Chemicals: Background

Industry Composition:

The chemicals industry is composed of companies that manufacture and/or distribute chemicals. The products produced by chemical companies are generally used as intermediate products for finished goods their industry produces. Therefore, the chemical industry is important to almost every modern industry today, especially the transportation, electronics, aerospace, consumer goods, medical and agriculture industries, as well as any sort of manufacturing operation. Chemical firms are usually located near one of two locations: areas highly populated with manufacturing firms, which buy their products, or near petroleum and oil sources, which are a major suppliers of the resources that form the base of many chemicals.

The chemicals industry is classified in two broad categories: commodity chemicals and specialty chemicals. Commodity chemicals include polymers, petrochemicals, as well as basic inorganic chemicals and fertilizers and are generally produced in large quantities at a lower price. Commodity chemicals tend to be the main moneymakers for big companies. Specialty chemicals cover a diverse range of less common chemicals, are produced in smaller quantities at a higher cost, and are often supplied on a contract-by-contract basis. Specialty chemicals are often sold based on what the product can do, not what chemicals they contain. Often, companies use the commodity chemicals that they produced themselves as an input in their specialty chemicals.

The chemicals industry can also be divided into seven, more specific, segments: basic chemicals, synthetic materials, agrochemicals, paint and other coatings, cleaning preparations, pharmaceuticals, and other chemicals.

For globalEDGE's purpose, pharmaceutical and other medicinal chemicals are listed under the Pharmaceuticals Industry.


When the chemical industry first started developing in the 1830s, it was focused almost entirely around England. In 1856, the modern organic chemical industry was launched with a major discovery by William Perkin, who had manufactured a dye known as “Perkin’s Mauve.” This helped to launch the industrial revolution, as synthetic fibers and petrochemicals could be produced by refining coal and processing the benzene or ethylene that resulted with other chemicals. England dominated the market until the 1880s when the Germans had taken control of the market, due to their larger natural resource market and customer base. Other major markets at the time included the United States and France.

World War II was a catalyst that helped to promote the growth of chemically based weaponry, specifically mustard gas. The increase in demand for chemical products worldwide also contributed to the rapid growth of the industry, particularly in organic chemistry, as of the 1950s.

In the last decade, the road has been somewhat rockier for chemical companies. It hit rock bottom in 2002 with the soaring prices of petroleum, the industry’s primary raw material. The chemicals industry, specifically for commodity chemicals, is very sensitive because it is greatly affected by both the state of the economy as well as the price of raw materials. Specialty chemicals producers, who often do not rely on petroleum as an input, are affected less by petroleum fluctuations and other industry rises and dips, but are instead affected by the demand of their target market.


The leaders in the chemicals industry are typically large multinational companies with a few successful commodity chemicals as their profit base. Many of them have participated in mergers, alliances, or acquisitions to increase revenues and reduce costs. Commodity chemicals typically have large economies of scale in production, so in the chemical industry bigger is better. Major chemical companies include BASF AG, Dow Chemical, and Bayer. Petroleum producers also include chemical companies, such as ExxonMobil Chemical. In the specialty chemicals arena, leaders include Degussa, Rohm and Haas, and Ciba Specialty Chemicals.


Chemical companies have faced many challenges recently. Local and state tax requirements are increasingly complex and under continuous review. New regulations have resulted in additional obligations with respect to internal controls and management certifications. The recent environmental movement away from traditional chemicals and pollution will also impact the chemical industry in major ways. Companies will have to be creative and find ways to produce chemicals with a lower environmental impact.

Future Outlook:

Chemical production is perhaps the most important segment of the manufacturing industry since it produces the compounds needed for numerous other sectors. Although development of nanotechnology has been slow in chemical manufacturing, research and development in this area has been increasing and should continue to increase resulting in newer and safer products.

The rising cost of raw materials has decreased revenues among chemical manufacturers. The employment in chemical manufacturing is expected to decline due to increased efficiency, production outsourcing, decreased demand for chemicals, and more stringent regulations. Specialty chemicals are currently viewed as the product with the most potential for growth in this industry.


Deloitte Industry Outlooks

KPMG Industries

PwC Industry Sectors

EY Industries