Chemical Industry

INTELLIGENCE REPORT2008

CHEMICAL INDUSTRYMARKET FORECAST AND ANALYSISNAICS 3251 / 3252 / 3253 / 3256 / 3259

© 2008 DVIRC

Growing Business Value

Strategic View:

•MatureIndustry1 •BusinessCycleReaction–CyclicalIndustry2

•Opportunity–exportchemicalproductstodevelopingcountries(ChinaandIndia) •Productinnovation–highlyspecializedtechnology–nanotechnology,environmentallyconsciousproducts •Domesticmarketinastateofmaturity(lowmargins) •ProcyclicalIndustry–willbeaffectedbyweakGDPgrowthin2008 •Majorcustomers:Housing,Automotive,AgricultureandManufacturing

Financial Trends:

•USProjectedRevenuesin2008:$485 Billion •Forecastrevenuegrowthfor2008:5.2% •OperatingExpenseswillincreaseby6.6%in2008(safetyconsciouslegislations) •Profitmarginswillweakenin2008 •AverageHourlyEarningswillexperiencesmallgrowth$19.9in2008from$19.7in2007 •USstilldominatestheglobalmarketplace •Chemicalsandplasticswillexperienceincreaseinexportsvolumefrom$166billionto$182billionin2008(weakUSdollar)•2008willbringgrowthto:InorganicChemicals(2.5%);SyntheticChemicals(1.4%);Pharmaceuticals&MedicineChemicals(2.1%) •2008willbringdecineto:AgriculturalChemicals(-6.1%);Artificial&SyntheticFibers(-7.9%)

Market Trends:

•GlobalcommoditymarkettendstofavorEuropeancompaniesmorethantheirUScounterparts •Inventorieshaveincreased–lowdomesticdemand •Pharmaceuticalinventoriesincreaseddramatically–lackofdemand/supplybalance(appx12blockbusterdrugpatentsareexpectedtoexpireby2012) •BasicChemicals,PesticidesandPaintswillexperienceadecrease •StifflocalcompetitioninLatinAmerica-Venezuelatakingaggressiveactiontobecomeregionalhubforchemicals •USfirmsshouldactquicklytogainmarketshareinIndiaandChina(chemicalindustryininfancystage) •Changeinhousingmarkettrendcoulddrivedemandupward-consumerspendinganddemandforpaintsandadhesives(housingmarketwillstarttorecoverinSpring,2009)

CHEMICAL INDUSTRY

1.Growingindustriesarethoseinwhichnormalexpansioninsalesandprofitsoccursindependentlyofthebusinesscycle.2.BusinessCycleReaction–Defensiveindustriesexhibitstableperformanceduringbothexpansionaryandcontractionaryperiods.

© 2008 DVIRC

Macro Drivers:

•Continuallydeclininghousingmarketwillaffectdemandforpaints,coatingsandadhesives•Slowernon-residentialconstructionwillhaveafurthernegativeeffectontheplayersfromconstructionindustrysupplychain•WeakUSdollarwillfurtherbenefitexports•Slowcustomerspendingwillkeephavingnegativeeffectontheindustry(Customerspendingaccountsforover70%ofUSGDP)•Automotiveindustrydownturnwilllowerdemandforpaintsandadhesives•IncreasingdemandforUSchemicalsfromdevelopingcountries-Chinaeconomywillstillgrowatalmost9.5%in2008,drivenlargelybymanufacturingandconstruction•China’sdomesticmarketisunderdeveloped-doesnotmeetlocaldemand

Industry Drivers:

•Increasingsecurity–governmentsaroundtheworldtightentheircontrolovertheindustry •Pro–environmentalgovernmentlegislation •Tougherenvironmentalregulationsforlocalchemicalproducerswillpushupcosts •Productsafety–chemicalsinevery-dayproducts–willrequirehighersafetystandards–costincrease •Highersafeguardforchemicalplants(possibleterroriststrike)–costincrease

Pricing: •Chemicalproducerpriceswillexperienceanincreaseofover2%in2008•Naturalgas(primaryfeedstockforUSfirms)–$12mmbtuin2008•Crudeoil(primaryfeedstockfortheEUfirms)-over$110abarrelin2008•Transportationpriceincreasedby8%-10%oftotalvalueofshipments•ProducerPricingpowerwilldecreasein2008•Paintpriceswillexperiencestrongerpressure(lowdemand–weakhousingmarket)&(increasingcommodityprices)

INTELLIGENCE REPORT

© 2008 DVIRC

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Source:BureauofLaborStatistics;Moody’sEconomy.com;LexusNexus;Integra;Deloitte;DepartmentofCommerce,GlobalInsight,Inc.;Hoovers;Integra;McKinseyQuarterly,INGForeignExchangeWholesaleBanking,EconomistIntelligenceUnit;HarvardBusinessReview;Edgar;FederalReserveBank;PricewatherhouseCoopersHealthcareIndicators,HospitalStatistics;BruegelBrusselsBelgium.