A variety of different industries use chemical products. Construction, automotive manufacturing and other industrial manufacturing operations require the use of chemicals. Many chemical companies process raw materials such as crude oil into more refined products that are used throughout industry.
Polymer and Plastics
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. The products produced by the chemical industry have a broad range of uses in the food industry, health care and transportation industries as well. Consumer goods production uses around 10% of chemicals directly, but other industries indirectly involved in consumer goods also make significant use of chemical products.
Common chemicals sector products include pigments, synthetic rubber, polymers, resins and explosives. Plastics, salts, acids and fertilizers are also widely used. Consumer goods industries, agriculture and manufacturers all use these products. Global consumer spending has driven demand for more goods involving the use of chemicals. Chemical companies are very sensitive to market demand and closely follow the demand of other industries. Growing demand for consumer products and increased manufacturing activity in turn drive demand for chemical goods.
The chemical industry 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 of 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. Businesses with relatively lower energy costs may invest in factories near their consumer markets to more cheaply transport supplies to the site. As demand increases in emerging market economies in Asia, production on that continent will likely increase to meet growing consumer spending.
Oil is very important 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 chemicals 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.