Chemical products are used in a variety of different industries, including automotive, manufacturing, and industrial operations. Many chemical companies process raw materials such as crude oil into more refined products that are used throughout the economy. In fact, the industry accounts for roughly 15% of the manufacturing sector in the United States.

Polymer and Plastics

The products produced by the chemical industry have a broad range of uses in the food industry, health care, and transportation industries as well. Agriculture, manufacturing, and industries involved in consumer goods also depend on chemical companies for products. Consumer goods production uses around 10% of chemicals, but other industries indirectly involved in consumer goods also make significant use of chemical products. Common chemical sector products include pigments, synthetic rubber, polymers, resins, and explosives. Plastics, salts, acids, and fertilizers are also widely used.

Key Takeaways

  • A variety of consumers—such as automakers, manufacturers, and agricultural companies—depend on the products of chemical companies.
  • Approximately 80% of the chemical industry's output is polymer and plastics.
  • Chemical companies keep a close watch on economic trends because many of their customers are in industries that are sensitive to trends in consumer demand.
  • The chemical industry itself is the largest purchaser of chemical products.
  • Crude oil has a tremendous impact on the chemicals industry because many plastics and polymers are manufactured from it.

Approximately 80% of the chemicals sector is involved in polymer and plastic production. A total of 26% of these goods are then used by the chemical industry itself in other production processes. Polymers include polyethylene, polyvinyl chloride, and polystyrene. Major markets for plastics are packaging, toys, transportation, appliances, and home construction.

Global consumer spending and economic growth have driven higher demand for goods involving the use of chemicals. Since chemical companies are very sensitive to market demand, the industry keeps a close eye on demand from other industries because growing demand for consumer products and increased manufacturing activity, in turn, drive demand for chemical goods.

Chemical Goods

The chemical industry itself is the largest single purchaser of chemical products. These products are used to create reactions and produce other materials. For this reason, factories supplying essential chemicals are often located next to other chemical production facilities. Staying in close proximity (to businesses that manufacture required products, provide markets, and supply critical components) is important to the success of chemical companies.

The consumption of raw materials is high for many industrial chemical processes, so locating factories near these material producers also makes sense for many companies within the industry. Businesses with relatively lower energy costs may invest in factories near their consumer markets to more cheaply transport supplies to the site. Meanwhile, as demand increases in emerging market economies in Asia, production on that continent will likely increase to meet growing consumer spending.

Oil and Chemicals

Oil is essential to the production of many chemical products. Polymers as well as many plastics are manufactured from it. Since plastics represent a significant proportion of chemical industry activity, the oil industry has a huge impact on plastic and polymer production. This influence links the oil and chemical sectors together very closely. Oil price fluctuations can have a tremendous impact on chemical prices. Some companies pass these prices along to customers through the use of surcharges and insulate themselves somewhat from the impact of volatile costs.

The pricing of other raw materials also impacts the industry and may reduce demand if costs are prohibitively high. As critical suppliers, the producers of these materials industries can significantly impact the variable expenses associated with increased production. Chemicals companies have to manage supply chain risks carefully to minimize the challenges created by these costs.