Asset-heavy industries

Furthermore, the chemical industry stands apart from other commodity industries in that a wide gap separates the top and bottom performers. In November 2004, for example, the top quartile of chemical companies had a market-to-book ratio 3.1 times the bottom quartile s - a far wider spread than that of other asset-heavy industries, such as automotive (1.9), pulp and paper (1.8), and steel (1.6). Companies in those industries operate in more transparent and global commodity markets with fewer strategic options at the corporate level. By contrast, the far more complex chemical markets are fragmented into thousands of submarkets... 

To begin with, though the percentage of overall economic activity accounted for by the industry continues to shrink - in the United States, down from four percent to less than two percent over the past 25 years - shareholder returns were roughly on a par with those of the broad market indexes in the United States and Europe over the same period. In the United States, for example, both the chemical industry and the broad market returned roughly thirteen percent a year to shareholders,3 a more robust rate than that of other asset-heavy mature industries, such as steel, automotive, and pulp and paper. This is certainly quite an accomplishment. 

Falling trade barriers, heavy investment in handling facilities, and improvements in transport have boosted the increasingly liquid markets for commodity and intermediate products. Between 1981 and 1995, cross-border trade volumes grew at double the growth rate of the industry as a whole. Factors like these are undermining the historical benefits of owning assets. Why make upstream products when you can buy them elsewhere more cheaply ... 

Steel is well suited for use in large plants having long spans, heavy loads, and large clearance heights it can also be equally well adapted to use in small structures. This is a valuable asset because of the variety of shapes and sizes, as well as flexibility, needed to house chemical plants. It accounts for the success of prefabricated building construction for many industrial housing requirements. 

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