Organic Chemicals Manufacturers Association., Washington, D.C., the organizer of the event, recently moved it to Las Vegas, and now expects upward of 500 exhibitors and 4,000 visitors. The show has evolved into the key forum for chemical companies involved in custom manufacturing, toll processing and outsourced chemical supplies.

Conversations with a cross-section of the show’s exhibitors give a picture of how this business is evolving. Historically, companies serving the pharmaceutical and specialty-chemical industries have dominated custom manufacturing. However, with the intense reshuffling of capacity, capital assets and product slates by major chemical companies in the past decade, the tolling business is seeing new opportunities in other types of markets, such as specialty plastics, performance materials and consumer goods. Nevertheless, it is still dominated by pharmaceuticals, where the outsourcing option has been a long-standing tradition.

Custom manufacturing, like all of the U.S. chemical industry, now is in a growth phase. According to the just-released Year-End 2004 Situation and Outlook from the American Chemistry Council (ACC), Alexandria, Va., the overall chemical industry finally achieved its long-expected upswing in production volumes and revenues during 2004, and the outlook for the next few years is strong (Table 1).

ACC projects the value of 2004 U.S. chemical shipments (including imports and inventory adjustments) at $501 billion, a new record, with overall volume of U.S. plants up 5.5%. Output is projected to rise by slightly smaller amounts for each of the next two

years. The “mañana” recovery, in which early positive signs did not pan out as time progressed, is over for the moment, says Kevin Swift, chief economist at ACC.

Within the specialty and pharmaceutical markets in which most custom manufacturers operate, the outlook according to ACC is even better. Growth in pharmaceutical output hit 6.6% in 2004. Perhaps more surprising, agricultural chemicals enjoyed an 8.8% uptick (Table 2).