Print page

Email page

Can U.S. chemical makers still compete?

By Bill Gerards, contributing editor

ChemicalProcessing.com

A steady stream of statistics in recent years has pointed to deteriorating competitiveness in the U.S. chemical industry. Domestic producers face global challenges but see opportunities.

A steady stream of statistics in recent years has pointed to deteriorating competitiveness in the U.S. chemical industry. America’s trade surplus in chemicals peaked at $20.4 billion in 1995 but has flipped since 2002 into a deficit that stood at about $9 billion last year, according to the American Chemistry Council (ACC), Arlington, Va.

The industry is being pummeled by various economic forces that not only weaken its direct trade balance but also cause what ACC calls “lost chemistry” — reduced demand for U.S.-made chemicals in manufactured goods when domestic production of these items shrinks due to a loss of exports or a rise in imports.

“Lost chemistry” is useful shorthand for a catalog of challenges that chemical producers are facing and for a range of remedies they are pursuing, such as consolidations, strategic alliances, plant shutdowns or scalebacks, increased process and personnel efficiencies, shifts to alternative fuels and feedstocks, and movement of some production offshore.

But interviews with executives and companies’ announcements about developments and initiatives suggest that the U.S. chemical industry still has a reservoir of optimism and opportunities for growth. Global competitive challenges are spurring innovations in products and processes, blueprints for leveraging the advantages of particular technologies and geographic locations, heightened appreciation of service and customization, and calls for smart synergies among companies, with governments, and between industries around the world.

Together, these observations lead to the conclusion that, although U.S. chemical companies must confront a brave new world of competitive pitfalls, all is not lost.

Upbeat assessment

Joseph Acker, president of the Synthetic Organic Chemical Manufacturers Association (SOCMA), Washington, D.C., acknowledged in a recent speech that “the challenges in gaining and maintaining business for U.S. manufacturers in the next year include the high price of oil and natural gas, competition from emerging markets, and the state of both the U.S. and the world economies.”

Companies in China, India, Eastern Europe and Latin America are estimated to hold, on average, a nearly 25% share of the markets they serve. “Chemical suppliers in these emerging regions are also viewed as developing the ability to provide higher quality products,” he says.

However, Acker reported upbeat forecasts culled from SOCMA’s latest annual business outlook survey, which was completed in September 2005 and includes responses from almost 40% of the group’s approximately 270 member companies. The overall state of the chemical market looks “good or excellent” to 87% of respondents, up from 63% in 2004 and 29% in 2003. Some 74% of companies in the latest survey reported an increase in sales for 2005, and 97% expected sales growth this year.

The companies cited two key approaches that are working for them: introducing new products and services, and making process improvements in their manufacturing operations. They also credited growth through acquisitions and broadening the set of process technologies they offer to the market.

They are confronting the challenge of high-quality imports by “emphasizing reliability, quality, and the importance of relationships,” Acker said.

Success in the U.S. and in Asia can go hand-in-hand, according to JFC Technologies, Bound Brook, N.J., which researches, develops and manufactures pharmaceutical ingredients and applied materials. The company, formerly known as Jame Fine Chemicals, announced the startup of its bulk pharmaceutical ingredient plant in Ningbo, China, early this year.

“It’s about moving to China but then focusing here on more defensible niches or businesses,” saysJamie Schleck, CEO and president. “Having a U.S.-based manufacturing presence is still very much part of our long-term strategy,” he adds, noting that the company is focusing on making cGMP polymeric materials for medical devices  in New Jersey while it maintains research activities in India and two facilities in China — including one for non-pharmaceutical applications.

Proximity to the R&D activities of major pharmaceutical and biotech companies in the U.S. was important for a portion of JFC’s business, Schleck says, but customers who have Asian-based manufacturing have also valued the ability to supply and facilitate their international operations, he adds. “It’s our intent that we’re not going to lose jobs here; we’re going to create more jobs here because of our ability to deal with these other nations.”

The China factor

The company has even created a consultancy division that helps U.S. chemical companies design and implement plans for establishing themselves in China. Such a path can be filled with potholes, Schleck says. JFC’s own move into the Ningbo industrial development district went relatively smoothly, he recalls, thanks partly to a Chinese-American employee who managed arrangements on-site and to China’s own development policies. “They rolled out the red carpet” to ease bureaucratic burdens, he notes.

Dow Chemical President, CEO, and Chairman Andrew Liveris recently referred in a television interview to China’s welcoming of industry as one of the competitive challenges that the U.S. faces.

“The Chinese have an industrial policy that makes it user-friendly for companies like ours to build and market,” he said on CNBC. The relatively low expense of constructing even a highly sophisticated facility in China helps to make it a key global player, added Liveris, noting that the country is now Dow’s third largest market, after the U.S. and Germany. “Ten years ago, it wasn’t even in the top 10.”