This industry covers establishments primarily engaged in manufacturing cyclic organic crudes and intermediates and organic dyes and pigments. Important products of this industry include (1) aromatic chemicals such as benzene, toluene, mixed xylenes, and naphthalene;(2) synthetic organic dyes; and (3) synthetic organic pigments.
325110 (Petrochemical Manufacturing)
325132 (Organic Dye and Pigment Manufacturing)
325192 (Cyclic Crude and Intermediate Manufacturing)
Organic chemicals contain carbon, are usually combustible, are mostly insoluble in water, have liquid or solid forms, and have relatively low melting points. Aromatics are included in a group called basic organics, which also includes aliphatics and methanol. These substances are obtained directly from raw materials, primarily crude oil and natural gas. Intermediates are often grouped with solvents and are made from basic chemicals for the purpose of making other chemicals and chemical products.
U.S. companies in the cyclic crudes and intermediates industry employed some 6,771 workers and shipped almost $5.8 billion worth of products in 2001, according to the U.S. Census Bureau's Annual Survey of Manufactures. Almost 93 percent of these shipments consisted of cyclic intermediates, and the remaining 7 percent included tar, tar crudes, and tar pitches. In the dye and pigment manufacturing portion of this product class, firms employed some 9,138 employees in 2001 and shipped an estimated $2.76 billion worth of products. Organic dyes made up 40 percent of these shipments, and pigments and toners accounted for 60 percent. Industry output provided an important supply of base manufacturing material for pharmaceutical, dye, fuel, and agricultural sectors.
One reason for the instability of the industry was the inability to predict the supply and demand for organic materials. For example, benzene, styrene, and mixed xylenes saturated the market from July through December 1996, and cyclohexane and phenol were not being produced rapidly enough to meet demand. Demand for some organic products, such as toluene, fluctuated from year to year, making it difficult to gage production.
Industrial organic chemicals are created from substances that contain carbon, such as petroleum, coal, and natural gas. Though inorganic chemicals may also contain carbon, they are found within the earth's crust and derive from materials without animal or plant origins. The aromatics classified in this industry are distinguished from other organics by their closed-ring molecular structure. This structure allows them to be combined with other chemicals, including inorganics, to make a vast array of intermediate compounds. Intermediates are consumed by other industries for the production of plastics, pharmaceuticals, and fertilizers.
The three primary aromatic chemicals used to create intermediates are benzene, xylene, and toluene. These three chemicals represent about 10 percent of U.S. industry output. Intermediates created using these base organics, however, account for an additional 70 percent of total production. Benzene, the simplest and most widely used aromatic, is combined with sulfuric acid and other chemicals to create many intermediates. Benzene intermediates are used to produce plastic resins, epoxy, nylon, polyurethanes, synthetic rubber, and detergents.
The most common derivative of benzene is ethyl benzene/styrene, which accounts for 50 percent of demand for this aromatic. Styrene is a major ingredient in plastics and synthetic rubber. Cumene/phenol and cyclohexane represented 21 and 14 percent, respectively, of benzene-derivative sales. Phenol is used to produce adhesives and high-grade plastics and epoxies. Other major intermediates in this category include: nitrobenzene/aniline (6 percent), alkybenzene (2 percent), and chlorobenzene (2 percent).
Xylene is primarily utilized as a gasoline additive and a solvent. It is separated into three commercial substances: paraxylene, orthoxylene, and metaxylene. Paraxylene derivatives are used to make polyester fiber and films, beverage bottles, and specialty engineering resins. Orthoxylene is required to make intermediates that can be utilized in the production of plasticizers (plastic additives) and polyester resins. Metaxylene has limited uses in the manufacture of coatings and plastics.
The last primary aromatic chemical is toluene. This aromatic is used to create benzene. End markets for toluene also include manufacturers of adhesives, solvents, photographic film, textiles, pharmaceuticals, inks, and coatings.
Besides aromatics and their intermediate offspring, organic dyes and pigments, each make up about 8 percent of industry sales. Tar and pitch compounds round out industry offerings, capturing 4 percent of sales revenue. Two-thirds of dye and pigment production was consumed by textile industries. Dyes are typically obtained from petroleum through lengthy chemical processes and must conform to rigid safety standards before they can be used to color food, clothing, and other goods.
William Henry Perkin (1838-1907), an Englishman and the father of the organic chemical industry, was the first chemist to synthesize an organic chemical for commercial use. In 1856 he accidentally created mauve, a synthetic dye, from a piece of coal tar. Friedrich Kekule von Stradonitz (1829-1896) was the first to explain Perkin's invention when he proposed his breakthrough theory of the benzene ring in 1865. During the remainder of the nineteenth century, German chemists developed most of the dye classes and many of the individual dyes that were still being used in the early 1990s.
The advancement of aromatics, intermediates, and dyes in the wake of Kekule's discovery were considered relatively unimportant outside of Germany. It wasn't until World War I that Great Britain, France, and the United States frantically developed an organic chemical industry. World War II also brought massive industry expansion, especially as producers learned to derive aromatics from petroleum rather than coal tar. By the end of World War II, the United States was the major global supplier of aromatics and intermediates. Industry growth was rampant during the postwar U.S. economic expansion.
The aromatic, intermediate, and synthetic dye industry grew at a healthy rate of 5 percent per year between 1982 and 1990. Though this reflected a decline in growth rates compared to the 1960s and 1970s, it exceeded gains achieved by most other U.S. manufacturing sectors. Sales rose from $7.1 billion in 1982 to $10.9 billion by 1990. The demand for new high-performance intermediates, particularly by pharmaceutical and agricultural sectors, drove this sales growth.
In addition to revenue gains, producers also benefited from increases in productivity and the development of new processing techniques during the decade. Productivity gains of approximately 4 percent per year during the 1980s were the result of massive capital investments in automation and information systems. These investments allowed manufacturers to eliminate both production workers and managers. Indeed, as production volume steadily rose throughout the 1980s, industry employment gradually shrank. The workforce declined from more than 27,000 in the early 1980s to about 23,000 by the early 1990s. In addition to cutting labor costs, many manufacturers were able to reduce productions costs through advanced processing techniques.
Despite massive capital investments surpassing $43 billion during the 1980s, productivity and manufacturing gains were substantially offset by changing dynamics in the global organic chemical industry. Two primary factors stunting profit growth in the 1980s and demand into the 1990s were increased foreign competition and environmental regulations. In addition, regulatory intervention in important end markets, such as pharmaceuticals, was hindering competitors. Also hurting industry participants in the early 1990s was a U.S. and global economic recession. Overcapacity, a result of slower-than-expected growth in the early 1990s, was causing severe price suppression and reduced profits for most companies. Even as the United States experienced a modest recovery in 1992 and 1993, overseas markets remained flat.
In 1992 chemicals classified in this industry constituted 20 percent of the $53 billion U.S. industrial organic chemical industry, which also includes gum and wood chemicals and industrial organics not elsewhere classified. Industrial organic chemicals, in turn, represented 66 percent of the overall chemical industry, which includes inorganic and agricultural chemicals. The encompassing chemical and related products industry represents a $230 billion business, of which organics account for about one-third. Many products and compounds generated in the fine chemicals industry, however, are used to produce other chemicals and related goods.
In the early 1990s, 20 percent, or about $2.2 billion, of the $11.0 billion worth of aromatic, intermediate, and synthetic dye output was consumed by manufacturers within the industry to produce other fine chemicals. For example, an aromatics producer might sell benzene to a company that makes the intermediate chlorobenzene. Plastics materials and resin manufacturers consumed 13 percent of U.S. production, as did the organic synthetic fiber industry. Though they each accounted for less than 3 percent of the fragmented market, other major customers included petroleum refiners, pharmaceutical companies, paint and coating manufacturers, and semiconductor producers. Exports made up 13 percent of industry shipments during the early 1990s.
During the mid-1990s, aromatic, intermediate, and dye producers continued to suffer from downward price pressures due to oversupply. For example, although the demand for styrene grew about 13 percent between 1990 and 1993, excess production capacity in the United States crushed price growth in that segment. Many producers of benzene derivatives were experiencing a similar scenario, as were producers of xylenes. Only phenol suppliers dodged the burden of oversupply. In 1993 U.S. prices and demand recovered slightly, but primary global markets remained recessed.
Besides slack markets, increasingly stringent environment regulations were also taking their toll in the mid-1990s. A string of new rules implemented during the 1980s to cap hazardous waste emissions were heavily impacting manufacturers. The Clinton administration supported efforts to reduce waste from this high-polluting industry. The Clean Air Act Amendment of 1990, the Environmental Protection Agency's (EPA) Toxic Inventory Release (TIR) program, the federal Emergency Planning and Community Right-to-Know Act, and voluntary Chemical Manufacturers Association (CMA) programs were just a few of the initiatives that cost the industry millions of dollars during the mid-1990s.
Perhaps the greatest challenge for most intermediate and dye producers in the mid-1990s was growing foreign competition. Although the European Community, Japan, and the United States remained the primary global suppliers for this industry, emerging industrial nations posed a real threat to their dominance. East Asian nations, excluding Japan, were capturing market share, as were producers in South America, Eastern Europe, India, and other developing regions.
Access to cheap labor and freedom from strict environmental regulations helped manufacturers in these nations advance rapidly in the mid-1990s. For example, the average Chinese worker cost a company $1,000 per year in 1992. By contrast, the average U.S. aromatic production worker received over $35,000 in salary alone. As a result, dye imports to the United States almost doubled between 1981 and 1991 as the total value of U.S. dye production fell. Although intermediates had fared much better than dyes, U.S. global organic market share diminished from 30 to 25 percent between 1988 and 1992.
Crude industry sales surged by about 10 percent from 1992 to 1997. Prices declined in the early 1990s because of large capacity additions that came into effect. During the early 1990s, temporary price upswings caused by the war in the Persian Gulf were the only relief periods for the industry. Sales improved again by 1994 and into 1995 as prices and margins began to rise. This period was the industry's best financial performance since the late 1980s. In 1997 varying levels of growth were observed in all major segments of the industry.
The synthetic organic dye industry also experienced growth from 1992 to 1997, with an increase in shipments of about 25 percent; the pigment portion declined about 20 percent during the same period.
Benzene. Demand in 2001 was 30.8 million metric tons. Benzene operating rates dropped from 72.0 percent in 2000 to 56.9 percent in 2001 due to weak demand for all major derivatives. Analysts predicted larger demand from styrene producers would improve benzene demand in 2002 and that demand would continue to grow at a rate of 4.0 to 4.5 percent a year until 2007. Benzene demand usually increases at the same rate as the gross domestic product. Leading uses for benzene include ethylbenzene, demanding 52 percent of all benzene produced; cumene, at 18 percent; cyclohexane, at 14 percent; nitrobenzene, at 7 percent; alkylbenzene, at 4 percent; and other uses, 5 percent. The top North American benzene producers included ExxonMobil, Shell, Chevron Phillips, BP Chemicals, and Dow Chemical.
Cyclohexane. Demand for cyclohexane stood at 440 million gallons in 2000 and was expected to reach 476 million gallons by 2004. Leading demand for cyclohexane was adipic acid at 54 percent; caprolactam, at 39 percent; and the remaining 7 percent for other uses, which included solvents, insecticides, and plasticizers.
Toluene. Total demand for toluene in 2001 was 3.6 million metric tons. Leading end uses for toluene included benzene, at 35 percent; xylenes, at 30 percent; solvents, at 10 percent; toluene diisocyanate, at 10 percent; gasoline blending, at 5 percent; and other uses demanding the remaining 10 percent. Major U.S. toluene producers included ExxonMobil Chemical, BP Chemcicals, Sunoco Chemical, and Chevron Phillips Chemicals.
Xylenes. Total global demand for xylenes stood at 34.6 million metric tons by 2000. End uses of mixed xylenes included para-xylene, 79 percent; ortho-xylene, 13 percent; and solvents demanding the remaining 8 percent. From 1998 to 2002, para-xylene margins were on the decline, until early 2003 when improved demand and the tightening of supply due to the shutdown of a number of plants caused prices to rise. Demand was expected grow at a rate of 7 percent a year over the next 5 to 10 years, largely due to increased demand in the polyester segment.
Styrene. Styrene demand and prices improved in 2002, following a year in which demand for styrene shrank for the first time in 20 years. Worldwide demand of styrene was 20.5 million metric tons in 2001. Styrene is expected to grow at a rate of 3.5 to 4.0 percent per year, reaching 25 million metric tons in 2006. Uses included propylene styrene, 49 percent; expandable propylene styrene, 15 percent; acrylontrile butadiene styrene, 13 percent; and other uses, 23 percent.
Phenol. In 2001 the U.S. demand for phenol totaled 4.5 billion pounds, down from about 4.9 billion pounds in 2000. Top uses included bisphenol-A, 41 percent; phenolic resins, 28 percent; caprolactam, 13 percent; alkylphenols, 5 percent; xylenols, 4 percent; aniline, 3 percent; and miscellaneous, 6 percent.
Dyes and Pigments. Organic pigments experienced zero growth in 2002, with some analysts predicting demand for colored pigments would grow by 3 to 5 percent per year until 2006. Worldwide demand for organic pigments totaled 210,000 metric tons, with the U.S. market demanding approximately one-third; Europe, one-third; and the rest of the world, one-third. Demand for synthetic organic pigments and dyes will increase, but U.S. production will likely remain stagnant or will decline as exports flood the market. Pharmaceutical intermediates and fuel additives will offer some of the greatest profit potential, as will environmentally safe compounds. To remain competitive in the global markets of the 2000s, U.S. producers have been forced to focus their efforts on the development of high-tech, high-margin specialty intermediates and dyes. Consumers of large-volume, low-tech, commodity-like aromatics, intermediates, and dyes will continue to seek low-cost producers in emerging nations.
The fine chemicals industry is consolidated in comparison to most other U.S. manufacturing industries. There were only 180 U.S. companies competing in the early 1990s. The top five companies generated a combined revenue of approximately $1.7 billion. The majority of the top 25 firms, moreover, had sales of over $50 million and employed more than 300 workers. By contrast, the bottom 140 competitors each generated revenues of less than $1 million and employed fewer than 100 people.
In 1997 the largest company in the industry was First Mississippi Corp. of Jackson, Mississippi. It had total sales of $645 million and employed 1,600 people. Crompton and Knowles Corp. of Stamford, Connecticut, was the second largest with sales of $590 million and employing 2,700. Clariant Corp. of Charlotte, North Carolina, had sales of $400 million and employed 1,200 people. Systems Bio-Industries Inc. of Trevose, Pennsylvania, had sales of $300 million and employed 600. Warner-Jenkinson Co. of St. Louis, Missouri, had sales of about $140 million and employed 300 people. Major aromatics and intermediates producers primarily active in other industries included ExxonMobil, Dow Chemical, Shell, Occidental Petroleum, BP, and Lyondell Petrochemical.
In terms of production by state, Texas led Louisiana, Pennsylvania, and Ohio in the production of cyclic intermediates with over half of the total U.S. production in 1997. South Carolina led the synthetic organic dye industry, while Ohio dominated the production of synthetic organic pigments, lakes, and toners in 1997.
Into the mid-1990s there were limited job prospects in the industry. Opportunities were being depleted as a result of productivity gains at the expense of the labor force, movement of production facilities overseas, and increased competition. Positions for chemical equipment controllers, which account for about 9 percent of the workforce, are predicted to plunge by 25 percent between 1990 and 2005. Similarly, opportunities for machine operators and laborers will decrease. Among the last job positions expected to decrease are for general managers, top executives, and support staff, which will plummet by about 20 percent. On the other hand, jobs in sales and marketing should rise by about 5 percent, and engineering positions should increase by 1 to 4 percent.
In the early 1990s, with sales of about $11 billion per year, U.S. producers accounted for roughly 25 percent of global fine chemicals output. The European Community met 40 percent of worldwide demand, and Japan represented 20 percent of production. Like the United States, which shipped $1.4 billion of its output overseas in 1992, Japan and the European Community were major chemical exporters within the global marketplace. These three regions also represented most of the world's chemical consumption.
In the mid-1990s market share held by all major producers was steadily eroding. For example, in 1993 Eastern European and South American manufacturers generated approximately $2 billion and $1 billion worth of product, respectively. At the same time, they were striving to boost exports. Also, East Asia, which sold $2 billion to $3 billion of aromatics and intermediates in 1992, was growing its output by 8 to 10 percent per year.
Two of the fastest growing export nations were China and India. China exported $800 million worth of intermediates in 1992, while India shipped approximately $500 million. Both countries were expected to surpass U.S. exports by the turn of the century. "China is in a major, major buildup," said Joshua Pratter, manager of technical marketing and planning at ICG, a California-based intermediates producer, in the August 30, 1993 issue of Chemical Marketing Reporter. "They're buying a lot of technology." China designated the petrochemical industry (including cyclic intermediates and all related manufactures) as one of four "pillar" industries for its Ninth Five-Year Plan ending in 2000; however, the Asian economic crisis slowed China's ambitions in fine chemicals, as did severe flooding, high unemployment, a weakening of domestic demand for these products, and extensive smuggling into China. South Korea experienced heavy losses in this industry into 1998 and is seeking foreign investment. The Asian crisis is also expected to have a spill-over effect into Latin America because of the extent of trade among the nations of these two continents.
By 2001, low demand and economic instability severely degraded the Asian aromatics industry. The events of September 11, 2001 caused further distress to the industry with fear of a worldwide recession. Total Asian benzene exports were 1.7 million tons in 2001, compared with 1.8 million tons in 2000. Prices fell in other aromatics markets, followed by a dramatic rise in early 2002.
Another trend taking place in the early 1990s was the movement of U.S. production facilities overseas. Dow Chemical, for example, received a license in 1992 to build a polystyrene plant at Map Ta Phut, Thailand. This plant would be its fifth in that country. Many other producers were moving production to Mexico, Singapore, and other developing regions. By the late 1990s major restructuring, downsizing, and merging were occurring in Asia (to absorb financially stressed joint ventures) and in countries like Canada, where industrial giants are consolidating to fund new plants to produce fuels additives, among others.
In the pigment industry, prices remain depressed because of oversupplies and environmental regulations. Demand is expected to grow most significantly in China, India, and Southeast Asia. Eastern Europe is experiencing serious shortages of pigments, so demand is increasing there, although the beginning base for growth is much smaller than in Asia. Organic pigments are expected to grow faster than inorganic pigments, and inorganics based on heavy metals such as cadmium and chromium are expected to be withdrawn almost entirely from the marketplace because of their high environmental risk. Iron oxide (used extensively in pigments for the construction industry) was also experiencing growth in the late 1990s, and producers in Western Europe were the world's top suppliers. The colored pigments industry worldwide was expected to grow 3 to 5 percent per year through 2006.
U.S. manufacturers were making capital investments during the early 1990s of more than $5.5 billion per year. This represented an investment, per employee, about five times greater than the average U.S. manufacturer. Indeed, the United States maintained the most productive and technologically advanced intermediates industry in the world. In the 1980s and early 1990s, the industry spent billions of dollars attempting to raise productivity through automation and information systems, to increase capacity, and to comply with environmental laws. By the mid-1990s, new product research and development were the primary investment focus.
Intermediate and dye manufacturers were scrambling to develop high-tech molecules and compounds to open new markets and battle foreign commodity producers. For example, advances in intermediates used to make pharmaceuticals allowed the most savvy producers to reap significant rewards. Also in demand were high-performance intermediates that could be used to make cleaner fuel additives, new resins and fibers, better rubber, and environmentally friendly chemicals.
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—— "Cyclic Crude and Intermediate Manufacturing." 1997 Economic Census: Manufacturing Industry Series. August 1999.
——. "Synthetic Organic Dye and Pigment Manufacturing." 1997 Economic Census: Manufacturing Industry Series. August 1999.