Chemicals and Chemical Preparations, NEC

SIC 2899

Industry report:

This industry consists primarily of establishments engaged in manufacturing miscellaneous chemical preparations, not elsewhere classified, such as fatty acids; essential oils; gelatin (except vegetable); sizes; bluing; laundry sours; writing and stamp pad ink; industrial compounds; such as boiler and heat insulating compounds; metal, oil, and water treating compounds; waterproofing compounds; and chemical supplies for foundries. Establishments primarily engaged in manufacturing vegetable gelatin are classified in SIC 2833: Medicinal Chemicals and Botanical Products; those manufacturing dessert preparations based on gelatin are classified in SIC 2099: Food Preparations, Not Elsewhere Classified; those manufacturing printing ink are classified in SIC 2893: Printing Ink; and those manufacturing drawing ink are classified in SIC 3952: Lead Pencils, Crayons, and Artists' Materials.

According to industry statistics, there were an estimated 3,824 manufacturers of miscellaneous chemical preparations valued at $27.2 billion in 2008 with industry-wide employment of 60,111 workers. Chemical preparations, not elsewhere classified, accounted for 25.6 percent in market share with 28,309 workers and shipments totaling $19.6 billion. California, Texas, Florida, Ohio, and Illinois were home to the majority of producers.

As the specialty chemical industry entered the 1990s, many corporations implemented organizational restructuring coupled with cost reduction measures. Based on these management decisions, the industry appeared to be in the beginning of a business recovery from the cyclical downturn experienced during the last portion of the 1980s. However, the pickup was more difficult and slower than expected, in part because of the continued sluggishness of foreign economies. This factor reduced the export demand for chemicals and, consequently, the industry's trade surplus. Although demand picked up in the late 1990s, the economic downturn of the early 2000s undermined the industry's performance.

Between 2002 and 2005, the value of total industry shipments grew from $12.4 billion to $13.0 billion. Chemical preparations, including essential oils, were the most important category in this industry. Shipments in this sector were $5.5 billion, which accounted for 42 percent of total shipments. Water treating compounds were the second-largest category, with shipments reaching $2.47 billion, or 19 percent. Shipments of automotive chemicals, such as antifreeze and engine cleaning chemicals, were $832 million, representing 6.3 percent of the total. Matches were the smallest category in the industry, accounting for only $50 million, or less than 0.4 percent of total shipments.

The growth of miscellaneous chemicals, such as sodium chlorate, posted double-digit growth since the late 1980s. Sodium chlorate is used in the form of chlorine dioxide as a substitute for traditional chlorine in pulp and paper bleaching. While the substitution of this chemical has been greater in Canada than in the United States, due to greater environmental concerns over chlorine, the use of the chemical in the United States was expected to continue increasing. About two-thirds of the North American production capacity of sodium chlorate was located in Canada. Considering the dramatic growth prospects for sodium chlorate, major producers have made sizeable capacity expansions in the early 2000s. With the ability to produce 580,000 metric tons per year, industry leader Erco Worldwide, formerly known as Sterling Chemicals, held roughly 26 percent of North American sodium chlorate capacity as of 2003.

Demand for basic chemicals strengthened in response to the prolonged economic expansion of the 1980s. Output in the early 1990s, as measured by the Federal Reserve Board (FRB) Basic Chemicals Production Index, was at its highest level since the prior peak reached in the late 1970s. Over the long run, the demand for basic chemicals was expected to pace the rise in real (inflation-adjusted) gross domestic product (GDP), with the automobile, housing, export, agricultural, and paper markets, in particular, holding sway. The prolonged economic upswing of the late 1990s brought further growth to the industry. However, this growth trend was tempered when the U.S. economy bottomed out in the early 2000s.

The number of establishments involved in this industry in 2004 was 1,194, up from 1,000 in 2000. Considerable consolidation in the chemical industry reduced the number of key players. The majority of companies in this sector employed fewer than 20 workers. Less than 500 of the total number had 20 or more employees. California led other states with the greatest number of chemical preparation establishments, followed by Texas and Ohio.

Major U.S. corporations that produce specialty chemicals include ExxonMobil Corp., Kich Industries Inc., ChevronTexaco Corp., and Merck and Company Inc. Other leading companies are Nalco Chemical, a subsidiary of Suez Lyonnaise des Faux, as well as Akzo Nobel Inc., and Henkel of America, a subsidiary of German chemical giant Henkel.

Employment in this industry has decreased slightly, due in part to consolidation. The number of employees fell from 37,565 in 2000 to 36,941 in 2004, with a payroll of $1.89 billion. Texas was home to the greatest number of employees in this industry, followed by California.

The top five industry categories were chemical preparations not elsewhere classified, corrosion preventive lubricants, chemical supplies for foundries, water treating compounds, and antifreeze compounds. Other important categories were fireworks manufacturers, metal treating compounds manufacturers, ink or writing fluids manufacturers, waterproofing compounds, fuel treating compounds, and concrete curing and hardening compounds.

For 2009, U.S. chemical production fell 11.8 percent by February after a rocky fourth-quarter 2008. The Chemical Council blamed the ongoing economic crisis for the slump in chemical production. Without demand, inventories needed to be moved out before chemical production could resume. Furthermore, chemical production fell in every region, with the steepest declines in the gulf coast at 20.7 percent, while the Ohio region fell 16 percent. Industry expectations were for continued downward pressure in the global market.

One industry leader, Merck and Company Inc. of Whitehouse Station, New Jersey, reported revenues of 24.1 billion in 2007, but these fell slightly to $23.8 billion in 2008 with 55,200 employees. Merck agreed to acquire Scherring--Plough for $41 billion, which generated 2008 revenues of $18.5 billion with 51,000 employees. AKZO Nobel Inc. of Chicago, Illinois posted revenues of $2.3 billion in 2008 with 8,210 employees. Illinois-based Nalco derived $2 billion in revenues for 2008 from its 18 North American manufacturing plants with 4,790 employees. Global revenues from all operations totaled $4.2 billion with 11,500 employees. Pennsylvania-based Henkel of America had revenues of $3.5 billion with 7,300 employees, while parent Henkel KGaA had combined revenues of nearly $20 billion in 2008 with 55,513 employees.

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