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Growth prospects in the chemical industry Growth in Hungary: status and prospects ICEG EC – MKT Conference – 9 December, 2005. János Mátyás Head of Strategy & Portfolio Governance Scope of analysis: chemical products (NACE 24) and refined petroleum products (NACE 232) 23 Manufacture of coke, refined petroleum products and nuclear fuel 231 Manufacture of coke oven products 232 Manufacture of refined petroleum products 233 Processing of nuclear fuel 24 Manufacture of chemicals and chemical products 241 Manufacture of basic chemicals 242 Manufacture of pesticides and other agro-chemical products 243 Manufacture of paints, varnishes and similar coatings, printing ink and mastics 244 Manufacture of pharmaceuticals, medicinal chemicals and botanical products 245 Manufacture of soap and detergents 246 Manufacture of other chemical products 247 Manufacture of man-made fibres 25 Manufacture of rubber and plastic products 251 Manufacture of rubber products 252 Manufacture of plastic products 2 Pharma goes twice as fast as basic inorganics Annual growth rate (%) 0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 Pharma Petrochemicals Plastics and rubber Consumer chemicals Specialty and fine chemicals Basic inorganics 2004 2005 3 Hungary is still on the fast-growth track in car penetration: trend is expected to flatten post-2015 Theoretical car penetration curve and countries in 2002 Number of Motor Vehicles (per 1000 people) 900 800 USA 700 Italy 600 Canada Austria Spain 500 400 Croatia 300 Hungary Slovakia 200 100 Turkey China 0 0 5 10 15 20 25 30 35 40 GDP/capita (1000 PPP$) 4 Landlocked refining is a local business Number of MOL Group filling stations Number of INA filling stations PL D 31 UKR CZ 261 SK 23 A 10 H 357 137 SLO RO 6 HR 410 BIH 40 SCG 0 500 1000 km 5 Weight of export sales increased dramatically in the last 25 years in EU15, as the industry globalized Chemical sales (EUR bn) 500 450 400 350 300 250 200 150 100 50 0 1990 1991 Domestic 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Import 6 Proportion of supply from non-EU countries have been doubled in 15 years Origin of supply 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 EU25 Non-EU 7 EU25 demand falls behind the growth rate of output, resulting in mounting export pressure, and increasing competition Growth rate (%) Relative growth (1990=100) Surplus (EUR bn) 18 180 100 16 170 90 14 160 80 12 150 70 10 140 60 8 130 50 6 120 40 4 110 30 2 100 20 0 90 10 -2 80 0 1990 1992 1994 1996 1998 2000 2002 2004 EU25 cons EU25 outp 1990 1992 1994 1996 1998 2000 2002 2004 Surplus EU25 cons EU25 outp 8 Investors already decided to cut back the rate of chemical investment in EU25 … Gap (EUR bn) Relative growth (1990=100) 160 140 120 100 80 60 40 20 0 1996 1997 1998 1999 Capital spending in chemicals 2000 2001 2002 2003 2004 EU25 GDP per capita 9 … and the industry is loosing is labor force rapidly, leaving little room for recovery Relative growth (1990=100) 110 105 100 95 90 85 80 1996 1997 1998 1999 2000 2001 2002 2003 2004 EU25 population Chemical industry employment Chemical industry employment excluding pharma 10 New accession (EU10) countries are no exceptions to the wider European trend of increasing weight of imported chemicals … Chemical sales (EUR bn) 80 70 60 50 40 30 20 10 0 1994 1995 Domestic 1996 1997 1998 1999 2000 2001 2002 2003 2004 Import 11 … however, the region is still net importer of chemical products (as opposed to EU25), although the trend is flattening Gap (EUR bn) Relative growth (1990=100) 260 16 240 14 220 12 200 10 180 8 160 6 140 4 120 2 100 0 1994 Gap 1995 1996 EU10 cons 1997 1998 1999 2000 2001 2002 2003 2004 EU10 outp 12 Labor force is decreasing, but this may just be the result of efficiency improvement … Relative growth (1996=100) 110 105 100 95 90 85 80 75 70 65 60 1996 1997 1998 1999 2000 2001 2002 2003 2004 EU25 population Chemical industry employment Chemical industry employment excluding pharma 13 … since investment is keeping up with overall GDP growth trend … Gap (EUR bn) Relative growth (1990=100) 200 180 160 140 120 100 80 60 40 20 0 1996 1997 1998 1999 Capital spending in chemicals 2000 2001 2002 2003 2004 EU10 GDP per capita 14 … and the overall productivity (turnover per employee) inceased faster than in the EU15 or in the USA Productivity index (1990=100) 600 500 400 300 200 100 0 1990 1991 1992 USA 1993 1994 1995 1996 1997 EU15 1998 1999 2000 2001 2002 2003 2004 EU10 15 Conclusions ► Petroleum refining Sufficient mid-term (5-10 years) organic growth, largely fulfilled by local production or regional import ► Chemical industry European trends are rather discouraging • • • • • Increased extra-EU import Falling investment Deteriorating labor force Export pressure mounting Pharma may keep its position mid-term Regional industry is in a slightly better shape • Net importer position, butvalue of import seems to flatten • Investment keeps up with GDP growth • Labor force decreases, but probably for efficiency improvement reasons Medium-term future is safe, but the sky is cloudy: the industry needs to find solutions to avoid repeating the story of WE chemical industry 16