Outlook 2014 Looking Forward

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O utlook 2014: Looking forw ard

G lobal econom ic and chem ical output grow th should continue to

accelerate in 2014. σW ith im proving econom ic prospects,

headline grow th for chem icals globally w ill im prove to 3.8% in

2014,τ says K evin S w ift, A C C chief econom ist and m anaging

director. That num ber is up from expected global grow th of 2.4%

in 2013.

The strongest grow th w ill continue to be in the developing

nations of A sia, the M iddle E ast, and Latin A m erica, S w ift says.

σD ue to com petitive advantages from shale gas, grow th w ill be

strong in N orth A m erica as w ell. W estern E urope and Japan w ill

lag. W ith strengthening production volum es, global capacity

utilization w ill im prove in the years to com e.τ

The overall w orld econom y is likely to em erge from its extended soft patch of the last tw o years thanks to the easing

of the tw in headw inds of private-sector deleveraging and public-sector austerity, says IH S chief econom ist N arim an

B ehravesh. σThat said, the global grow th rebound is likely to be quite m odest,τ he adds. σIH S expects 3.3% grow th in

2014 com pared w ith 2.5% in 2013.τ

The good new s is that the upside surprises about grow th m ay m ore than balance out dow nside surprises, provided

som e of the m ore daunting risks facing the w orld econom y, such as an oil shock, do not m aterialize.

U S chem ical m akers are firm ly σback in the gam eτ thanks to the cost advantage enabled by low -cost shale

feedstocks, according to S w ift. U S chem ical production is expected to rise 2.5% in 2014 and 3.5% in 2015, S w ift

says. σFollow ing a decade of lost com petitiveness, A m erican chem istry is reem erging as a grow th industry,τ S w ift

says.

U S chem icals production w ill grow strongly through the second half of the decade, as the nearly $100 billion in new

chem ical investm ent announced since 2010 com es online. σD uring the second half of the decade, U S chem istry

grow th is expected to expand at a pace over 4% /year on average, a rate that exceeds that of the overall U S

econom y,τ S w ift says.

The total value of shipm ents w ill advance at a slightly stronger pace than production, w ith shipm ents values set to

exceed $1 trillion in 2018, up from $789 billion in 2013, A C C says.

The forecast grow th rates are the highest for industry in m ore than 20 years. σExcluding pharm aceuticals, U S

[chem ical] grow th has averaged less than 1% /year since the early 1990s,τ says M artha G ilchrist M oore, A C Cφs

senior director/policy analysis and econom ics. σThis is going to be a real step-up from that level.τ U S chem icals

production excluding pharm aceuticals w as up 3.2% in 2013, and grow th is expected to slow to 2.6% in 2014.

S pecialties and agricultural chem icals w ill drag dow n the rate in 2014 after advancing strongly the tw o years prior.

B asic chem icals are expected to grow 2.4% in 2014, up from 1.2% in 2013. C hem icals production grow th excluding

pharm aceuticals w ill be 3.5% in 2015, 3.8% in 2016, and 4.0% in 2019, according to A C C estim ates.

U S exports w ill ram p up sharply as production com es online. E xports of chem icals w ill grow 6.6% in 2014, to $205

billion, and a further 7.6% in 2015. E xcluding pharm aceuticals, the surplus in chem icals trade w ill grow to $67.5

billion by 2018, up from $42.7 billion in 2013, an average of 9.6% /year.

The expansion is also reversing the industryφs falling em ploym ent trend. E m ploym ent in the chem ical industry w ill

have grow n by 1.3% in 2013 and continue to expand through 2018, A C C says. This grow th contrasts w ith the

continuous decline in industry em ploym ent betw een 1999 and 2011.ρR O B E R T W E S TE R V E LT

C hina: S low er but solid grow th

The C hinese econom y is set to grow 8% in 2014 com pared w ith 7.8% in 2013, according to the IH S . σO ur

expectation is for C hinaφs econom ic grow th to accelerate slightly in 2014, grow ing by about 8% , on the basis of

steady investm ent and consum ption grow th and a m arginal im provem ent in external dem and, w hich has been a

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source of volatility [in 2013],τ says B rian Jackson, econom ist/C hina R egional S ervice at IH S . E xport grow th w ill pick

up m oderately, but housing m arkets w ill rem ain a drag on the econom y, IH S says. σO ur view is that C hinaφs

econom ic grow th w ill experience a secular dow nw ard trend but, on average, w ill rem ain above 7% through 2020,τ

Jackson says.

C hinaφs chem ical industry is m aturing and entering a

phase of slow er but solid grow th, analysts say. C hem ical

production in C hina w ill increase 8.5% in 2015 com pared

w ith 8.8% in 2014 and 8.5% in 2013, A C C says.

Figures released by the C hina P etroleum and C hem ical

Industry Federation (C P C IF; B eijing) show that total

revenue for the chem ical sector in C hina, w hich consists

of over 25,000 com panies, increased 12.3% in the first

nine m onths of 2013 com pared w ith the year-ago period,

to 5.81 trillion renm inbi ($957 billion), and total profits for

the sector increased 11.2% in the period, to R m b267.54

billion, says N orbert M eyring, partner at K P M G C hina

(S hanghai) and head/chem icals, C hina and A sia/P acific at

K P M G . C hem ical sector revenue w ill be about R m b8

trillion, a 12% increase com pared w ith 2012, and profits

w ould increase 11% , to R m b420 billion, M eyring says.

In 2014, certain sectors of C hinaφs chem ical industry are

likely to grow m ore strongly than others, M eyring says. σSectors such as fine chem icals and specialty chem icals

provide plenty of grow th opportunity,τ M eyring says. σAgrochem icals are anticipated to do w ell follow ing a slum p in

2012, supported by higher consum ption of chem ical fertilizers. The autom otive m arket in C hina is expected to

continue its grow th at a rate of about 5% /year until 2020, benefiting sectors such as lubricants, synthetic rubber, and

engineering plastics,τ M eyring says. The construction sectorφs grow th is likely to drop because of reduced

infrastructure spending, he adds. σW hile increasing consum er spending w ill help absorb som e of the grow th in

polym ers capacity, a significant am ount of polym ers w ill need to be exported to justify the extended grow th in

capacity in the segm ent,τ M eyring says.

The new leadership in C hina has com m itted to reform s very clearly, and reform s w ere the focal point of the third

plenary session, M eyring says. σThe reform s encourage C hinese enterprises to choose a new path of

industrialization, enhance their value chains, com pete internationally, and create national cham pions to increase

C hinaφs self-sufficiency in chem icals and establish an environm ent that prom otes sustainability. It is aim ed to

increase outbound and inbound investm ent[s] by reducing the level of governm ent involvem ent in decisions as w ell

as adm inistrative procedures, m easures w hich also benefit the global chem ical industry w ith their investm ents into

C hina by providing enhanced m arket access,τ M eyring says. ρD E E P TI R A M E S H

G erm any: E conom y accelerates

The G erm an econom y w ill strengthen in 2014 despite restraints stem m ing from lingering w eakness elsew here in the

E urozone, according to IH S . G D P grow th is estim ated to be 0.6% in 2013 but w ill clim b to 1.8% in 2014 and 2015.

σG erm an exports w ill benefit from a strengthening global econom y and w aning recessionary pressure in southern

E urope as the need for fiscal consolidation lets up,τ says Tim o K lein, senior econom ist at IH S . σG erm an dom estic

dem and should pick up as w ell based on both consum ption and investm ent. P rivate consum ption has been

underpinned by ongoing em ploym ent grow th averaging 1% /year and solid w age increases of roughly 3% , even

during the last three difficult years due to the escalating eurozone debt crisis,τ K lein says. σH istorically low interest

rates that w ill broadly persist during 2014 are discouraging saving and thus helping consum er dem and,τ K lein adds.

σI think the global econom y has passed the trough,τ says

K arl-Ludw ig K ley, president of industry trade association

V C I (Frankfurt) and chairm an of M erck K G aA (D arm stadt,

G erm any).

The G erm an chem ical industry is σcautiously optim isticτ

about the start of 2014, V C I says. M ost com panies

expect the chem ical business to pick up in the com ing

m onths. σThere w ill be an upw ard developm ent next year

for the G erm an chem ical industry, but a slow one,τ K ley



says. σW e are expecting an increase in chem ical

production of 2% for 2014. C hem ical prices are likely to

drop slightly, by about 0.5% .τ V C I says it expects

chem ical sales to rise to Б191 billion ($263 billion), or

1.5% , in 2014. V C I believes there w ill be a further

increase in dom estic dem and for chem icals. σVery little is

going to change in the foreseeable future regarding the

G erm an chem ical export surplus, w hich is good new s,τ

K ley says.

The G erm an econom y rem ains highly com petitive

internationally, enabling it to profit rapidly from any

im provem ent in global dem and, as appears to be

forthcom ing w ith the im proving U S econom y. The G D P

grow th forecast of 1.8% in 2014 com pares w ith a figure of

only 0.8% in the eurozone as a w holeρroughly 0.4%

excluding G erm anyρor 2.5% for the U nited S tates,

according to IH S .

The expected pickup in G erm an im ports due to the

robustness of dom estic dem and w ill increasingly deliver

grow th im pulses to the rem ainder of the eurozone, in turn providing better conditions for G erm an exports to those

countries, according to K lein.

The eurozone debt crisis is not over, although G erm anyφs robust structural labor m arket conditions, benign inflation,

and rock-bottom interest rates, along w ith a relatively w eak euro, are helping to bring about a strengthening

recovery, IH S says.

IH S forecasts consum er price inflation to be 1.6% in 2014. The current account surplus is forecast to be 6.5% of

G D P in 2014. The surplus w ill narrow in 2014π15 given im proving near-term dom estic dem and prospects, according

to IH S . σThe reform of energy policy w ill be very im portant for G erm anyφs m edium -term grow th potential, as failure to

contain pow er costs as the energy m ix m oves m ore tow ards renew ables could increasingly becom e an im portant

burden for the internation com petitiveness of the countryφs industry,τ says K lein. ρM IC H A E L R A V E N S C R O FT

Latin A m erica:P ursuing energy sector reform s

The real G D P of Latin A m erica and the C aribbean w ill expand by 3.4% in 2014, w hich is higher than the 3% from the

end of 2013, according to IH S forecasts. The E conom ic C om m ission on Latin A m erican and the C aribbean (E clac;

S antiago) expects a m oderately favorable global environm ent w ill help boost regional exports in 2014. P rivate

consum ption w ill also continue to grow , although m ore slow ly than recent periods.

R egarding the largest econom y in the region, B razilφs real G D P is expected to increase by 3.1% in 2014 com pared

w ith the 2.5% registered last year. The lackluster grow thρby B razil, R ussia, India, and C hina, i.e. B R IC ,

standardsρw as supported nam ely by fiscal stim ulus in advance of next O ctoberφs general election and spending

related to the W orld C up and the 2016 S um m er O lym pics, according to IH S . σThe [trade] deficit in the countryφs

chem ical sector has grow n quite intensively in recent years, becom ing a great concern for both producers and for the

governm ent,τ says Fàtim a G iovanna C oviello Ferreira, director/econom ics and statistics at A biquim (S êo P aulo), the

countryφs chem ical industry association.

B razilφs petrochem ical trade deficit reached $32 billion in

2013, according to A biquim , and is expected to continue

grow ing in 2014. The association says dem and for

petrochem ical products w ill grow 4π5% , subject to

achieving the 3% G D P grow th. The countryφs feedstock

position based on naphtha im pacts the com petitiveness of

the petrochem ical sector vis-á-vis N orth A m erican

producers. The im pact of the fiscal m easures introduced in

early 2013 w ill becom e m ore visible this year, as a series of

unplanned outages offset benefits during the second half of

2013, A biquim adds.

σ[K ey focus areas] include continuing w ork on the

com petitiveness of dom estic industryρw ith a long term



view of at least 10 years, a m ore defined policy for the use

of natural gas as feedstock, and turning dem and grow th into

investm ent opportunities,τ Ferreira says.

A head of B razilφs and slightly behind the rest of Latin

A m ericaφs, M exicoφs real G D P w ill grow by 3.3% , according

to IH S . The forecast is significantly above of the 1.3%

grow th in 2013. The econom y slow ed abruptly in the first

half of last year, principally because of the delayed effects

of w eak export dem and spilling over to the rest of the

econom y, according to O E C D .

H ow ever, fiscal policy is expected to be supportive in 2014,

w ith a tem porary increase in the budget deficit envisioned.

A s global conditions im prove and governm ent expenditure

expands, grow th should rebound over the next 12 m onths

and into 2015, O E C D says.

In term s of im proved energy and feedstock positions,

P resident E nrique P eěa N ieto w ants to m odernize

P etrīleos M exicanos (M exico C ity) and increase its efficiency, although the possibility of privatizing it has been ruled

out. In addition, the governm ent is attem pting to introduce greater private investm ent in areas that are not exclusively

reserved for the state, for exam ple through the introduction of a profit-sharing contract, IH S says.

S uch changes to the countryφs energy sector σw ould contribute to access to traditional and nontraditional

hydrocarbon production technologies, increasing access to m ore com petitively priced raw m aterial for the

petrochem ical industry,τ says Josò Luis U riegas, C E O of Idesa (M exico C ity). ρFR A N C IN IA P R O TTI-A LV A R E Z

C anada: C autious optim ism

C anadaφs chem ical producers had a good 2013 but are cautious about the year ahead. A recent survey by the

C hem istry Industry A ssociation of C anada (C IA C ) finds m em ber com panies in aggregate predicting low er sales and

profits. The com panies still expect results that are historically strong, how ever, and the continued grow th of capital

investm ent reflects long-term optim ism .

R esults for 2013 have set a high standard. S ales of industrial chem icals increased 6% year-on-year, to m ore than

$27 billion, C IA C estim ates, m atching the prerecession record high of 2008. E xports increased 8% , to over $18

billion, and operating profits set an all-tim e record at $3.5 billion. C apital spending grew by 20% .

In the year ahead, by contrast, C IA Cφs m em bers expect overall sales to drop 8% , w ith m ost of the decline to occur in

the synthetic resins and rubbers m arket. R educed production, including output lost to scheduled plant turnarounds,

w ill account for half of the decline, w hile low er selling prices, the result of low er com m odity prices and w eaker m arket

conditions, w ill be responsible for the balance. The com panies predict that exports w ill decline by 5% . N ot

surprisingly, given their assum ptions, these com panies expect operating profits to be 4% low er in 2014.

H ow ever, em ploym ent levels w ill rem ain stable, perhaps declining by 1% , the survey respondents say. M oreover,

they expect capital investm ent to increase 28% in 2014, follow ing a 20% jum p in 2013. σThis bullish outlook reflects

positively on the investm ent clim ate in C anada and reinforces the notion that com panies are taking advantage of

attractive investm ent opportunities in order to strengthen their com petitive readiness[es] for the aw aited rebound in

global m arkets,τ C IA C says.

In D ecem ber 2013, N ova C hem icals announced plans to begin a $300-m illion project that w ill increase the ethylene

capacity of its C orunna, O N , cracker by 20% and increase polyethylene capacity at its M oore, O N , facility. In June,

N ova began a $980-m illion project that w ill add about 1 billion lbs/year of polyethylene capacity at its Joffre, A B ,

com plex. O ther m ajor projects include an $850-m illion propane dehydrogenation facility that W illiam s is building near

E dm onton, A B .

Feedstock availability has been an issue. C anadaφs supply of natural gas liquids (N G Ls) is closely tied to natural gas

exports, w hich have been hit hard by developm ent of shale gas in the U nited S tates. C onsum ers have adapted by

building and adapting pipelines to supply N G Ls from those sam e shale deposits to C anada. N ovaφs C orunna cracker,

revam ped to run light feeds, began running N G Ls from the M arcellus shale in P ennsylvania, delivered through the

new G enesis P ipeline extension, in D ecem ber 2013. N ova says that the V antage pipeline linking its Joffre facility to



the B akken S hale in N orth D akota is essentially com plete and w ill begin supplying ethane in the first quarter of 2014.

ρC LA Y B O S W E LL

E urope: C hem icals exit recession

E uropean recovery is expected to continue, but at a very sluggish pace. σD espite som e signs of w eakness, the

nascent eurozone recovery w ill have staying pow er,τ says IH S chief econom ist N arim an B ehravesh. IH S

nevertheless predicts that the eurozone w ill not regain the G D P peak it achieved in the first quarter of 2008, just

before the onset of the financial crisis, until early 2016.

IH S forecasts that the eurozone econom y w ill grow overall by 0.8%

in 2014. A w ide range of factors w ill support that grow th, B ehravesh

says. They include m onetary policy that ease credit conditions,

stabilizing labor m arkets, less em phasis on austerity by E U and

national policym akers, im proved spending pow er because of

ultralow inflation, structural reform s that boost productivity in the

peripheral countries, and m ore confidence in the ability of eurozone

politicians to m anage the sovereign debt crisis.

Fallout from the crisis w ill continue to dent grow th in southern

E urope during 2014. σEven w ith these positive trends, som e

countries, such as G reece, Italy, and S pain, w ill struggle to achieve

positive grow th,τ B ehravesh says. IH S forecasts that Italyφs econom y

w ill contract by 0.3% in 2014. Franceφs econom y w ill grow by 0.5%

in 2014, IH S says.

E uropean econom ies outside the eurozone are likely to fare better.

IH S forecasts that the U K econom y w ill grow 2.8% in 2014,

benefiting from dim inishing consum er price inflation, easing credit conditions, and strengthening export m arkets in

E urope and N orth A m erica. The em erging countries of E astern E urope and the B alkans w ill generate overall G D P

grow th of 2.9% , IH S says.

The chem ical industry in the E uropean U nion turned a corner in S eptem ber 2013, w hen it achieved m onthly output

grow th of 0.7% . The S eptem ber reading confirm ed grow th for the O ctober quarterρthe second successive quarter of

rising chem ical production in the region. This event m arked the industryφs exit from a long, painful recession, C efic

says.

C efic expects the E U chem ical industryφs recovery to continue in 2014 but, like the overall econom y, at a m odest

pace. C efic predicts a return to annual output grow th w ith the sectorφs production of chem icals likely to increase 1.5%

in 2014. E U chem icals output contracted by 1% in 2013 despite the exit from recession in the third quarter, C efic

says. σThe gradual recovery w ill be founded on stabilization of industrial production in E urope after tw o years of

w eakness and a m odest rise in exports,τ C efic chief econom ist M oncef H adhri says.

In 2014, E uropeφs chem ical producers w ill face increasing com petition from im ports originating in the U nited S tates.

σThe E uropean chem icals sector w ill face tough com petition from U S producers benefiting from cheap energy and

feedstock,τ H adhri says.

C om petition w ill be m ost intense in the petrochem ical sector, and the future of som e of E uropeφs petrochem ical

production plants, based on relatively expensive naphtha feedstock, is under threat, analysts say. The closure of

several naphtha crackers w as announced in the E uropean U nion during 2013. C efic nevertheless predicts a 2% rise

in output by the E U petrochem ical sector in 2014. C efic also says that production of specialty chem icals w ill grow 2%

this year in the E uropean U nion and that em ploym ent across the entire E U chem ical industry w ill be stagnant.ρIA N

Y O U N G

M ideast: A shift in strategy

The G D P grow th of the G ulf C ooperation C ouncil (G C C ) statesρBahrain, K uw ait, O m an, Q atar, S audi A rabia, and

the U nited A rab E m iratesρas w ell as the w ider M ideast region, w ill decline slightly in 2014, according to IH S . The

G C C states w ill grow 4.2% in 2014 com pared w ith 4.4% last year because of reduced gains in oil G D P , but nonoil

G D P grow th in the G C C rem ains robust, says B ryan P lam ondon, senior econom ist/M ideast and N orth A frica (M E N A )

at IH S . M E N A w ill grow by 3.6% and the M ideast by 3.4% . C hem ical volum es in M E N A w ill grow by 4.8% in 2014

com pared w ith grow th of 3.6% in 2013, A C C says.



The G C Cφs petrochem icals output last year reached $97.3

billion, grow ing at 19% /year over the last five years,

according to the G ulf P etrochem icals and C hem icals

A ssociation (G P C A ; D ubai). This grow th is the highest

posted by any petrochem icals-producing region in the

w orld, G P C A says. The G C C last year earned $52.7 billion

in export revenues.

H istorically, the M ideast has been the w orldw ide cost-leader

prim arily because of its access to favorably priced

feedstock. This situation is changing, how ever. M ideast

producers are placing m ore em phasis on adding value to

basic petrochem icals because of a shortage of advantaged

feedstocks. C ertain m ajor players, notably S abic, are

considering investing in N orth A m erica to take advantage of

inexpensive shale gas and to secure grow th. They are also

continuing to invest in C hina, w hich, together w ith the w ider

A sia region, is the logical m arket for M ideast producers.

Feedstock shortages have also led M ideast governm ents to

increasingly favor subsidiaries or joint ventures of national energy groups for feedstock allocations, leaving

independent chem ical com panies scram bling for raw m aterials. C onsolidation through M & A is one w ay of addressing

feedstock challenges and securing grow th. S ipchem (A l K hubar, S audi A rabia) and S ahara P etrochem icals (A l

Jubail) are in m erger talks, and analysts expect other M ideast producers to follow the M & A route. The Zam il G roup is

a shareholder in S ipchem as w ell as S ahara, w hich are listed on the S audi S tock E xchange.

The region is developing new feedstock resources, including shale gas, but these developm ents are in their

infancies. O m an recently announced a m ajor tie-up w ith B P in gas and acetic acid projects. The K hazzan field is

expected to produce 1 billion cubic feet/day of gas and 25,000 bbl/day of gas condensate, equivalent to about one-

third of O m anφs total daily dom estic gas supply. B P and O m an O il C o. have signed a m em orandum of understanding

to develop the w orldφs first acetic acid plant using B Pφs new synthesis gasπtoπacetic acid process. The 1-m illion

m .t./year plant is expected to be built at D uqm , O m an, w ith start-up in 2019.

M ajor investm ents underw ay in the region include the $20-billion S adara jv betw een S audi A ram co and D ow

C hem ical, now m ore than 25% com plete; a doubling of capacity by P etro R abigh, a jv betw een A ram co and

S um itom o C hem ical, at R abigh, S audi A rabia; S abic and E xxonM obil C hem icalφs rubber and elastom ers project at

their K em ya jv at A l Jubail; and an investm ent in polyurethanes by S abic, w hich is m aking an entry into this m arket.

Q atar is planning to spend about $25 billion by 2020 to expand its chem ical and petrochem ical industries. P rojects

include tw o investm ents to build olefins and dow nstream com plexes at R as Laffan.ρN A TA S H A A LP E R O W IC Z

Japan: S tim ilus boost

Japanφs econom y and chem ical industry, aided by the aggressive stim ulus and fiscal policy encouraged by Japanese

prim e m inister S hinzo A be, should grow in 2014.

Industrial production and chem ical output are likely to exceed G D P grow th as a w eaker yen reduces im ports and

boosts exports. Japanφs G D P is expected to grow 1.8% in 2014, w hile industrial production w ill grow 4.8% , according

to IH S . Japanφs chem ical production w ill increase 4% in 2014, according to A C C .

Japanφ econom ic spirits have lifted as A be, w ho returned to office in D ecem ber 2012, has launched aggressive fiscal

and m onetary stim uli to reverse nearly 20 years of deflation and flat econom ic trends. Japanφs central bank, at the

urging of A be, has announced that it w ill target a 2% inflation rate w ithin tw o years.

σYen depreciation is raising im port prices, im proving international com petitiveness, and boosting profits of

m ultinational com panies,τ says D an R yan, IH S director/research, A sia/P acific. σFuture grow th w ill depend on how

effectively the new A be adm inistration im plem ents stim ulus program s and reform s in labor and product

m arkets.τρR O B E R T W E S TE R V E LT

India: S pecialty sector boosts grow th

E conom ic grow th is expected to pick up in India during 2014. The countryφs G D P grow th rate w ill increase from 4.6%

in the fiscal year ending 31 M arch 2014 to 5.6% in the fiscal year ending 31 M arch 2015 and 6.5% in the follow ing

fiscal year, IH S says.



σThe w orst m ay be over for Indiaφs econom y, but persistent inflation, a w eak investm ent clim ate, and political

uncertainty ahead of the 2014 election w ill lead to slow and uneven progress,τ says N arim an B ehravesh, chief

econom ist at IH S . σPostelection econom ic reform s and an upturn in capital investm ent w ill be essential to restoring

Indiaφs grow th m om entum ,τ B ehravesh says.

The Indian C hem ical C ouncil (IC C ; M um bai) and analysts say that dem and for chem ical products continues to rise in

India. σD isposable surplus incom e is rising in India, and the increasing standard of living leads to grow th in

consum ption of consum er goods, w hich results in greater dem and for chem ical products,τ says H .S . K arangle,

director general at IC C .

σPer capita consum ption in India for products such as plastics and paints is still w ell below the global average.

D espite that, the overall dem and for chem icals in India w ill continue to rem ain strong in 2014,τ says C haitra N arayan,

associate director/chem icals, m aterials, and foods practice at Frost & S ullivan (B angalore).

σThe Indian chem ical industry has alw ays grow n 1π2% above the overall G D P grow th rate in the country. This trend

w ill continue, and the chem ical industry in India w ill grow about 2% above the G D P grow th rate in 2014,τ K arangle

says. Indiaφs chem ical industry sales are estim ated to reach $115π120 billion in 2014, IC C says.

E xports of chem ical products from India grew at a com pound annual grow th rate of 8π9% during 2008π13, a rate that

w ill continue in the m edium term , N arayan says.

C ertain sectors of Indiaφs chem ical industry are likely to grow strongly in 2014, IC C and analysts say. σSectors such

as agricultural chem icals, specialty chem icals, [and] construction chem icals... are expected to perform w ell in 2014,τ

Karangle says.

G row th rates in India for basic organic chem icals, such as acetic acid and form aldehyde, σare expected to follow

G D P and grow at a rate of 5π6% . M eanw hile, the specialty chem icals segm ent is expected to grow at a rate of 11

π12% ,τ N arayan says. σSpecialty chem icals and ag chem s are likely to grow faster than basic and com m odity

chem icals.τ

C ertain specialty chem icals, such as personal-care ingredients, additives, active pharm aceutical ingredients, paints

and coatings, construction chem icals, and w ater chem icals, are likely to grow strongly. σAlso, there has been an

increase in activities by Indian players in these segm ents w ith respect to expansionsρboth organic and inorganic.τ

C om m odity and bulk chem icals are expected to slow in 2014 because of low er grow th in end-user segm ents,

N arayan says.ρD E E P TI R A M E S H

A sia: Increasing interest in 'O ther A sia'

The G D P grow th rate for A sia/P acific w ill increase from 4.8% in 2013 to 5.4% in 2014, says N arim an B ehravesh,

chief econom ist at IH S . σThe global environm ent facing em erging m arkets w ill be m ore grow th friendly than it has

been in the last three years. U S and C hinese grow th[s] w ill be a little stronger, and the eurozone w ill no longer be a

drag on the w orld econom y. This m eans that em erging-m arket exports w ill again becom e a source of grow th,τ

Behravesh says. σA return to the very rapid grow th rates enjoyed in the boom years of the 2000s is unlikely unless

the governm ents in these countries enact m ore structural reform s that raise productivity, allocate capital m ore

efficiently, and, thereby, boost potential grow th,τ B ehravesh says.

The outlook for the chem ical industry in A siaρexcluding C hina, India, and Japanρis positive for 2014, analysts say.

σM any of the fundam entals that support chem ical industry dem andρincluding G D P grow th, urbanization, grow ing

m iddle classesρcontinue to m ove in a positive direction, w hich can only be beneficial to grow th of the chem ical

industry,τ says P aul H arnick, global C O O /chem icals and perform ance technologies at K P M G (P hiladelphia). σThere

has also been a fundam ental shift in the w ay A sean countries are view ed over the last 18 m onths. W hen w e talk to

senior executives of the w orldφs biggest chem ical com panies, there is increasing interest in O ther A sia. N o longer is

an A sian grow th strategy just about C hina or India. The challenge for governm ents in the region is to continue to

adopt policies that w ill engender investm ent and grow th, continue to invest in basic infrastructure, and encourage

transparent business practices,τ H arnick says.

S trong year-on-year gains in chem icals output grow th are expected in A sia/P acific, A C C says. O verall chem ical

production in A sia/P acific w ill increase 6.5% in 2014, A C C says. C hem ical production in O ther A sia/P acific w ill

increase 6.7% in 2014, according to A C C .

S everal countries in A sia w ill be at the forefront of the next w ave of em erging-m arket, chem ical industry grow th,

H arnick says. They include Indonesia, M alaysia, Thailand, the P hilippines, and V ietnam ρcountries w ith different

specific strengths. σIndonesiaφs population gives it a m assive potential consum er base, w hile V ietnam is becom ing a



favored destination for low -cost m anufacturing. The one thing they all have in com m on is strong fundam entals for

grow th,τ H arnick says.

C om m odity chem icals are likely to attract m ore investm ent in these countries, H arnick says. σThe chem ical industry

in these countries has to learn to w alk before it can run, so investm ent is likely to be focused on the com m odity end

of the sector and establishing the basic building blocks of the industry,τ H arnick says. σH ow ever, w ith increased

urbanization and continued m iddle-class grow th, there are also likely to be opportunities in segm ents such as

construction chem icals, consum er chem icals, and personal care. The challenge for the countries in question is to

have all of the fundam entals in place, both in term s of the chem ical industry supply chain, as w ell as legal structures

and business practices, such that these higher-value chem icals can be m anufactured in-country rather than im ported

from abroad,τ H arnick says.ρD E E P TI R A M E S H

P etrochem icals: R egional issues are key

The outlooks for olefins and arom atics show that regional concerns w ill shape petrochem ical m arkets in 2014. The

influence of shale gas and oil w ill continue to dom inate N orth A m erica. E uropean producers w ill continue adapting to

a subdued econom ic environm ent and to cost pressures. A sian m arkets w ill lengthen w ith C hinaφs grow ing dom estic

production.

A slight increase in the cost of natural gas liquids

(N G Ls) w ill reduce U S ethylene m argins below the

record level of 2013, but they w ill rem ain at least 20

cts/lb through 2015, IH S C hem ical projects. C ash

costs are expected to m ove slightly higher in the

com ing m onths but w ill rem ain too low to exert

pressure on prices.

IH S expects propylene to continue tightening in

N orth A m erica. S upply from steam crackers has

been reduced by about 30% since 2007, and N G Ls

w ill continue to displace naphtha from the feedslate

this year. R efinery-propylene production by fluid

catalytic crackers (FC C s) w ill not m ake up the

difference. Falling U S gasoline consum ption should

keep FC C unit grow th at a m inim um , and grow ing

hydrocracking capacity w ill com pete for FC C

feedstocks.

P ropylene supply w ill not im prove significantly until

late 2015, w hen new propane dehydrogenation

units start up. IH S nevertheless expects the

average m onthly U S contract price of polym er-

grade propylene for 2014 to be about 2 cts/lb low er

than in 2013, ow ing to a slightly low er crude oil

price forecast.

A rom atics production in N orth A m erica has likew ise

been undercut by the shift to N G L cracking, and

supply has been constrained by grow ing dem and

for toluene and xylenes to boost octane content.

O perating m argins for reform ers have been

extrem ely low of late, m aking toluene and xylene

prices very sensitive to reform er naphtha prices,

w hich are expected to continue strengthening,

pushing toluene and xylene prices upw ard in

January and February, IH S C hem ical says.

IH S does not expect ethylene dem and in E urope to

im prove m uch in 2014, given w eak dow nstream

m arkets. C ontinued restraint on the part of cracker

operators w ill keep the m arket in balance, and

m argins w ill be sim ilar to those of 2013. O il prices



are expected to decline, resulting in a slight decline

in the price of ethylene.

The situation is sim ilar for propylene in E urope,

although the m arket balance is m ore price-

sensitive. σD uring 2013, the E uropean m arket has

been able to m aintain a degree of balance that had

been severely lacking in 2012, and it m ay be

possible to see the sam e dynam ic in 2014,τ IH S

C hem ical says. The im pending overbuild of

propylene capacity in C hina w ill m ake the task m ore

difficult, how ever.

B enzene w as in plentiful supply in E urope before

recent hiccups in production, and that situation

should soon return, IH S says. There are no new

significant cracker outages expected in the next

couple of m onths, and pyrolysis gas availability

should rem ain good. The supply of toluene

diisocyanate (TD I)πgrade toluene in E urope should

increase, helping m eet increased dem and w ith the

start-up of B ayerφs new TD I unit at D orm agen,

G erm any, in the second half of 2014. The m arket is

expected to rem ain fairly balanced.

C hinaφs drive for self-sufficiency continues to

reshape A siaφs olefin trade. The countryφs ethylene

im port volum es increased by 40% in 2012, but IH S

estim ates that they increased by only 15π20% in

2013 and w ill soon begin to decline. S outh K orea

supplies m ost of this m aterial, but that situation is

likely to change dram atically this year, w hen several

S outh K orean exporters start up derivative units

w ithout increasing ethylene production.

P ropylene supply is m eanw hile expected to

lengthen in A sia as new production units in C hina

begin to com e online early this year, IH S says.

C hinaφs propylene im ports have grow n m ore slow ly

in recent years and m ay decline in 2014. N ew

export volum es from Taiw an w ill add to the excess,

although a cracker closure in Japan this year and

another in Taiw an in m id-2015 w ill ease the

situation. IH S expects regional olefin m argins to

rem ain positive, how ever, w ith northeast A sian

naphtha prices projected at about $40/m .t. low er in

2014 than in 2013, reducing cash costs for integrated crackers by as m uch as $50/m .t.

W ith turnarounds com plete, high run-rates at integrated para-xylene (p-xylene) plants, and high naphtha cracker

operations, benzene production has been robust in A sia, IH S says. The price of benzene is forecast to decline from

D ecem berφs high in line w ith a soft U S price forecast. The price w ill rem ain by far the low est for benzene in the w orld,

but the difference w ith the U S price m ay not be large enough for arbitrage.

H ow ever, the toluene price in A sia is forecast to rem ain the highest in the w orld for several m onths. IH S projects that

toluene dem and w ill be seasonally sluggish for gasoline and solvent use but constantly high for transalkylation

integrated w ith p-xylene plants. The m arket could change dram atically at the end of the second quarter, w hen a

1-m illion m .t./year p-xylene plant com es online at U lsan, S outh K orea.ρC LA Y B O S W E LL

P lastics: M ixed fortunes

G lobal capacity for polyethylene (P E ) w ill reach 101.7 m illion m .t./year in 2014ρan increase of just over 4% from

2013, according to IH S C hem ical data. W orldw ide production, m eanw hile, is expected to go up by alm ost 5% in the

com ing 12 m onths, and average global operating rates are forecast to rise to 84.2% , 1 percentage point higher than



last year. D em and for P E in N orth A m erica w ill m aintain its m oderate grow th during 2014 before m ajor new

production capacity begins to com e online in 2015π17, IH S C hem ical says. A verage regional operating rates w ill

rem ain in the low 90% range during 2014, IH S C hem ical says. N orth A m erican dem and grow th in 2014 w ill boost

total P E volum es above the previous peak levels attained in 2007, IH S C hem ical says. S eparately, in the M ideast,

Iran plans to com m ission up to five P E plants w ithin the next year, although U N sanctions on Iran have delayed the

start-ups of new facilities. In the U nited A rab E m irates, the B orouge 3 project, including m ajor P E capacity, should be

com pleted in 2014, IH S C hem ical says.

In 2014, W orldw ide capacity for polypropylene (P P )

w ill increase by m ore than 6.5% , from 67.9 m illion

m .t./year to 72.4 m illion m .t./year, according to IH S

C hem ical data. Total production w ill also go up,

albeit at a slightly low er pace of 4.9% , IH S

C hem ical says. A verage global operating rates w ill

decline by 0.8 percentage point, to 81.1% , because

of a recent w ave of capacity additions, m ostly in

C hina, IH S C hem ical says. N ew ly added and

planned C hinese capacities are m ostly for coal-

based P P because of low er costs and the vast

availability of coal in C hina, IH S C hem ical says. A s

C hina slow ly becom es self-sufficient in P P ,

exporters traditionally supplying the country w ill

need to seek alternative m arkets, IH S C hem ical

says.

C onditions in the w orldw ide polyvinyl chloride

(P V C ) m arket, m eanw hile, are expected to rem ain

challenging throughout 2014. S uspension-grade

P V C (S -P V C ) capacity w ill increase by 6% during

2014, to 59 m illion m .t./year, IH S C hem ical says.

A s producers trim production to m atch still-sluggish

dem and, the average operating rate in 2014 w ill be about 64.8% globallyρ1.1 percentage points low er than in 2013,

IH S C hem ical data show . W orldw ide P V C dem and is anticipated to reach 40.15 m illion m .t. in 2014, w ith an annual

grow th rate of 4.15% , offset by persistent oversupply.

W estern E uropeφs P V C industry rem ains fragm ented, but there are signs of consolidation. The regionφs largest

producers, Ineos and S olV inρa joint venture betw een S olvay and B A S Fρaim to com plete plans to m erge their P V C

businesses this year. The S -P V C capacities of Ineos and S olV in are about 1.8 m illion m .t./year and 1.2 m illion

m .t./year, respectively, according to IH S C hem ical data. W hether K em O ne, the regionφs third-largest

producerρform erly part of A rkem aρem erges from its financial difficulties is one of the key unansw ered questions for

P V C in E urope going into 2014. E lsew here, N orth A m ericaφs P V C exports w ill grow on the back of the regionφs

im proved cost position, and the M ideast w ill rem ain a significant exporter in 2014, IH S C hem ical says.

P olystyrene (P S ) w ill also face difficult tim es this year caused by the extrem e price volatility of feedstocks benzene

and ethylene, IH S C hem ical says. W orldw ide operating rates for P S w ill decrease by 2 percentage points this year,

since global production w ill grow 1.9% , to about 10.6 m illion m .t., and dem and w ill grow 1.7% , to about 10.6 m illion

m .t., according to IH S C hem ical data.ρFR A N C IN IA P R O TTI-A LV A R E Z

S pecialties: G row th gains m om entum

M ost forecasts call for continued solid grow th in specialties volum es as the econom ic recovery gathers force in the

U nited S tates and the new em erging-m arket m iddle class drives further grow th. A C C expects U S specialties volum e

grow th to total 3.2% in 2014, after 4.8% grow th in 2013, w hen the recovery from the dow nturn gained a foothold. IH S

C hem ical forecasts the value of the global specialty chem icals m arket to grow by 3.7% /year through 2017, w hen it

w ill total $586.7 billion.

W hile grow th rates m ay decelerate, at least in the U nited S tates, they w ill be underpinned a stronger econom y and

end m arkets.

M uch of the grow th in specialties from 2008 to 2013 w as sim ply

m aking up ground lost in the recession, since U S specialties

m arket volum es did not hit 2007φs peak again until last year.



A m ong specialties sectors, the coatings, construction, food,

oilfield, and pharm aceutical m arkets have som e of the m ost

prom ising prospects for 2014, producers and analysts say. In

coatings and construction, the U S housing m arket appears to

have definitively turned a corner.

σI donφt w ant to declare victory yet, but [construction] is

becom ing a tailw ind, especially in N orth A m erica,τ says H ow ard

U ngerleider, executive v.p./advanced m aterials at D ow

C hem ical. U S housing starts w ill not take off anytim e soon, but

the trend is generally positive after the doldrum s of the past few

years, according to A C C . E ven com m ercial and institutional

construction, w hich tends to lag residential construction, is

experiencing σglim m ers of grow th,τ U ngerleider says.

Trends in food and pharm a, m eanw hile, are heavily tied to

aging populations in the developed w orld and rising m iddle

classes in em erging m arkets. FM C σsees a lot of robust

dem andτ for nutraceutical ingredients, such as om ega-3s,

across the w orld as a result of these trends, says M ike S m ith, v.p/health and nutrition at FM C . The com pany also

sees opportunities for food ingredients in developed m arkets as new consum ers seek novel w ays of getting protein,

w hich can be expensive in places like C hina and India, S m ith adds.

S om e end m arkets, how ever, are in the process of rearranging them selves. A s the sem iconductor m arket has had

σbasically zero grow thτ for three years running, electronic chem icals m akers are shifting to higher-grow th, areas such

light-em itting diode (LE D ) displays, U ngerleider says. D ow A dvanced M aterials expects year-on-year grow th in 2013

for its electronics business alm ost entirely because of grow th in LE D s, organic LE D s, and advanced packaging

m aterials for sem iconductors, he adds. N ext year, those segm ents are expected to drive grow th in electronic

chem icals again, although U ngerleider anticipates som e rebound in the sem iconductor space. D ow expects 3%

grow th in sem iconductor industry revenues in 2014 and 4π5% grow th in subsequent years. σIt w ill grow , just not as

fast as the past couple of decades,τ U ngerleider says.

B ack in N orth A m erica, the hydraulic fracturing boom is driving rapid grow th in the oilfield chem icals space. That

grow th, how ever, is highly dispersed am ong different producers, according to R ay W ill, director at IH S C hem ical.

H ydraulic fracturing is giving big dem and boosts to biocides, w ater-soluble polym ers, additives for drilling,

suspending particles, and other m aterials, he adds. σBut, w e are talking about dozens of products across m any

different kinds of product lines,τ W ill says. σA lot of com panies are exposed to this in a sm all w ay, so it gives them all

a m oderate boost.τ S till, a m oderate boost is better than no boost at all.ρVIN C E N T V A LK

R enew able: N ew opportunities em erge

M om entum in renew able chem icals is expected to continue grow ing in 2014 as large-scale projects are

com m issioned and biobased processes becom e part of strategic plans at large chem ical com panies. P roducts that

are not cost-com petitive and fail to offer equivalent or superior perform ance attributes w ill struggle to find a foothold

in the global chem ical industry, how ever.

M ark M organ, global m anaging director/renew ables at IH S C hem ical, expects green chem icalsφ developm ent to

continue, although the focus needs to be on perform ance and com petitiveness. σThe continued em phasis on shale

gas has led to a reduced em phasis on biobased com m odities, w here there is direct com petition in shale gasπrelated

derivatives,τ he adds.

The flood of cheap ethane in N orth A m erica has already pushed tw o high-profile projects to the back burner.

B raskem , the largest producer of bioplastics, said in early 2013 that it w ould hold off on a previously announced

investm ents in polyethylene (P E ) and polypropylene capacities based on sugarcane ethanol in order to free up

capital for gas-based petrochem ical projects. D ow C hem ical has also postponed plans for a green P E com plex in

B razil. IH S C hem ical estim ates that P E based on sugarcane ethanol is 15π20% m ore expensive than petroleum -

based ethanol.

M organ expects the developm ent of biobased building blocks for polyam ides to continue in 2014. σBiobased adipic

acid has a future based on its theoretical com petitiveness and arom atic derivatives not favored by shale

developm ent,τ although attention m ust be paid to adipic acid quality and the level of trace im purities, he adds. A

detailed IH S C hem ical P rocess E conom ics P rogram report finds that the econom ics of biobased adipic acid

production look encouraging.



H ow ever, M organ rem ains cautious on biobased hexam ethylenediam ine (H M D A ), the other com ponent needed for

nylon-6,6. σIt is possible to convert adipic acid into H M D A ; IC I used to do this in the 1970s at W ilton in the U K , and

P ringdingshan in C hina also ran this kind of process,τ he says. σBoth these units no longer operate, as there is a

m arket for adipic acid and the overall conversion is uneconom ic. H ow ever, it com es dow n to a decision regarding

w here and how you take your m argin and w here you m ake your return; clearly, in the past, IC I considered H M D A

from adipic acid unw orkable, but m aybe circum stances for this conversion need revisiting as w ell as possible

alternative bio-routes.τ

N ew applications for biobased succinic acid w ill com e about in 2014, given that the dicarboxylic acid is now being

produced in quantity, says M arifaith H ackett, senior consultant at IH S C hem ical. B iobased succinic acid is a

feedstock for polybutylene succinate, a biodegradable polym er, and a potential starting m aterial for polyester polyols

and novel plasticizers. In addition, biobased succinic acid can serve as a starting m aterial for 1,4-butanediol and

tetrahydrofuran.

M yriant C orp. (C am bridge, M A ) started large-scale production in m id-2013, w hile S uccinity, a joint venture of B A S F

and C orbion P urac, plans to start production in early 2014. R everdia, a jv of D S M and R oquette, initiated production

in D ecem ber 2012. B ioA m ber continues to produce biobased succinc acid on a sm aller scale but says it rem ains on

track for m echanical com pletion of its biobased succinic acid plant in the fourth quarter of 2014.

The developm ent of specialties derived from biobased m aterials w ill also continue in 2014, M organ says. B iobased

m ethionine projects announced by R oquette and a C J/A rkem a indicate σan interest in com pleting the am ino acid

portfolio from a biobased perspective.τ P rim ary am ino acids lysine, threonine, and tryptophan are m ade via

biotechnology today, w hereas for m any years D L-m ethionine and its analogue have been m ade from acrolein,

hydrogen cyanide, and m ethyl m ercaptan, he adds.

σA biotech process for m ethionine m ay be greener and cost-effective,τ M organ says. σO ne factor to consider in

addition is that a bioroute generates 100% L-form w ith m axim um activity, w hereas chem ical routes generate D L-

m ethionine. The cost per active w eight of m ethionine could prove a pow erful sell. H ow ever, there w ould still be a

need for careful reform ulation of anim al feed nutrition system s to accom m odate this very active m aterial, and, hence,

there is once m ore a need possibly for m ultiple suppliers for m arket uptake.τ

Flavor and fragrance products and related industries, like personal care, also have an opportunity to take further

advantage of biobased terpenoids, M organ says. Farnesene and derivatives like squalane, produced by A m yris

(E m eryville, C A ), illustrate that one can enter the flavor and fragrance m arket at different points in the production

cycle. A ccessing som e of the sm aller-volum e, higher-value-added products via biotechnology could provide new

opportunities, M organ adds.

C hristophe S chilling, C E O and founder of G enom atica (S an D iego), expects the recent start-up of large-scale

cellulosic ethanol plants to help accelerate biochem ical developm ent. σI think this w ill help people to really see the

opportunity these attractive feedstocks and supply chains offer and how to put all the pieces in place to be able to

leverage it.τ H e also notes that the industry has m atured and w ill continue to advance in 2014. σW eφre getting into the

real substantive em ergence of the field,τ S chilling says. σC om m ercial plants are being built; products are being sold

com m ercially. For m any years, it w as really about a technology vision, and thatφs now translated into com m ercial

reality. I think you w ill see m ore of that in 2014ρreal substantive advancem ents that show that this industry is

starting to get its feet and have a real com m ercial im pact.τρR E B E C C A C O O N S

A griculture: O ptim ism turns to caution

The 2014 outlook for seeds and agricultural chem icals dem and in the U nited S tates is cautious, since depressed

com m odity prices are expected to drive corn acreages dow n 3π5% year-on-year, and both seeds and ag chem icals

w ill struggle to achieve prices increases, says Jim Loar, senior v.p./sales and m arketing, agribusiness at W ilbur-E llis

(S an Francisco), an international m arketer and distributor of agricultural products.

U S D A expects 2013 net farm incom e to be $131 billion, up 15.1% from 2012, but says low er crop prices w ill likely

lead to softer net incom e in 2014. U S D A says the 2013π14 season average farm price for corn w ill be $4.05

π4.75/bushel, dow n from a record of $6.89/bushel in 2012π13ρa harvest dram atically im pacted by droughtρand

expects that 2014π15 prices w ill retreat even further.

σThe optim ism experienced going into 2013 has been replaced by caution going into 2014,τ Loar says. σD epressed

com m odity prices have caused a reset of fertilizer prices and ag chem icals w ill struggle to achieve inflationary-driven

price increases. S eed suppliers have announced price increases averaging approxim ately 4% going into 2014.

H ow ever, w e are likely to see local discounting as grow ers push back against todayφs com m odity crop prices.τ



Total crop acreage should not appreciably change, and thus crop m ix, environm ental conditions, and pest pressure

w ill determ ine ultim ate dem and, Loar adds. σTodayφs com m odity prices and input cost realities should drive corn

acreage to beans, unless w e see a significant decline in soy bean prices before M arch. G rain sorghum m ay also

benefit at the expense of corn if the drought persists in the S outhw est and low er plains states. S m all grains, rice, and

cotton acres could also see slight acreage increases going into 2014,τ Loar says.

U S D A notes that exports have benefitted from low er corn prices and increased global consum ption.σC om petitive

prices have restored the U nited S tates to top place in the global corn m arket w ith the U S share of trade projected at

33% com pared w ith 18% in 2012π13. G enerally higher corn trade w orldw ide has also enhanced dem and for U S

corn,τ it says. A lso, a sharp drop in O ctoberπN ovem ber 2013 soybean exports from B razil and A rgentina has left U S

shipm ents to largely accom m odate the w orldφs current im port needs.

A ccording to U S D Aφs export inspections data, N ovem ber 2013 soybean exportsρat 317 m illion bushelsρw ere likely

the largest of any m onth ever. R obust exports of soybeans and soybean m eal have bolstered their cash prices;

U S D A recently raised its forecast range for the soybean season-average farm price by 35 cents, to $11.50

π13.50/bushel.

M eanw hile, increasing herbicide and insecticide resistances are driving dem and for effective ag chem istry

com binations, Loar says. σAdequate, proven chem istries in a tank m ix, for preplant or post-plantφs spray program s,

offer grow ers the w eapons needed to com bat resistance.τ

Biopesticide R & D and investm ents are also increasing, but the w inners thus far have been the new classes of

greener insecticides, Loar adds. σW e are definitely seeing a shift, at least in the insecticide arena, to these new and

effective solutions. True biopesticides m ust prove that they can stand alone against pests to gain w idespread use.

Today, m any are used in com bination w ith long-proven chem ical technologies.τ R egulatory pressures are increasing,

and, in com bination w ith econom ic considerations, are helping drive innovation, he adds.

B A S F, the third-largest producer of agricultural chem icals, behind S yngenta and B ayer C ropS cience, estim ates that

the global crop protection m arketρvalued at approxim ately $53.7 billion in 2012ρw ill grow at 2π3% /year in the next

five years.ρR ebecca C oons

Fertilizers: P roducers forecast 2014 rebound

Fertilizer m akers are optim istic after a volatile 2013. U ncertainty has cast a shadow in potash m arkets, since the

sum m er breakup of the B elarusian P otash C o.ρone of tw o large potash export conglom eratesρdelayed contracts

and stagnant farm output in India w eakened earnings in the second half of the year.

σW e are guardedly optim istic about the potash dem and outlook,τ says M ike R ahm , v.p./m arket and strategic analysis

at M osaic. σG lobal shipm ents of potash and phosphate w ill increase and dem and w ill rebound: Fundam entals are

good. S everal other factors underpin our dem and forecasts, w ith one being farm econom ics. Farm profitability and

net cash farm incom e are expected to rem ain elevated in 2014 but not as high as the last few years, w hen

agricultural com m odity prices spiked to record levels in 2008 and again in 2011.τ

Inventory w as kept low since prices trended dow n in 2013, R ahm says. N itrogen prices w ill rebound $30π40/m .t. on

average for 2014 from the low s of fall 2013, he says. N itrogen prices bottom ed in late O ctober 2013 and have

rebounded $50π75/ m .t. since. For exam ple, the price of urea on a barge in N ew O rleans jum ped to about $350/m .t.

as of 6 January 2014 com pared w ith around $275/m .t. in late O ctober 2013, he says.

P hosphate prices bottom ed about a m onth later and have rebounded by about the sam e am ount. The price of

diam m onium phosphate on a barge in N ew O rleans has increased from about $315/m .t. in late N ovem ber 2013 to

around $375/ m .t. as of 6 January 2014.

σD istributors are not going to be able to live off the pipeline to the sam e extent as they did in 2013,τ R ahm says. σThe

poster child for lean distribution is India because the situation there has been com plicated by other factors such as

subsidy cutbacks and increases in retail pricesρexports there have dropped in half.τ

R ahm believes prices w ill rebound in 2014ρparticularly w ith urea and phosphate. There are signs of pricing

reaching a pricing bottom partially because of large contract custom ers in C hina and India. The m arket is w aiting on

how settlem ents shake out, and, once those contracts are settled in January, a σfair am ountτ of dem and w ill com e to

the m arket, R ahm says. σW e have a fairly high degree of confidence of a nice rebound and increase in dem and.τ

Fertilizer prices softened during 2013, since each nutrient faced unique supply and dem and challenges, according to

P otashC orpφs fourth-quarter m arket analysis report. The large crops produced this year w ill have rem oved record

am ounts of nutrients from the soil, w hich should support fertilizer consum ption in 2014, P otashC orp says. σD espite



the potential for low er farm incom e in 2014, w e anticipate a healthy econom ic environm ent relative to historical

standards,τ the com pany says.

W hen it com es to production, though, R ahm says that he is less certain about the outlook and that it w ill be an

im portant driver for the direction of pricing. G lobal potash and phosphate shipm ents w ill increase to 64π66 m illion

m .t., up from the 63π64 m illion in 2013, R ahm says. P otash dem and w ill rebound to 57π59 m illion m .t., up from 53

π54 m illion m .t. P otashC orp expects global potash dem and to increase to 53π54 m illion m .t. as w ell, and shipm ents

could reach 55π58 m illion m .t. next year.

σShipm ents at the low end of our range could occur if m arket uncertainty persists into the first half of 2014, im pacting

buying patterns in m ajor offshore m arkets,τ P otashC orp says. σD em and at the higher end of the range w ould require

greater m arket engagem ent early in the year, including a significant im provem ent in dem and from India.τ

R ahm is encouraged that global m arkets w ill com e back. σU p to this point, it has been a tale of tw o hem ispheres: The

A m ericas w ere strong in term s of dem and, but the eastern hem isphere w as less robustρbut India m ay com e back,τ

R ahm says. σThey are a large im porter of products driven by good farm econom ics, as they are continuing to apply

technology to crops. M ore hectares are being produced. B razil has also been a good m arket, and w e expect that to

continue.τρLIN D S A Y FR O S T

Industrial gases: C rackers to increase gas business

The U S shale revolution resulted in a num ber of projects for industrial gas producers in 2013ρand they expect

strength to continue into 2014. C rackers in the G ulf created gas opportunities w ith air separation units; extended

pipelines; and related nongas business, such as technology and equipm ent for new liquefied natural gas (LN G )

trains.

σW hen w e talk specifically about cracker investm ents, a key area for this grow th is along the G ulf C oast,τ says

M ichael G raff, chairm an and C E O of A m erican A ir Liquide. σIn 2014 and beyond, w e are looking to further expand

our business in this area, building on our existing pipeline infrastructure along the G ulf C oast.τ

Industrial gas com panies are also grow ing in refining, steel, health care, oil and gas, and electronics. σN ew

technologies and the use of liquid nitrogen and carbon dioxide in enhanced oil recovery and hydraulic fracturing for

natural gas are further advancing the ability to develop w ells m ore efficiently, productively, and sustainably, using

substantially less w ater,τ G raff says.

A s far as overall grow th is concerned, A ir P roducts expects m odest G D P grow th, 2π4% , the com pany says in its

2014 outlook. σW e expect that the U S w ill grow 2π4% , as it continues to face unresolved fiscal challenges, w eak job

grow th, low consum er confidence, and low er global dem and.τ H ow ever, the com pany says it is σhopefulτ that an

econom ic recovery w ell begin in E urope w ith 0π2% grow th. C hina w ill grow 5π7% , and S outh A m erica, w hich is

largely dependent on global dem and driving exports, w ill grow 1π3% , the com pany says.

R egionally, the U nited S tates w ill be the strongest spot for industrial gas producers as extensive pipelines grow in

the U S G ulf. Field operations in key regions, such as B akken in N orth D akota and the E agle Ford, B arnett, and

P erm ian basin region in Texas and N ew M exico, are contributing to strength as w ell.

σThere is a renaissance of m anufacturing and grow th due in great part to the abundance of energy at relatively low

prices,τ G raff says. Looking outside the U nited S tates, A ir Liquide says it sees continued prom ise in S outh

A m ericaρparticularly in B razil. C hina, the M iddle E ast, and E astern E urope.

B y segm ent, electronics w as one of the w eakest in 2012 and 2013, A ir P roducts says, though it expects a rebound in

2014. σO verall, w e expect silicon grow th of 3π5% in 2014,τ the com pany says. σAdditionally, w e expect business to

benefit from the 2013 cost-reduction actions and product-line restructuring.τ

Tighter areas, as far as supply goes, has been helium ρthough A ir Liquide says supply is now stabilizing and

grow ing because of a com bination of new global sources com ing online and recent legislation enacted to reauthorize

dom estic production in the U nited S tates. The com pany also recently brought online a new helium source in Q atar.

σArgon has also seen recent supply challenges, but as m ore air separation units are com m issioned due to rising

dem ands of industry for oxygen and nitrogen, argon production is also in the increase,τ G raff says.

A ir P roducts says it expects higher earnings in 2014 from new plant onstream s, higher LN G activity, and volum e

loading on existing assetsρrecognizing that the last factor w ill be m ost influenced by the econom y. H ow ever, the

com pany expects low er earnings from the shutdow n of its polyurethane interm ediates business. In m erchant gases,

volum e grow th w ill σcontinue to be influenced by the econom y,τ the com pany says.



A ir Liquide says that for 2011π15, it expects average annual revenue grow th globally of 5π7% , driven by three m ajor

trendsρindustry globalization and resource constraints, evolving consum ption patterns, and dem ographics.

σW e are optim istic about the year ahead,τ G raff says. σLow -cost natural gas continues to drive a renaissance in a

broad array of m anufacturing including chem icals, refining, and steel. This grow th w ill continue to be influenced by

global econom ic conditions and dom estic regulatory policies and w ill rely on our ability to navigate these challenges

w hile continuing to innovate, serve m arkets, and m eet custom er needs.τ ρLIN D S A Y FR O S T

Finance: B ig deals in the pipeline

C hem icals M & A activity looks set for a robust year in 2014. S everal chem ical m akers have put up assets for sale in

recent m onths. A ssets include A shlandφs w ater treatm ent business and m any of D ow C hem icalφs com m odity

chem icals assets. D owφs divestitures are w orth $5 billion/year in revenues, and sources say A shlandφs w ater

business could attract a $1-billlion-plus offer from private equity.

D uP ont, m eanw hile, is spinning off m any of its com m odities assets. σLots of com panies are putting noncore

businesses on the m arket because they figure it is a good tim e to be exiting and the m arket conditions w e have

today w ill not last forever,τ says Telly Zachariades, partner w ith The V alence G roup (N ew Y ork).

Favorable credit and financingρw hich has been available for som e tim e nowρunderpins the current spate of big

announcem ents. σFinancing is w ide open, and the larger deals are m ore im pacted by the financing m arkets,τ says

M ario Toukan, m anaging director and head/chem icals at K eyB anc C apital M arkets (C leveland, O H ).

B ankers expect financing to continue to be relatively cheap in 2014, though they also agree that current conditions

are not perm anent. σI donφt think it w ill be another year or tw o w here people finance deals at 5.5 tim es (x) or 6x debt,τ

Toukan says. σAs that cools, it w ill im pact activity and valuation.τ

H ow ever, bankers do not foresee any particular event that w ill hit financing m arkets; rather, w hat goes up m ost go

dow n. σThe cost of debt today, w hich is an im portant factor driving M & A activity, is historically w ell below average,τ

Zachariades says.

The strong financing m arkets are, obviously, a boon to private equity, w hich still has lots of cash to deploy, bankers

say. This situation m eans private equity firm s are able to subm it big bids for big assets. W hile com panies are also

sitting on large cash piles, private equity is generally com petitive in situations involving orphan assetsρbusinesses,

often large, w hich have few , if any, logical buyers ρand niche spaces w ith roll-up opportunities. C om panies,

m eanw hile, continue to be conservative about acquisitions. σI donφt think the adjacent acquisitions them e has run its

course yet,τ says P aul G raves, C FO of FM C .

E quity m arkets, m eanw hile, are unusually favorable for chem icals. σFor the first tim e since probably 2006, w e are

seeing public m arket valuations that rival or exceed M & A valuations,τ says D avid B radley, global head/chem icals

investm ent banking at Jefferies (N ew Y ork). σI think w e m ay see a good year for initial public offerings.τ

In term s of subsectors, σanything to do w ith oil and gas chem icals, food ingredients, personal care, next-generation

electronics or battery technology, advanced m aterials, w ater treatm ent, and agrochem icalsτ is generating a lot of

M & A interest, Zachariades says.

S om e sectors, such as construction m aterials, are generating interest because they are at an attractive point in the

business cycle. σThe cycle looks to be going upτ in construction, σand so the play involves riding the rebound,

particularly in N orth A m erica,τ Zachariades says.ρVIN C E N T V A LK

U S chem ical outlook at a glance

(in billions unless otherw ise noted)

2014 % C hange

V alue of chem ical shipm ents 812.0 3.1%

O perating rate (in percent) 75.2 1.7

C hem ical exports 190.7 4.7

C hem ical im ports 189.5 4.1

Trade balance excluding pharm a 43.4 4.8

R & D spending 58.3 2.5



C apital spending 46.2 9.0

E m ploym ent (in thousands) 794.8 0.1

H ourly w ages (in dollars) 21.7 1.1

S ource: A C C (W ashington)

P rint This W indow C lose W indow



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