Past and Future Growth Of the Chemical Industry RAYMOND H. EWELL, Stanford Research Institute, Stanford, Calif.

Plotting the future growth curve of the chemical industry is like a fascinating game in which it is possible to run up the fabulous scores that be­fit the men of daring and courage who back it

A HE chemical industry is a growth in­dustry" is a truism frequendy heard in the security market-places of the nation, par­ticularly during the past five years. As a matter of fact, the chemical industry has been the most rapidly growing major in­dustry in the L'nited States, not only dur­ing the past five years, but during the past 25 years. During the period 1925-50 the chemical industry expanded at an average rate* of 10' f per year, compared to an average growth rate of Vγ per year for all LT. S. industry ι both in terms of physical volume of production, not dollar sales ). For comparison, the average growth rates of other major industries dur­ing the period 1925-50 varied from 0.4% per year for lumber to 7.6rr for transporta­tion equipment.

However, all segments of the chemical industry have not shared equally in this high growth rate. The average growth rates of the major end-chemical groups during the period 1935-50 have been:

% per year Surface active agents Medicinal chemicals Synthetic plastics Antiknock agents Synthetic fibers

34 19 15 13 12

CHEMICAL INDUSTRY AVERAGE 1 0 Fertilizers Synthetic insecticides Solvents Pigments Dyes Synthetic rubber

9 8 6 4 3

High, b e r a g e is not significant

The chemical economics research group at Stanford. Research Institute has been making extensive studies of the growth rates of individual chemicals, end-chemical groups, raw materials for chemical produc­tion, and the major chemical-consuming industries. In these studies the semi-logarithmic or ratio chart has been very

5 228

useful for charting chemical production and consumption data. Many economic data show straight-line growth patterns over 25 years or even more when plotted in semi logarithmic form, which is not sur­prising since the population itself exhibits such a straight-line trend. Practically all chemical products show straight-line growth trends when plotted in semiloga-rithmic form, varying in average growth rate from 2 % per year to 80% per year ( for antibiotics ) , with an average of 10% per year for the over-all chemical industry.

Semilogarithmic charts are useful not only for correlating past growth, but also for forecasting the future. Forecasts of the future based on projections of straight trend lines on semilogarithmic charts must, of course, be made with caution and dis­cretion for they frequently lead to ab­surdly high forecasts in a relatively few \ears. However, such projections of past growth, liberally tempered with judgment, offer the best approach to forecasting in the chemical industry. The method must he used boldly, even though with discre­tion. The chemical industry with its phenomenal rate of growth has been no place for men of faint hearts and conserva­tive minds, and this will be even more true in the future.

The past is not a perfect approach to the future, but it is the best approach we have. There is an inertia effect in the de­mand for chemical products that seems to carry them on to higher and higher pro­duction, even though it is seldom possible at any given present time to foresee just where the chemical products are going to be used in the future. Projections of past growth trends of plastics, synthetic fibers, medicinal chemicals, even fertilizers, lead in a few years to forecasts that seem im­possible of attainment, but the present looked just as impossible five or 10 years ago. The history of forecasting in the chemical industry has been that it has always been low, much too low. The reason such forecasts have been low is primarily that adequate account has not been taken of the new uses which develop. In fact, there is no way to take account of the new unknown uses except by a pro­jection of the past trend.

The high growth rate of the chemical industry during the past 25 years has been due to the development of two principal categories of markets:

( 1 ) Replacement markets, for example, synthetic fibers, synthetic plastics, syn­thetic rubber, surface active agents ( in part). These products are expanding at

T> AYMOND HENRY E W E X , manager of the Chemi-•"• cal Economics Service at Stanford Research Institute, has ranged far from his native Brock­ton, Mass., both for his education and professional experience. After taking degrees from Toledo, George Washington University, Purdue, and Princeton, he revisited Purdue as an instructor, then served on the National Defense Research Committee during World War II. After his turn at academic and governmental careers h e spent two years in private industry with Shell Chemical Corp. as senior technologist. His fields of specialty in chemistry are variegated, and are topped off with a keen interest in chemical economics.

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the expense of older products, usually of natural origin.

( 2 ) New markets, for example, medic­inal chemicals, fertilizers, antiknock agents, insecticides. These products owe their expansion to the development and expansion of new markets where they are not replacing other products.

Both categories of markets have been important in the growth of the chemical industry, but the replacement market has

been the more important of the two. The "new market" category of products can go on expanding indefinitely, but the "re­placement market" category of products will eventually have to slow down as they approach the ultimate market for those types of products.

For example, synthetic fibers cannot be expected to exceed the ceiling imposed by the total demand for fibers. If the present gowth rate of synthetic fibers were to con­tinue they would fill the entire projected demand for fibers in 1970. Therefore, it seems certain that the past growth rate of synthetic fibers will decline during the next 20 years. Figure 1 shows our picture of the future consumption of fibers.

The same reasoning applies to surface active agents which are used in large meas­ure as a replacement for soap. The growth rate of surface active agents is so high ( 3 4 % per year) that if it were to con­tinue synthetic detergents would com­pletely replace soap within five years. Therefore the growth rate of surface ac­tive agents will undoubtedly decline mark­edly in the next few years, although the substantial uses of surface active agents other than as a replacement for soap will temper the decline in growth rate.

Plastics are also replacement products, but since they are replacing steel, wood, glass, ceramics, brass, rubber, leather, aluminum, magnesium, textiles, paper, natural resins, and other old-line products, there appears to be no foreseeable ceiling on their potential consumption.

Ceilings due to the exhaustion of replace­ment markets do not exist for medicinal chemicals, fertilizers, insecticides, and

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Figure 1

others. These products cau expand inde­finitely, limited only by their value in the over-all economy. For example, as the number of acres of cultivated land per person decreases, the demand for fertili­zers and insecticides will go u p so that an even larger percentage of the national income will be diverted to these products. If medicinal chemicals can improve man's health and increase his life expectancy, there is virtually no limit to the percentage of the national income which might h e diverted to these products.

Tab le 1. Sales of M a j o r End-Chemical

1. Synthetic plastics 2. Synthetic fibers 3. Medicinal chemicals 4. Fertilizers 5. Surface active agents 6. Synthetic rubber 7. Pigments 8. Solvents 9. Antiknock agents

10. Dyes 1 1 . Synthetic insecticides Total, 11 groups Total chemical industry sales Percentage of chemical industry

sales in 11 groups Percentage of chemical industry

sales in plastics

1925 28 37

5 71

Ο Ο

120 50

2 87

4 404 010

6 6 %

5 %

Groups Un millions o f d o l l a r s a t 19S0 pr ices) 1937

128 244

32 116

3 0

159 100

32 123

21 958

M 0 0

6 9 %

9%

1950 9 4 9

1,173 420 386 153 284 270 205 182 204

75 4,301 5.500

7 8 %

1 7 %

1962 3,200 2.700 130O 1.O00

6 0 0 -470 4 0 0 3 5 0 3 6 0 2 6 0 120

10,760 13,000

8 3 %

2 5 %

1975 8.00O 47ΟΟ 3,000 2.01O 1.00O

6 5 0 60O 60O 5 6 0 40O 2 5 0

2 1 7 6 0 25,000

8 7 %

3 2 %

Table I gj\-es sales ( i n terms o f 1950 prices) for selected years for the major end-chemical groups. The general ap­proach in making the projections t o 1962 and 1975 has been first to establish the past growth trend on a seiriilogarithmic chart, then to evtend the past growth trend &s an upper limit of the future growth, and then to curve the future growth trend downwards in a reasonable way, taking into account replacement ceilings, satura­tion of markets, technological trends ( in some cases) , and other factors.

The 11 end-chemical groups given in Table I include all end-chemical groups which are expected to be over S 250 million value in 1975 (at 1950 prices) . T h e next Largest end-chemical groups after those in Table I, in estimated order of size in 1975, are ( 1 2 ) lubricating oil additives, ( 1 3 ) explosives, ( 14 ) acids for miscellaneous purposes, ( 1 5 ) rubber-processing chemi­cals, ( 1 6 ) antifreezes, ( 1 7 ) wood pre­servatives. Two "dark horses" which might be in the $250 million class in 1975 are ( 1 ) military explosives o r other class o f military chemicals, -which depends on t h e possibilities of active warfare in 1975, o r ( 2 ) some new synthetic food supple­ment.

All the data given in the tables and charts include only synthetic—no natural products. They include all synthetic prod-

V O L U M E 2 9, N O . 5 0 » D E C E M B E R 1 0 , 1 9 5 1 52S9

Sales off Chemical Industry and Dol lar V a l u e s Off Ma jor End-Chemical Groups

Figure 2

ucts made in the U. S. and therefore in­clude exports, but imports are excluded. Therefore, the data do not include rosin, turpentine, shellac and other natural resins, natural organic fertilizers, imported sodium nitrate, distillate petroleum sol­vents, nor botanical insecticides. How­ever, the data include potash fertilizers made from the Carlsbad minerals, potash, and borax, from the Southern California lake brines, and similar products.

Table I also gives the total sales of the chemical industry. These sales are the external sales cf the chemical industry and do not include sales within the chemical industry from one /vhemical company to another. In other words, these are the sales of end-chemicals. The total sales of chemical products in 1950 was about $7 billion, of which about $1.5 billion were internal industry sales and $5.5 billion were external sales of end-chemicals.

Table II gives thu same end-chemical groups in terms of physical volume of pro­duction (pounds or tons) . Weights are not shown for medicinal chemicals in 1962

and 1975 since the projections were ac­tually made in terms of dollars, and the 1950 average price is n o t significant for other years due to the w i d e variation in the pe r pound prices of the various me­dicinal chemicals.

Figure 2 shovs six of the major end-chemical groups 'xi semilogarithmic chart form with extensions to 1975. These six were selected as t h e most interesting to show, since the chart was too complicated

wi th all 11 end-chemical groups. F igu re 2 shows plastics going around synthetic fibers between 1955 and 1960 to become the largest end-chemical group. Likewise, the chart shows medicinal chemicals go­ing around fertilizers to become the third largest end-chemical group.

The projections for future years repre­sent reasonable extensions of past t rends . They can be called forecasts if the reader wishes to do so. Naturally, an extension or forecast for any future year implies tha t the future year is a "trend-line" year, i.e. it will be an average year for that period, neither a boom year nor a year of depres­sion, nor, of course, a war year.

All of the projections shown in F igure 2 represent material declines from the growth rates of the past 15 to 25 years. Fo r this reason, many of the projections shown in Figure 2 may ultimately prove to be too conservative. For example, if the growth trends of plastics, medicinal chemicals, and fertilizers during the past 25 years were continued until 1975, t he sales of these products would be $28 bil­lion, $26 billion and $4 billion, respec­tively. Our projections have cut these figures down to $8 billion, $3 billion, and $2 billion, respectively. These reductions represent the degree of conservatism in this article, since it is not beyond the realm of possibility that the growth rates of the past 25 years will continue for another 25 years.

The projections of plastics, fibers, me­dicinal chemicals, fertilizers, surface active agents, pigments, solvents, dyes, and in­secticides presented in this article were made by graphical means taking into ac­count the past growth rate, replacement ceilings, saturation of markets, techno­logical trends ( in some cases) , and other factors. However, in the case of synthetic rubber and antiknock agents it was neces­sary to make some assumptions since the former is so highly dependent on inter­national politics and the latter could be so greatly affected by technical trends in propulsion.

For synthetic rubber it was assumed tha t total demand for rubber in 1975 would be 3 million long tons, of which 4 0 % would be supplied by synthetic rub­ber , 40(/c by natural rubber, and 2 0 % by reclaimed rubber. At 24 cents per pound ( 1950 price) this leads to a value of $650 million for synthetic rubber in 1975. The estimated demand for rubber in 1975 is

(Continued on page 5312)

Table I I . Sales of Major End-Chemical Groups (in terms of physical volume)

1. Synthetic plastics, million lb . 2. Synthetic fibers, million l b . 3. Medicinal chemicals, million lb. 4 . Fertilizers, thousand tons plant food 5. Surface active agents,million lb . 6. Synthetic rubber, thousand long tons 7. Pigments, million l b . 8. Solvents, million lb . 9. Antiknock agents, million lb. TEL

1 0. Dyes, million lb. 1 1. Synthetic insecticides, million l b .

925 46 58 3

790 0 0

746 650 3

86 27

1937 315 329 17

1,300 9 0

849 1,300

58 122 102

1950 2,901 1,496

46 4,430 664 520

1,426 3,200 324 202 271

1962 1 0,000 3,500

•.. 11,500 2,600 850

2,100 5,400 650 260 430

1975 25,000 6,000

*.. 23,000 4,400 1,200 3,200 9,200 1,000 400 900

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(Continued* on page 5317)

Past and Future G r o w t h O f the Chemical Industry

(Continued from page 5230)

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