Today, in partnership with Santander, we published the fourth instalment in our sector bulletin series. Having tackled the automotive, aerospace and food and drink sectors, this time we turned our attention to the less well known chemicals sector. It turned out to be a good ‘un.
Here are the 7 things you need to know about the chemicals sector:
1) The sector makes a vast array of products
From shampoos and soaps, to industrial products derived from petrochemicals and dyes, the chemicals sector has a hand in almost every aspect of our daily lives, without us often realising.
Indeed, while it does produce a number of consumer facing goods such as cosmetics and detergents, it primarily makes industrial goods used in other sectors supply chains. Think fertilisers used in agriculture, plastics in the automotive sector, rubber in construction…etc etc
2) It has a complex structure…
…and we mean it, just check out our “simplified” diagram below.
This (hopefully) shows that the chemicals sector has a presence across the value chain, from source right up to the final consumer. The sector is unique in this respect given that few others encompass such a wide range of activities.
3) Foreign investors are attracted to the UK's chemicals sector
While the chemicals sector has remained an integral part of UK manufacturing, its diverse demand base, opportunities for scale, and scope for evolution, makes it an attractive proposition for foreign multinationals. As a result the sector has become increasingly foreign owned.
In fact over a tenth (10.7%) of chemicals enterprises are foreign owned, with the US, Germany and Switzerland topping the list of foreign investors. This is a significantly larger share than the 2.7% recorded in the total manufacturing sector, and is perhaps best represented by the break-up of former powerhouse ICI.
4) The sector has strong fundamentals
The sector has strong fundamentals, including higher weekly wages than the manufacturing average - 30% higher in fact - and an impressive slice of R&D expenditure (6.6% of total manufacturing). However it is its productivity performance that catches the eye most. Between 1996 and 2016, the chemicals sector real productivity growth more than doubled (+102.2%), significantly exceeding the UK economy average.
5) It is a big energy consumer
The chemicals sector, and particularly manufacturers at the source of the value chain, are highly energy intensive and in 2015 the sector was the second highest energy consumer amongst manufacturers after the basic metals sector.
Encouragingly, despite retaining its position as one of the most highly energy intensive sectors, the chemicals sector’s energy consumption has actually fallen by around 40% since 2007, while its industrial production has remained broadly stable, illustrating a more efficient use of resources
6) Chemicals is a globalised industry
While not as export intensive as some other sectors, for instance mechanical equipment and automotive, chemicals still derives significant value from exports. In fact the sector is actually one of the most open to trade in manufacturing, boasting the highest proportion of exporting companies of any sector (53.6%) and the second highest proportion of importing companies (52.5%).
7) High energy costs are a risk to the sector...amongst others
A well-known fact but an important one…. High energy costs are a particular concern for energy intensive manufacturers at the source of the value chain, given it is a cost that is ultimately out of their control. Ohh and there is a little thing called Brexit to worry about too.
You can read the full report here.