The chemicals manufacturing industry includes establishments producing basic chemicals and establishments manufacturing products by predominantly chemical processes. Companies in the industry make a diverse range of products including acids, salts, and other organic chemicals, synthetic fibers, plastics, pigments, cosmetics, soaps, paints, fertilizers, and explosives. The manufacturing of pharmaceutical compounds is a major segment of the chemicals industry. The industry makes products both for direct consumer use and for use in industrial manufacturing.
The Chemicals Sector
The chemicals manufacturing industry offers a diverse range of products used by a wide range of industrial sectors including electronics, agriculture, aerospace, and biotechnology. Industrial products offered by the chemicals industry include plastics, finishes, adhesives, sealants, and fibers. Sales in the chemicals sector vary across the wide range of products offered.
The chemicals industry has benefited over the past few years from ongoing growth in the industrial sector, which has created demand for a number of chemical products. It is not certain, however, that profits from the industrial market will continue to rise. The manufacturing economy's rate of expansion in October 2006 was its lowest in more than three years, according to data from the Institute for Supply Management. In addition, new orders and production in the industrial sector have been trending lower. Further decline in industrial manufacturing will likely decrease demand for industrial chemical products.
Growing interest in the development of biofuels, coupled with strong demand for food products, is expected to drive growth in corn and other crops. As a result, demand for fertilizers and agricultural chemical products should be strong over the coming year.
The search for new fuels may also promote further DUMMY TEXT ARTICLE 1; BATCH 2 developments in the chemicals industry. DuPont has entered into a partnership with ethanol producer Broin Cos. to build a US refinery capable of using corn products to develop ethanol. DuPont is developing technology to break down the complex sugar matrix found in corn into ethanol.
The Pharmaceuticals Sector
The pharmaceuticals sector performed better in the stock market in 2006 than in 2005. In 2005, potential investors in the industry were concerned with legal battles, patent expirations, and other issues. In 2006, the drug sector was the second-best stock performer in the overall healthcare industry, with the medical supplies sector taking the lead. Specialty drugmakers and large-cap makers of branded drugs fared particularly well on the stock market in 2006.
Profits for the pharmaceuticals industry have risen as a result of cost-cutting measures taken by many companies. Sales volumes have also received a boost from the Medicare drug benefits program that began in January 2006. Major drug companies, including Schering- Plough, Pfizer, and Merck, exceeded profit expectations in the first three quarters of 2006. Analysts have predicted that industry earnings will continue to rise through 2007 and into 2008.
The drug industry may have to face challenges in the political arena. With the Democrats holding both chambers of Congress, it is more likely that the pharmaceuticals sector will be challenged with legislation seeking to control drug pricing and promote public access to generic medicines.
Mergers and Acquisitions
The chemicals sector has seen a number of significant M&A deals over the past years. Agrium invested in the fertilizer sector with the acquisitions of Royster-Clark and Nu-Gro, along with the purchase of certain assets of Pursell Technologies. Georgia Gulf acquired vinyl products maker Royal Group and Dow Chemical has agreed to acquire cellulose chemical company Wolff Walsrode from Bayer. In July 2006, investment firm Madison Capital Partners bought German plastics firm Mannesmann Plastics Machinery GmbH.
The number of chemicals industry M&A deals in the large-cap market has risen steadily each year since 2002. The deals have fluctuated greatly in price relative to revenues and assets, however.
Outlook
Although the diverse range of chemical products makes it difficult to predict the industry's fortunes, the future for the sector appears cautiously optimistic. Industrial demand for plastics, resins, and other chemical products should continue, despite a slow down in the manufacturing sector. Profits are rising in the pharmaceuticals sector as well, although the drug industry may face challenges from lawmakers in Washington.
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