Profitability of the chemical industry

Supply-Chain Management Increases Profitability of the Chemical Industry Through Computer Tools... 

The pharmaceutical industry is one of the most important parts of the chemical industry and is a major consumer of the products of the petrochemical industry. It is a high-profit industry but with very high research and development costs. For example, it costs in excess of 100 million to discover, test and get a single drug on to the market. 

Siirola JJ. Synthesis of equipment with integrated functionality. Syllabus First Dutch Process Intensification Profits for the Chemical Industry Symposium, 7 May 1998. 

While local dynamics will always remain vital to the profitability of chemical distributors, strategic partnerships with suppliers and customers will play an increasing role in their performance. To ensure substantial value growth, specific key success factors must be fulfilled to enable distributors to leap to the next industry S-curve as partners of the chemical industry and chemical-consuming manufacturers. 

This development resulted in a relatively satisfactory stock performance in comparison with other basic materials industries such as steel and, in general, was more or less in line with the market as a whole until the mid 1990s (Fig. 3.3). The Asian crisis, however, proved quite a setback - wiping an estimated USD 25 billion off the industry s economic profit (return on invested capital minus WACC times invested capital) for Asian companies alone. The recovery of the Asian markets saw no matching improvement in the perception of the chemical industry by... 

However, in the last two to three decades of the twentieth century the innovative force of the chemical industry slowed down. Far fewer reaUy new molecules were developed and the change in properties compared with those of existing materials became incremental. In addition, key markets have become saturated and production costs are getting closer to core costs. In this environment, many chemical companies are in desperate need of iimovation to generate the profitable growth which is a major driver of their stock value (see Chapter 3). 

These examples illustrate the principle that, wherever feasible, reaction conditions, catalysts, etc., are selected and developed in such a way that the rate of a commercial process is maximized. In doing so the size of the processing units required for a given volume of production is reduced, in this way decreasing the costs of construction. Reducing the capital costs also reduces the capital charge per unit of product, which decreases the price required from the product to still operate at a profit. In these ways, improvement of the rate of a chemical process becomes a further contributing factor in the market competitiveness of the chemical industry. 

The fading glamor of the chemical industry in the eyes of security analysts and investors in recent years is not without some justification but as is frequently the case the dimming process has extended too far and has become too all-inclusive, obscuring the big growth and profit potentials of some producers. 

Finally, I discern one more trend of the chemical industry and of its research programs which shall have important influence on market development in the WTO s. The industry has become increasingly aware that many problems of our modem society not only may be solved by the use of chemical technology, but that there may well be attractive profits in such solutions. As pointed out by H. D. Doan, president of Dow, in a speech before the Commercial Chemical Development Association on October 28, 1966 ... 

This is not to say that there are no profit opportunities left in the chemical industry. We all know that certain portions of the chemical industry are growing faster than others and it is really more useful to... 

In order to avoid the costs that are associated with the use of these techniques by a multiproduct firm, monitoring should be limited to only those products which make the major contributions to profit. In the chemical industry, a handful of products may often contribute 75% of the profits. The sales of these products are candidates for monitoring by Market Research. The other products, of which there might be many, are sold either for the sake of customer convenience, by-product utilization, or new product development. Only in special cases would Market Research monitor the sales of such products. Use of these techniques for any product must be guided by the results one is trying to achieve in terms of the added expense. 

The business of the chemical industry is to produce and sell chemical products. Profitability is therefore an essential aim of production. However, no chemical process exists that produces only the product desired. Other substances not desired by the producer are also formed in the gas, liquid, or solid state. These are referred to as residues. 

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