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KPMG gives its forecast for future cuts to European chemical industry cracker capacity

KPMG gives its forecast for future cuts to European chemical industry cracker capacity

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Kpmg Europe Chemicals Kpmg Europe Chemicals Document Transcript

  • CHEMICALS The Future of the European Chemical Industry K P M G I NT E R N AT I O N A L
  • About KPMG’s Global Chemicals Practice Through its member firms, KPMG has invested extensively in developing a highly experienced chemicals team. KPMG’s understanding of the industry comes from KPMG member firms’ global experience, knowledge sharing, industry training and the use of professionals with chemical industry experience as well as participation in a variety of industry forums. KPMG member firms work with many of the chemical industry market leaders, using their industry experience to understand the business priorities as well as the strategic challenges faced by these organizations. Our presence in many international markets enables our firms’ professionals to assist clients in recognizing and making the most of opportunities as well as advising on the implementation of the changes dictated by industry developments.
  • Executive summary The European chemical industry is facing the dawn of a new reality. While the industry worldwide is still reeling from the current cyclical downturn and the recent global recession, chemical companies in Europe are faced with the ongoing rise of new competition in the Middle East and Asia (especially from China and India). These factors appear to be driving an inexorable shift eastward in the global chemical industry, particularly at the bulk / commodity end of the sector. Indeed, our research suggests that new global capacity being developed in the coming years will render 14 of 43 crackers in Europe uneconomic by 2015. The closure of these plants would correspond to the loss of 26 percent of total cracker capacity in Europe. At the same time, Middle Eastern chemical producers continue to seek expansion along the value chain into higher value- add solutions. Their Chinese counterparts are attempting to fulfill a government directive to make the country self-sufficient in chemicals. These Middle Eastern and Chinese entities are often cash-rich and backed by government support. A rapid path to achieving these goals appears to be offered by acquisition of technology and intellectual property from a European chemical industry seemingly beset by structural problems. However, KPMG believes that the death knell of the European chemical industry has been sounded prematurely. This remains an industry that employs over 1.2 million people and contributed in 2007 to a European Union (EU) trade surplus in chemicals of EUR35.4 billion.1 There is no doubt that the shape of the global chemical industry is changing, but the industry in Europe can continue to play a significant role in this new reality if it can: • Make hard choices now to rationalize unprofitable facilities that might not be able to compete with newer, more efficient plants being built outside of Europe • Ruthlessly identify which chemical clusters will remain competitive on the global stage and focus resources and investment in these areas to ensure their long-term survival • Capitalize on its historic advantage in innovation to stay ahead of the competition, especially in terms of sustainable solutions which will be increasingly in demand • Leverage its long-standing customer relationships to develop more specialized, higher-performance solutions • Actively seek beneficial joint ventures and strategic alliances that provide access to both cheap Middle Eastern “ feedstocks and growing Asian markets Many European companies are already recognizing the possible advantages — and the necessity — of repositioning themselves as solutions providers rather than just basic suppliers for their customers. This can include finding new ways to work with companies that have traditionally been perceived as major competitors. The companies that successfully achieve this transition should be better positioned to meet the global competitive challenges of the 21st century. The European chemical industry must capitalise on its historic advantage in innovation to stay ahead of the competition. Chris Stirling Head of Chemicals, KPMG in Europe 1 “High Level Group on the Competitiveness of the European Chemicals Industry, Final Report, European Commission, July 2009 ”
  • 2 T H E FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 3 Contents 1. Current state of the industry in Europe 4 1.1. Industry overview 4 1.2. Impact of the current downturn 8 2. Challenges from the East 12 2.1. A global shift 12 2.2. Middle East 17 2.3. China 21 3. Innovation: the key to survival 24 3.1. Evolving from commodities to specialties 25 3.2. Maintaining a technological advantage 26 3.3. Strengthening customer relationships 28 3.4. Developing joint venture relationships 28 4. Case study – Going green with Cognis – a flexible strategy 30 5. Case study – BASF – verbund manufacturing 32
  • 4 T H E FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY 1 Current state of the industry in Europe As with any crisis, the recent economic downturn presents both risks and opportunities for businesses. This is especially true for the European chemical industry. Long a powerhouse in the global economy, the industry now faces the need to make difficult choices about its future development and role in the face of increased competition from overseas. KPMG member firms believe that today’s risks need to be clearly assessed, especially in the light of continued economic uncertainty. We also feel, however, that companies can respond with innovative solutions in terms of market focus, technology and business relationships. Properly developed and managed, these innovations can help companies to not only adapt and survive but even thrive in the 21st century. 1.1 Industry overview Geographic breakdown of world chemicals shipments 2008 900 850 375 800 750 700 736 650 Chemicals shipments (€ billion) 600 550 500 450 204 ASIA = 883 EU 27 = 537 400 529 350 300 250 304 200 150 157 100 113 50 109 0 Asia EU 27 NAFTA Latin America Rest of Other* Europe** China EU Japan World chemicals shipments in 2008 were €2,257 billion*** Rest of Asia The EU accounts for 29.1% of the total Other* = Oceania and Africa Rest of Europe** = Switzerland, Norway and other Central & Eastern Europe. World chemical shipments*** = ACC uses as a proxy for sales Source: American Chemistry Council, 2009
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 5 EU chemical industry sales by country Percentage share of European chemical sales NL 10.2% 6.7% ES UK 10.3% 5.8% BE IT 11.0% 4.5% IE FR 14.5% 11.7% Other DE 25.3% PL 2.3% HU 0.7% SE 1.7% PT 0.7% AT 1.3% RO 0.6% FI 1.3% Others 2.2% CZ 0.9% Big 8 = Germany, France, Italy, United Kingdom, Netherlands, Spain, Belgium and Iceland Source: Cefic Chemdata International Sector-wise breakdown of EU chemical industry sales Soaps & detergents Perfumes & cosmetics Pharmaceuticals Petrochemicals Other specialty chemical Paints & inks Plastics & synthetic rubber Man-made fibres Crop protection Other basic inorganics Industrial gases Fertilisers Base chemicals 44.8% Pharmaceuticals 27.4% Specialty chemicals 17.0% Consumer chemicals 10.8% Source: Cefic Chemdata International and Eurostat
  • 6 T H E FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY “” The European chemical industry drives a significant part of the economy across the EU. Over 1.2 million workers are employed in the industry, manufacturing products, supporting research and providing supplies in many regions of the EU. The European chemical industry is based on the following four categories of products: • Base chemicals that include petrochemicals, their derivatives and basic inorganics. Produced in large volumes, they are sold as commodities to We see a manufacturers in the chemical industry or to other industries. sustainable future • Specialty chemicals that are for specialized use and produced in lower volumes than base chemicals. Examples include ingredients used in for chemical adhesives, additives, plastics, coatings, paints and inks, crop protection, companies in dyes and pigments etc. Europe based on • Pharmaceuticals including both basic pharmaceutical products and pharmaceutical preparations. specialties and • Consumer chemicals that are sold to end users and consumers in the better strategies form of soaps, detergents, perfumes and cosmetics. to support the Large industrial customers represent 25.1 percent of chemical consumption in success of the the EU. This category includes metals, mechanical and electrical industries, textiles and clothing, the automotive industry and paper and printing products. customer. The remaining areas of chemical consumption can be divided into the following: • 30.3 percent for end users in private households, government and non-profit organizations • 16.4 percent for services • 6.4 percent for agriculture • 5.4 percent for construction • 6.1 percent for manufacturing not listed above • 10.3 percent for other industries2 Over the years, the European chemical industry has shown considerable resilience, strength and adaptability. In 2007 12 of the 30 leading chemical , companies in the world were headquartered in Europe, representing 10 percent of world chemical sales. Recent industry growth has been driven mainly by regional sales. From 1997 to 2007 sales more than doubled among EU partner countries.3 This growth has , been supported by the removal of trade and nontrade barriers among the EU countries and by the size of the internal market — almost 500 million consumers across Europe. In 2008, 23 percent of European chemical sales were for customers outside of the EU, in particular to markets in North American Free Trade Agreement (NAFTA), neighboring countries (especially Turkey and Russia) and Asia.4 2 “Facts and Figures: The European chemical industry in a worldwide perspective: 2009, Cefic ” 3 Ibid. 4 Ibid.
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 7
  • 8 T H E FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY 1.2 Impact of the current downturn European chemical industry output, July 2008 — August 2009 4.00% 2.00% 0.00% % change on year earlier -2.00% -4.00% -6.00% -8.00% -10.00% -12.00% -14.00% July August September October November December January February March April May June July August Source: CIA Matters EU chemicals production: sector outlook 15 10 Production (volume): growth rate (yoy) 5.5 6.0 5.3 5.0 4.7 5 2.6 0 -5 -1.9 -3.8 -4.6 -4.5 -6.5 -5.5 -6.6 -10 -9.3 -10.6 -15 -12.4 -20 -19.7 -20.1 -25 Consumer Specialty Petrochemicals Chemicals Polymers Basic Inorganics Chemicals Chemicals 2008 2009 2010 Source: Cefic Economic Outlook Task Force (November 2009) Like virtually every other industry worldwide, the European chemical industry has felt an enormous impact from the recent global recession. At its lowest point in March 2009, the industry saw a monthly year-on-year decline of 13.2 percent, a figure that if annualized would represent an output decline of approximately EUR56 billion.5 Describing the industry downturn, Graham van’t Hoff, Global V.P. Base Chemicals at Shell said, “There was a complete meltdown of demand in the fourth quarter of 2008, adding that, a double whammy is coming at us [as] we now face a ” “ supply-lead problem caused by the new Middle East capacity. 6 ” 5 CIA Matters, July 2009 6 “Can the European petrochemical industry compete against emerging producers based in the Middle East?, Chemical Week, September 21, 2009 ”
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 9 “” In Europe, the chemical industry saw massive reductions in demand for plastics, paint and man-made fibers, especially in key markets such as automotive and construction. This fall in demand led to a severe destocking by many companies, with some companies (particularly in the base chemicals, polymers and specialty Large chemicals sectors) watching their own output decline by 30 to 60 percent.7 Tight credit continues to hold back recovery. Many large companies are finding major credit lines both difficult and expensive to obtain. Small and medium enterprises (SMEs) are experiencing even greater difficulties in obtaining companies are guarantees and letters of credit for imports and exports. The credit ratings for a finding major number of chemical companies have been downgraded, prompting banks to carefully re-evaluate the entire industry. However, the bond markets in Europe credit lines both are currently relatively healthy, providing access to financing for those difficult and companies that retain an investment-grade credit rating.8 expensive to obtain. 7 “Reaction: KPMG’s views on the economic outlook for the chemical industry, September 2009 ” 8 “Weathering the Storm: the Chemical & Pharmaceutical Sector, webcast conducted by Chris Stirling, KPMG ”
  • 1 0 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY Many analysts and industry observers predict a gradual though modest recovery, with demand not returning to 2007 levels until probably 2012 or even later. Cefic, European Chemical Industry Council expects a five percent increase in output growth in 2010 compared to 2009.9 Henrik Meinke, writing on behalf of the European Chemical Marketing and Strategy Association (ECMSA), also offers guarded optimism, suggesting that a significant global recovery should not be expected before 2011, although industry conditions should improve in 2010.10 In the meantime, the industry recognizes that hard decisions need to be made, and these have included downsizing and massive restructurings, which to date have resulted in the redundancy of approximately four percent of the pre- recession chemical industry workforce in Europe. Clariant, for example, sought to shrink its workforce by a total of 3,220 positions in 2009 (equivalent to 17 percent of its global workforce).11 Akzo Nobel has announced plans to cut 20 percent of the workforce at its Amsterdam head office and Arnhem shared service centre.12 Even with recovery, the European petrochemical industry and its markets may continue to contract. Many end-user industries have started to move operations outside of Europe. The textile industry has offshored to the Middle East and Asia to be closer to high-growth markets and benefit from lower manufacturing and logistics costs. Parts of the automotive industry have moved to Eastern Europe, followed by their tier 1 and tier 2 suppliers to improve their competitiveness. 9 “EU chemical industry expected to follow a modest and fragile recovery in 2010, press release, Cefic,17 November 2009 ” 10 “INSIGHT: Gathering signs of recovery for chems, ICIS, 11 March 2009 ” 11 “Clariant To Cut 570 Jobs, Chemical & Engineering News, 30 November 2009 ” 12 “Results fall on weak demand; economy begins to stabilize, Chemical Week, 2 November 2009 ”
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 1 1 A key issue is how the European chemical industry and European governments seek to respond to these changing dynamics. Certainly recently, there has been a trend toward protectionism in the industry. China, the EU and India recently initiated anti-dumping measures against the Middle East.13 China has also imposed definitive anti-dumping duties of between 5.9 percent and 35.4 percent on imports of adipic acid from the EU, Korea and the US.14 With the scale of capacity expansion under way in the Middle East and Asia likely to result in significant overcapacity in the industry in the medium term, there is a real danger that individual countries or regions could resort to protectionist measures which is likely to harm the industry and hamper growth. Whilst new plants are typically in the lowest-cost position on the global cost curve and, as a result, can expect to be profitable in most market conditions, older plant in Europe is likely to become uneconomic. Global ethylene capacity and demand 180 170 160 150 (million tonnes) 140 130 120 110 100 90 80 2007 2008 2009 2010 2011 2012 2013 “” Global capacity Global demand Source: Bank of America Securities/Merrill Lynch KPMG analysis shows that European petrochemical capacity may decline dramatically in the coming years. According to recent estimates, 40 out of 200 crackers worldwide are likely to become uneconomic by 2015, and approximately 14 out of these 40 will be in Europe. The closure of these plants would correspond to the loss of 26 percent of total cracker capacity in the EU. Similarly, 10 out of 17 European ethylene glycol plants may become uneconomic, corresponding to 65 percent of total European capacity.15 Clariant US chemical producers are likely to be similarly impacted. However, there is a sentiment within the industry that the US will be more ruthless in restructuring uneconomic plant as the industry there is less encumbered by political issues which can make restructuring difficult in Europe. The challenge for the European sought to shrink chemical industry is to resist the urge to hide behind protectionist barriers. Rather, there should be a process to identify and rationalize chemical plant and its workforce by clusters made uneconomic by the new world order (principally, likely to be a total of small, land-bound, non-integrated units). This should allow future investment to focus on those areas in which the European chemical industry remains 3,220 positions competitive on the global stage (see verbund manufacturing, section 5). in 2009. 13 “Antidumping Cases Target Mideast Petchem Exports, Chemical Week, 30 November 2009 ” 14 “China Dumping Duties, Chemical Week, 16 November 2009 ” 15 KPMG research and analysis
  • 1 2 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY 2 Challenge from the East As European chemical companies recover from the recession, they will face even greater challenges from increased competition overseas. Although most of this competition will come from the Middle East and China, the relative importance of these regions can be best understood as part of a larger transition in economic strength from developed to emerging markets. 2.1 A global shift International comparison of chemical production growth 1997 – 2007 175 165 Average growth p.a. (1997-2007) Asia Pacific* 5.7% Latin America 3.2% Production index (1997 = 100) 155 NAFTA 1.4% EU 1.3% 145 135 125 115 105 95 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 EU NAFTA Asia Pacific* Latin America *Asia Pacific includes Japan, China, India, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, Pakistan, Bangladesh and Austraila Source: Cefic Chemdata International
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 1 3 Chemical demand (excluding pharma) 2008 EUR1,700 billion 2020 EUR2,400 billion Rest of world 10% 11% Rest of world South America 6% 6% South America Western Europe 25% €650 €1,150 19% Western Europe p.a. + 4.5 – 5.0% billion billion North America 21% 18% North America Asia Pacific 38% 46% Asia Pacific Source: BASF, 2008 World natural gas costs $1.25 Russia $0.75 North Africa $3.60 Ukraine $2.00 Indonesia $5.75 Canada $0.80 Venezuela $1.50 Argentina $6.75 US $7.60 West Europe $2.50 Trinidad $0.75 Middle East Source: JP Morgan’s Chemical primer, June, 2008
  • 1 4 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY Global ethylene trade 25 20 Net exports 15 10 5 (million tonnes) 0 -5 -10 -15 Net imports -20 -25 2002 2003 2004 2005 2006 2007 2008 2009f 2010f 2011f 2012f North America South America West Europe Middle East India Sub. Northeast Asia Southeast Asia Others Source: Jadwa Investments, GPCA Annual Forum, December 2009
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 1 5 New polyethylene plants planned for start-up, October 2009 – 12 Capacity ('000 Company Location Grade m.t./p.a.) Startup Saudi Kayan Saudi Arabia HDPE 400 Q1 2011 Saudi Kayan Saudi Arabia LLDPE 400 Q1 2011 Qatofin Qatar LLDPE 450 End 2010 Borouge 2 UAE HDPE 540 Mid 2010 Borouge 2 UAE LLDPE 650 Mid 2010 Ilam PC Iran HDPE 300 2010 Kermanshah Iran HDPE 300 2010 Lorestan Iran HDPE 300 2010 Kordestan Iran LDPE 300 2011 Mahabad Iran HDPE 300 2011 Sinopec Tianjin China HDPE 300 Online 2009 Sinopec Tianjin China LLDPE 300 Online 2009 Sinopec Zhenhai China LLDPE 450 Q2 2010 Baotou Shenhua China PE 300 May 2010 PTT Chemical Thailand LLDPE 400 Online 2009 PTT Chemical Thailand HDPE 300 Online 2009 Siam Cement Thailand HDPE 400 Mar 2010 Siam Cement Thailand LLDPE 350 Mar 2010 Haldia PC India PE 670 Jan 2010 GAIL India HDPE 200 Apr 2010 GAIL India HDPE 200 Apr 2010 GAIL India HDPE 200 Apr 2010 Indian Oil Corp India HDPE 350 2012 Indian Oil Corp India HDPE 300 2012 BPCL India HDPE 220 After 2010 ONGC India HDPE 360 Dec 2012 ONGC India HDPE 360 Dec 2012 ONGC India HDPE 340 Dec 2012 Total 9,940 Source: Platts, GPCA Petrochemical Report, December 2009 Top 10 chemical producers (sales value), 2008 Rank Company Country 1. BASF Germany 2. Exxon Mobil US 3. Dow Chemical US 4. Royal Dutch Shell UK/Netherlands 5. Ineos UK 6. SABIC Saudi Arabia 7. Lyondell Basell US/Netherlands 8. Sinopec China 9. DuPont US 10. Total France Source: Chemical Week
  • 1 6 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY Top 10 chemical producers, 2015?16 Rank Company Country 1. SABIC Saudi Arabia 2. BASF Germany 3. Reliance India 4. Exxon Mobil US 5. Sinopec China 6. Sinochem China 7. Dow Chemical US 8. Saudi Aramco Saudi Arabia 9. Dupont US 10. ADNOC / IPIC Abu Dhabi Source: KPMG in the UK, December 2009 Even before the current recession, the European chemical industry saw a gradual but steady decline in global market dominance. This shift can be measured by a number of metrics. • Between 1995 and 2005, world chemical production increased by almost 40 percent. However, over 95 percent of that growth was concentrated in developing countries.17 • From 1997 to 2007 , global chemicals sales increased by 60 percent, but the portion of global EU sales declined by 2.7 percent.18 “” • BASF estimates that global chemical demand from 2008 to 2020 will increase eight percent in the Asia-Pacific region but decrease six percent in Western Europe.19 Several factors can be cited to explain this shift in market leadership. For example, the cost of raw material feedstock is significantly higher in Western Europe than in most other regions of the world, and this cost difference will almost certainly continue in the future. In particular, it should be noted that chemical producers on the US Gulf coast have an advantage over Europe since they are primarily fed by lower-cost ethane Between rather than the more expensive heavy feeds that supply Europe. In addition, strong demand in Asian markets supports growth in production for 1995 and 2005, domestic chemical companies in that region. Meanwhile, weakening consumer demand for end products in Europe has led to significant underutilization of 95 percent of capacity, plant shutdowns and margin erosions. world chemical As a result, most analysts and industry observers agree that the global chemical production industry will continue in its steady shift to the East, with a greater portion of chemical majors headquartered outside the EU in the future. In 2008, 4 of the top growth was 10 chemical producers were located in Europe, but KPMG suggests that by 2015, in developing only 1 of the top 10 producers is likely to be still in Europe while six are likely to be based in the Middle East or Asia. countries. 16 “This assumes that the rate of growth in petrochemical companies continues at the current rate until 2015. ” 17 “The state of the European Chemicals Industry – a thoughtstarter for the High Level Group on the competitiveness of the European Chemicals Industry, European Commission, 2007 ” 18 “Facts and Figures: The European chemical industry in a worldwide perspective: 2009, Cefic ” 19 BASF , 2008
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 1 7 This will mark the conclusion of the process to break up the majority of the historic, integrated European chemical giants (which began with the break up of the likes of Hoechst and ICI), with their 21st century equivalents being created in the Middle East and Asia. The opportunity for European chemical producers is to focus their remaining activities on emerging mega-trends and to retain a level of flexibility that enables them to rapidly adapt as these trends change. 2.2 Middle East Middle East – Major ethylene oxide producers The Kuwait Olefins Co - (TKOC) Arak Petrochemical Co - (ARPC) Equate Petrochemical Co Marun Petrochemical Co Gachsaran Petrochemical - (Arvand) Iran To Lebanon Iraq Ca. 60% of Saudi Arabia’s Morvarid Petrochemical Co Zubair natural gas reserves consist of associated gas mainly from Safaniya oil field Ghawar Shaybah and Zuluf fields Kuwait Zuluf oil field Farsa Chemical Co Yanbu National Qaisumah Al Jubail Petrochemical Co - (YanSab) Riyadh Ras Tanura Saudi Arabia ExxonMobil Chemical/ Rabigh Refining and PS3 Qatar Petroleum Petrochemical Co - (Petro-Rabigh) East West NGL Line Qatar East West Petroline Ghawar oil field UAE Jubail United Petrochemical Riyadh Shaybah ChemaWEyaat Co - (JUPC) Yanbu Shaybah oil field Iraq Pipeline Across Muajjiz Saudi Arabia Rabigh Mazalij Manjoura North & South Eastern Petrochemical Co - (Sharq) Shaden Waqr Tinat Kidan gas fields Jeddah Niban gas fields Duqm Refining & Petrochemical Oman Complex - (DRPC) Saudi Kayan Petrochemical Co Arabian Petrochemical Co Yemen Ras Tanura Integrated Major seaports Petrochemical Co Plants operating Plants under study/planned/construction/delayed Source: BP statistical review the world energy 2007 and ICIS plant research as of October 2008. Updated by KPMG International, 2009 Operating margins, 2008 30% 28.4 25% 20% 15% 10% 9.2 7.7 5% 5.5 3.8 4.8 90 0 SABIC BASF Dow Chemical ExxonMobil DuPont Formosa Plastics Source: Samba, September 2009
  • “ 1 8 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY The availability of these resources provides the chemical industry in the Middle East with both energy and ” feedstock at relatively low prices.
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 1 9 Middle East ethylene capacity 40 25 35 20 30 25 15 (million tonnes) (percent) 20 10 15 10 5 5 0 0 2007 2008 2009 2010 2011 2012 2013 Capacity Capacity as a percent of global capacity Source: Bank of America Securities/Merrill Lynch, 2009 Major Middle East sovereign wealth funds Assets under management Country Funds (US$ billion) UAE Abu Dhabi Investment Authority 875 Saudi Arabia Various 300 Kuwait Kuwait Investment Authority 250 Libya Reserve Fund 50 Qatar Qatar Investment Authority 40 Iran Foreign Exchange Reserve Fund 15 Source: ‘CIA the Word Factbook’, 2009 The Middle East has emerged as a major competitor for the European chemical industry, based mainly on ready access to cheap feedstocks, proximity to growing markets in Asia and support by governments and local authorities. The Middle East region has about 67 percent of the world’s oil reserves and 45 percent of all natural gas reserves, the largest such reserves found anywhere. The availability of these resources provides the chemical industry in the Middle East with both energy and feedstock at relatively low prices. Companies like Saudi Basic Industries Corporation (SABIC) pay only US$0.75 for one million British Thermal Units (BTU) of natural gas compared to the average market price of between US$7 – 8 in Western countries.20 Some analysts estimate that ethane-based Middle East producers have a cost advantage of up to US$350/mt over some of their naphtha-based competitors in Europe.21 Whilst the government-backed oil producers in Saudi Arabia have announced plans to increase the cost of natural gas to petrochemical producers from 2012 (initial estimates suggest US$1.25/m BTU) there will only be a marginal erosion of this massive cost advantage. 20 American Chemistry Council, October 2008 21 “Can the European Petrochemical Industry Compete Against Emerging Producers Based in the Middle East?, Chemical Week, 21 September 2009 ”
  • 2 0 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY HDPE delivered costs to SE Asia 1200 1000 800 600 400 200 0.0 ME USGC S. Korea NWE Freight to SEA Fixed Costs Raw Materials Overhead Utilities Source: ChemSystems, 2009 Of more concern to Middle Eastern producers is continued access to cheap ethane allocations as alternative LPG and naphtha feeds have a significantly lower cost advantage. Whilst reports have suggested that additional ethane allocations were likely to be limited, His Excellency Ali Al-Naimi, Minister of Petroleum and Natural Resources, Kingdom of Saudi Arabia recently announce that Saudi Arabia’s proven gas reserves, which stood at 263 trillion standard cubic feet (SCF) at the end of 2008, will increase by 5 trillion SCF in 2010. The Kingdom’s gas production is expected to increase from 8.8 billion SCF a day now to 13 billion SCF a day in 2020, allowing it to, “stay ahead of demand for natural gas [for] chemical feedstock. 22 ” Backed by a dependable supply of resources as well as significant cash reserves, Middle Eastern countries are making huge investments to increase capacity in both upstream and downstream production facilities (principally in the form of world-scale, integrated complexes). More than 19 million mt/year of ethylene capacity will come onstream in the Mideast by 2015, according to SRI Consulting in a recent analysis.23 Some development projects have been delayed by financing constraints. The global downturn has led to questions about the ability of worldwide markets to absorb capacity from the Middle East and other regions. China, the EU and India have each begun antidumping procedures this year against petrochemical exports from the Mideast.24 Nevertheless, the region is still expected to become a leading producer for a range of petrochemicals and plastics, including ethylene glycol (EG), polyethylene (PE), and polypropylene (PP). EG capacity will increase in the region from 6.2 million mt/ year in 2009, to 8.8 million mt/year in 2014, raising its share of the global total from 28 percent to 32 percent over the five-year period.25 Forecasts until the year 2020 predict that the region will continue to grow at an average of over 9.5 percent per year, more than twice the global rate.26 22 GPCA Annual Forum, 9 December 2009 23 Quoted in “Reinforcing Leadership in Petrochemicals, Chemical Week, 23 November 2009 ” 24 GPCA 2009: Mideast Influence Continues to Grow, Chemical Week, 7 November 2009 25 Ibid. 26 “World chemicals market: Asia gaining ground, Deutsche Bank Research, July 2008 ”
  • “” T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 2 1 Whilst a recent survey suggests that 85 percent of product that is sold from plant currently being built will specifically target China, the rest of Asia and the Middle East itself, Tom Crotty, CEO of Ineos Olefins and Polymers Europe said, “whatever is left over will have to find a home and the next obvious place is Whatever Europe, adding that, “some of the new capacity will wash back into Europe but ” the unknown is how much. 27 ” In addition, recent transactions such as SABIC’s acquisition of GE plastics and the acquisition of Nova Chemicals Corp. by International Petroleum Investment Co. is left over will indicate a long-term strategy by major players in the Middle East to expand have to find globally into downstream areas. a home This explosive growth and expansion in the Middle East has helped to drive significant changes in the European commodity chemicals market. Ten years ago, and the next North America was the primary exporter and supplier of products such as PE obvious place and PP to the world. Europe was well balanced between supply and demand. However, trade flow patterns have changed dramatically, and the Middle East is Europe. is now the dominant inter-regional exporter of polyolefins. Older European commodity-based plants will likely be less competitive in the years ahead. Many —Tom Crotty European customers have already turned to the Middle East for supplies of raw CEO of Ineos Olefins and materials such as PE, and Europe is expected to become a net importer of Polymers Europe polyolefins by 2010.28 The same cost advantages that help chemical companies in the Middle East to enter European markets will also help to increase their success in Asia. Although more port facilities, tankers and pipelines need to be developed, it is still cheaper to transport raw materials and products from the Middle East to Asia than from Europe. This geographical advantage will enable the Middle East to further expand into Asian markets, gain new customers and even displace European companies from markets where they have traditionally dominated. 2.3 China 10 9 8 7 6 (million tonnes) 5 4 3 2 1 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Dependency to foreign countries Growth of demand Consumption Output Source: www.chemhello.com. Cited in “Chemicals in China: Responding to new challenges, 2009 ” 27 Quoted in “Reinforcing Leadership in Petrochemicals, Chemical Week, 23 November 2009 ” 28 Analysis by KPMG International 2008
  • 2 2 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY Chemicals sales growth rates of selected countries and regions 1997–2007 20 Average annual sales growth rate (%) 15 16.5 10 8.7 World sales growth 7.6 7.6 4.8% p.a. 7.3 6.8 5 5.4 4.0 3.9 3.4 2.9 2.1 0 0.1 China Mexico India Taiwan Korea, Republic Brazil Russia Switzerland EU-27 Canada USA Japan Africa Source: Cefic Chemdata International, 2008 China Foreign Exchange reserves (US$billion) 2500 2000 1,946 1,528 1500 US $ billion 1,066 1000 819 610 500 403 286 166 212 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: China State Administration of Foreign Exchange, 2009 The current economic downturn has reduced industry growth in China and limited further capital investment over the short and medium term. According to the China Petroleum and Chemical Industry Association, consumption of finished oil products (a key indicator of their chemical industry) dropped 8.6 percent in December of 2008.29 Despite the recession, chemicals output from China in 2009 may grow by over four percent.30 Part of this growth can be attributed to China’s massive stimulus programs, but questions remain whether the stimulus will have long-lasting benefits. Nevertheless, the Chinese chemical industry continues to grow in strength. By 2015, China is expected to overtake the US as the largest chemical producer in the world.31 Self-sufficiency for the industry is an expressly stated policy of the government. China has, in fact, been close to self-sufficient in base chemicals since the 1980s. The country’s self-sufficiency index for basic chemicals, resins and fibers is now approximately 80 percent, according to estimates from Chemical Market Associates Inc. (CMAI), but significant additional capacity will be required to 29 “China’s petrochemical industry reverses 10-y high growth, www.chinamining.org,18 February 2009 ” 30 “Global chemicals output could fall 6% in ‘09” Oxford Economic Forecasting (Source ICIS news), 24 February 2009 31 “World chemicals market: Asia gaining ground”
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 2 3 satisfy the expected growth in demand in the coming years.32 China also imported more than US$84.5 billion worth of chemicals in 2008, much of it in specialties, and the country currently lacks sufficient domestic manufacturing capabilities to completely satisfy domestic demand.33 To meet their growing demand for specialties, China is constructing its own chemical plants and has been using joint ventures with European players to increase capacity. Before the economic downturn, almost all major multinational chemical companies established a presence in China. However, the financial crisis has caused many international chemical firms to reassess much of their investment plans and cut staff worldwide. BASF is reconsidering the opening of a major methylene diphenyl isocyanate (MDI) chemical plant in southwestern China, because of weakened global demand. The plant was scheduled to begin production in 2010. The company, however, is moving ahead with plans for a major petrochemical complex in Nanjing with Sinopec. The two companies have invested US$2.9 billion in the Nanjing venture. Other European chemical companies will also continue to develop their partnerships and market presence in China, attracted by a low-cost base and expanding markets. For example, Clariant opened its first plant in Guangzhou in 1995, making masterbatches, or plastic dye pellets. The company now has numerous plants in other provinces as well. The plants operate through a local entity but are overseen by Clariant for all management, governance and investment issues. Fully-owned or joint venture operations with full trading licenses have been established. As in the Middle East, the Chinese chemical majors have ready access to massive funding through their government, thus removing the credit barrier faced by companies in the West. At the same time, Chinese companies face critical challenges in terms of poor logistics, tight raw material supply and the lack of experienced management. Accordingly, the industry will continue to need access to Western technologies and resources, particularly at the specialty end of the chemicals value chain. We believe that we will increasingly see Chinese chemical majors as bidders in M&A auction processes as their focus turns from attracting inbound Western investment to establishing themselves on the global stage through outbound acquisitions. In the first instance, this is likely to focus on distressed Western assets which provide access to the technologies they require to reach their development goals. 32 “Chemicals in China: Responding to New Challenges, KPMG 2009 ” 33 Emerging Markets Information Service, 3 April 2009
  • 2 4 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY 3 Innovation – a key to survival Share of country in total PCT filings, January 2008 – August 2009 35 32.5 30 29.3 25 Share of Country (%) 20.0 20 17.4 15 10.9 11.5 10 4.9 4.8 4.6 4.4 4.1 5 3.6 3.4 3.4 2.9 2.6 2.4 2.3 2.3 2.5 1.7 1.8 1.6 1.8 0 United States Japan Germany Republic China France United Netherlands Switzerland Sweden Italy Canada of America of Korea Kingdom Jan. – Aug. 2009 Jan. – Aug. 2008 Source: WIPO Statistics Database, 2009 Annualized growth rate of PCT Filings, August 2008 – August 2009 Annualized Growth Rate based tender Line 20 15.7 15 10.9 10 5.7 5 2.3 -11.7 -2.8 -4.3 -4.5 -0.6 -4.2 -6.9 -7.6 0 -5 -10 Total PCT Fillings Growth Rate(-2.7%) -15 of America Japan Germany Republic of Korea China France United Kingdom Netherlands Switzerland Sweden Italy Canada United States Note : 2009 data are provisional and incomplete. The growth rate is the annualized growth rate between August 2008 and August 2009. Counts are based on the international filling date and the country of residence of the first name applicant. Source: WIPO Statistics Database, 2009
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 2 5 We believe that a key to survival for European chemical companies is based on innovation at three different levels — moving from bulk chemical production to the specialty end of the value chain, leveraging their traditional advantage in technology and establishing closer customer and competitor relationships through joint development agreements, acquisitions, value add services and other strategic initiatives. 3.1 Evolving from commodities to specialties In its final report in February 2009, the European Commission’s High Level Group (HLG) on the Competitiveness of the European Chemicals Industry recognized that abandoning petchems and focusing on specialty chemicals is a clear necessity.34 In many ways, this move to specialties is a matter of both “push” and “pull. As ” noted above, European companies are being pushed out of commodities because of the cheap feedstocks available to producers in the Middle East. In addition, the last 15 to 20 years have seen relatively little investment in the EU in the basic chemical sub-sectors; the last cracker was built in the early 1990s. This has led to a significant loss in competitive advantage. The average cracker size in the EU is currently about 450,000 tons/year while the new, world-scale crackers being built in Asia and the Middle East reach a capacity of more than 1,000,000 tons/year. European companies that continue focusing on commodities will have to make massive investment simply to survive. In terms of “pull, European companies are attracted both by strong specialty ” markets and the fact that value-added, specialty manufacturing requires a high level of technical capability found more often in the EU than in developing countries. Because of this, the European petrochemical industry is a natural choice for complex specialties for biotechnology and nanotechnology, as well as for emission- abatement products such as insulation materials for residential and industrial buildings. 34 “Final Report of the High Level Group on the Competitiveness of the European chemicals industry”
  • 2 6 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY Obviously, this move up the value chain by European companies will require strategic investment in the face of tight credit, rising costs and other business pressures. European companies also need to maintain sources for commodity chemicals through clustering of crackers with downstream manufacturing, even though this strategy will become more challenging as commodity production increases in the Middle East, China and other areas. Despite these challenges, specialty chemicals remains a highly attractive global market worth more than US$680 billion. Established European companies have the resources and experience in this market to help them compete as major players worldwide. 3.2 Maintaining a technological advantage The overall technological advantage of one region over another can be estimated in various ways, including the rate of patent filings and the number of patents in force. China is now the third largest patent application jurisdiction in the world and may soon overtake the U.S. in total patent applications. The State Intellectual Property Office (SIPO) received a total of 828,328 patent applications in 2008, a year-on-year increase of 19.4 percent.35 However, EU countries also enjoy a leadership position in patented technology, accounting for 28 percent of Patent Cooperation Treaty (PTC) filings from January 2008 to August 2009. During the same period, China accounted for only 4.6 percent of PCT filings. To protect their technological advantage, European companies should review their R&D plans and extend corporate research programs to medium and long term objectives. The public sector should also provide effective support for these efforts, in particular for SMEs. In addition, intellectual property should be protected by appropriate and cost-effective rules regarding intellectual property rights (IPR). The European Commission supports the development of a more coherent IPR policy, with a more centralized and coordinated approach.36 This includes a common jurisdictional framework and greater alignment of international patent law through the World Intellectual Property Organization (WIPO) and initiatives such as the Transatlantic Economic Council (TEC). Sustainable development is another opportunity for innovation by European chemical companies. Using their technological advantage to stay ahead of the market, these companies are uniquely positioned as leaders in the development of new energy-efficient products, efficient manufacturing processes and alternative feedstocks based on natural materials such as sugar, vegetable oils and plant extracts. (See “Going green with Cognis – a flexible strategy, section 4). ” 35 “Firms get upper hand in application process, China Business Weekly, 23 February 2009 ” 36 “Final Report of the High Level Group on the Competitiveness of the European chemicals industry”
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 2 7 Despite the lack of concrete commitments resulting from the recent Copenhagen Climate Conference, the green agenda is increasingly being driven by the chemical industry’s end customers who are demanding sustainable products and solutions. There is a clear opportunity for the chemical industry in Europe to capitalize on its historical technological advantage and provide global leadership in the realm of sustainable development. For the chemical industry, another metric is especially important — the number of graduates in chemical engineering and related fields. Highly qualified human resources are vital to European chemical companies: an average of 32 percent of their employees have attained third-level education as compared to an average of 26 percent for other industries.37 However, the last decade has seen a serious drop in the number of European students taking chemistry at the third level. Chemistry currently scores last among the most preferred subjects studied at secondary school.38 During the same period, surveys have shown a dramatic rise in the number of chemistry and engineering graduates in Asia.39 European companies recognize the consequences if these trends continue. Fortunately, the EU has one of the most well developed and successful educational systems in the world. Chemical companies should take the opportunity to join with governments and private organizations to encourage more students to enter fields that support the chemical industry. 37 Source: Eurostat 38 “The state of the European Chemicals Industry – a thoughtstarter for the High Level Group on the competitiveness of the European Chemicals Industry, European Commission, 2007 ” 39 Higher Education Statistics Agency Limited 2009
  • 2 8 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY 3.3 Strengthening customer relationships European chemical companies should seek to expand beyond just trading, supplying commodities or competing on price. Now is the time to focus on the success of their customers. This can involve strategic partnerships and joint initiatives with engineers, researchers and other professionals from different companies, working together on R&D projects and providing value add services. The benefits of these initiatives are clear, but they also require new strategies and attitudes on the part of companies. As Peter Linder of Clariant in China stated, “We have to keep our sales force focused on adding value through strong customer relationships, rather than simply getting drawn into competition with lower-cost rival producers. 40 ” 3.4 Developing joint venture relationships European companies can develop joint ventures and strategic alliances with competitors — in the Middle East to gain access to feedstocks and in China to develop a local market presence. The most successful European chemical companies in the coming years are likely to be those that embrace the changing dynamics in the global industry and position themselves to take advantage. Inevitably, joint relationships involve an element of trade-off and a challenge for European chemical companies will be to establish agreements that allow them to enjoy the benefits, without giving away too much of their technological advantage, so as to preserve their long-term competitiveness. 40 “Chemicals in China: Responding to New Challenges, KPMG, 2009. ”
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 2 9 “” European chemical companies should seek to expand beyond just trading, supplying commodities or competing on prices.
  • 3 0 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY 4 Case study – Going green with Cognis – a flexible strategy Raw material basis of Cognis in terms of volume in 2008* Naturals (Natural oils, fats and derivatives, glucose, plants and extracts) 50% Inorganics (Inorganic acids and bases, salts) 8% Inorganics (Silicates) 17% Petrochemicals 25% *Core businessess CC, N&H, FP Source: Cognis, 2009 Headquartered in Monheim, Germany, Cognis is one of the world’s leaders in specialty chemicals, providing raw materials and ingredients for products for personal and home care, nutrition and health, and for a number of other industries such as coatings and inks, lubricants, agriculture and manufacturing. Cognis is one of the leaders in green solutions for the chemical industry, dedicating its activities to a high level of sustainability and the use of natural source raw materials and ingredients. As a European chemical company, the strategies adopted by Cognis offer several advantages. For example, the use of natural raw materials such as fats and plant extracts has significantly reduced its dependence on petrochemical feedstocks from the Middle East. In addition, its raw materials are gathered from a number of countries across Asia, the Pacific and South America, further reducing its dependence on any particular region. Cognis has also taken care to establish a local presence in emerging markets such as China, enabling it to target rapidly moving markets for specialty chemicals and consumer goods. The company recognizes that the time and cost required to manufacture products in Europe and then ship them to Asia would hurt their competitive position. As a result, Cognis has focused on expanding their presence in Asia through plant expansions and joint ventures with local companies.
  • T H E F U T U R E O F T H E E U R O P E A N C H E M I C A L I N D U S T R Y 3 1 In its European plants, Cognis continues to develop more efficient manufacturing processes to reduce costs and improve their regulatory position. This emphasis on innovation applies to its focus on product performance. As with other European chemical companies, it can leverage a strong background in R&D to help ensure that its products remain competitive in global markets. Richard Ridinger, Executive Vice President Care Chemicals, recently summed up the situation facing many of today’s European chemical companies. “In Europe, we have unique challenges but also unique advantages in terms of technology, “” innovation and flexibility. Those chemical companies that work hard to balance sustainability with performance and price will succeed.” Cognis is also recognized as a leader in green solutions for the chemical industry.
  • 3 2 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY 5 Major Chemical Cluster in Europe Rockall (U.K.) ORKNEY ISLANDS Bergen Oslo Stockholm Case study – BASF – verbund manufacturing ALAND ISLANDS Tallinn EST ONIA RUSSIA HEBRIDES Stavanger North Aberdeen Göteborg Gotland LAT VIA Atlantic Rig a NORTH Brunsbuttel SEA Glasgow Vits yebsk Smolensk Ocean Edinbur gh North Barents Öland LITHUANIA Belfast UNITED Sea DENMARK Malmö Sea Vilnius Mahily ow Wilhelmshaven Hamburg Isle Copenha gen Kaliningr ad Minsk RUSSIA Dublin Irish of Man Bornholm BELARUS Eemshaven Bremerhaven Sea (U.K.) Leeds Manchester Gdansk ´ Hrodna Homyel' GREAT IREL AND Liverpool KINGDOM Hambur g BRITAIN Amsterdam emen Berlin ´ Poznan War sa w Brest NETHERLANDS Cardiff POLAND Kyiv Rotterdam Celtic London Lódz´ Rivne London Leipzig Wr ocla w Chemsite Sea GERMANY UKRAINE Zeebrugge GERMANY Pr a gue L'viv Guernse y (U.K.) Fr ankfurt Kr ak ów Jersey (U.K.) am Main Chernivtsi g CZEC H REPUBLIC Brno SL OVAKIA Myk Dunkirk Ghent Antwerp Stuttgart Bratisl a va Chisin au Chem Cologne Nantes Strasbour g Munich Vienn a Bud apest Cluj- Napoca Iasi ¸ MOLDOVA CHANNEL LIEC H. Z ü rich Vaduz AUSTRIA HUNG ARY BELGIUM FRANCE Bern GenevaSWITZ. ROMANIA Le Havre Bay of Ljublj an a Z a gr eb Buchar est L. Ludwigshafen Biscay Milan SL OVENIA MASSIF Lyon Venice Turin Bordeaux CENTRAL BOSNIA AND Belgr ade Danube Varna HERZEGO VIN A FRANCE Genoa SAN CROATIA SERBIA Bilbao MARINO Toulouse MONAC O Sar aje vo BULG ARIA Andorr a Ligurian Flor ence Pristina Sofi a Porto PYR ENE l a V ell a Marseille Sea Adriatic KOS. Istanbul ES ITALY Sea Podgorica Skopje Z ar agoz a MONT. ANDORRA Corsica Rome MACEDONIA Bur Madrid VATIC AN Tir an a T hessaloní ki PORTUG AL Barcelona CIT Y ALB. Tagus Balearic Naples EY TURKEY Lisbon ·Izmir SPAIN Valencia Sea Sardinia Tyrrhenian Sea GREECE Aegean Sea BALEARIC Athens Sevilla ISLANDS Cagliari Ionian Palermo Sea Gibralt ar Má laga Mediterranean Sea Rhodes (U.K.) Sicily Strait of Gibraltar Ceut a Alboran Algier s (SPAIN) Sea Source: European Chemical Site Promotion Platform, 2009 Headquartered in Ludwigshafen, where the Verbund concept was The Verbund principle also applies to Germany, BASF is one of the world’s developed and optimized before it was energy. In the Energy Verbund, the leading chemical companies with applied to other sites around the world. excess heat given off in chemical production and sales facilities in many reactions is immediately converted into BASF estimates that it saves more economic regions. The BASF portfolio steam and is fed into the steam than EUR500 million each year at its comprises chemicals, plastics, network so that it can be made Ludwigshafen site alone. By linking performance products, functional available to other plants.41 plants in a Production Verbund, they are solutions, agricultural solutions and oil able to create efficient value-adding Speaking about the importance of the and gas. chains starting with basic chemicals verbund concept, Dr. Albert Heuser, BASF is widely recognized as the and extending to higher value products Head of BASF’s Petrochemicals founder of the verbund manufacturing like coatings and crop protection Division stated, “strengthened concept. Worldwide, BASF operates products. In addition, by-products from cooperation between companies and six Verbund sites and about 330 one plant can be used as raw materials efficient Verbund structures within each production sites. In Verbund, they link elsewhere. Production plants are company, as well as optimization of production plants intelligently to save connected by an intricate network of logistics and infrastructure, will play a resources and energy. The largest pipes that provides an environment- major role in the European Verbund site in BASF Group is located friendly method of transporting raw petrochemical industry’s future. 42 ” in Ludwigshafen, Germany. This was materials and energy quickly and safely. 41 basf.com, 2009 42 “Sustainable Manufacturing of Petrochemicals in Europe, Chemical Week, September 21, 2009 ”
  • kpmg.com 3 4 T HE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY Contacts: European Sector Leader In Spain Chris Stirling Luis Walter KPMG in the UK KPMG KPMG S.A. Tel: +44 (0)20 7311 8512 Tel: +34 932 532 917 e-mail: chris.stirling@kpmg.co.uk e-mail: lawalter@kpmg.es In France In Switzerland Wilfrid Lauriano do Rego Erik Willems KPMG KPMG S.A. KPMG Holding AG/SA Tel: +33 1 55 68 68 72 Tel: +41 44 249 45 20 e-mail: wlaurianodorego@kpmg.com e-mail: ewillems@kpmg.com In Germany Author Vir Lakshman Paul Harnick KPMG AG Wirtschaftspr¸ KPMG in the UK fungsgesellschaft Tel: +44 (0)15 1473 5226 Tel: +49 211 475 6666 e-mail: paul.harnick@kpmg.co.uk e-mail: vlakshman@kpmg.com In Netherlands Lex Gardien KPMG N.V. Tel: +31 (0)10 453 4163 e-mail: gardien.lex@kpmg.nl The information contained herein is of a general nature and is not intended to address the © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of circumstances of any particular individual or entity. Although we endeavor to provide accurate and independent firms are affiliated with KPMG International. KPMG timely information, there can be no guarantee that such information is accurate as of the date it is International provides no client services. No member firm has received or that it will continue to be accurate in the future. No one should act on such information any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International without appropriate professional advice after a thorough examination of the particular situation. have any such authority to obligate or bind any member firm. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. Publication name: The Future of the European Chemical Industry Publication number: 1001503 Publication date: January 2010