This section describes the performance of Australia's chemical industry based on some indicators. For another quick overview.
See also other sections for...
WA's chemical industry performance.
ALSO..
| Press to read more | Quick summary |
| Trend | Upturn, after decline in significance (since 1975) |
| Profits | Above Australia's commercial average |
| Investment | New investments offsetting industry rationalisation |
| Employment | Employment down to 44 000 from 75 000 in mid 1970s |
| Performers | Industrial gas, inorganic chemicals, pharmaceuticals and pesticide chemicals |
| Productive sectors | Industrial gases, explosives and pharmaceuticals |
| Relative productivity | Labour productivity outperforms Australia's manufacturing sector |
| Trade performance | Export performance has increased - from one-sixth of imports to one-third but now declining? |
| Performance significance | Less than 2 per cent of companies export more than 50 per cent of their sales |
This section provides performance indicators including turnover trends, profitability, efficiency and trade performance. Resources and time permitting, we can show the key characteristics that illustrate the strengths and weaknesses providing strategic opportunities and government policies for the development of Australia's chemical industry.
We hope this stimulates some long overdue self-examination and help priorities and roles for Government. Comments always welcomed.
While the industry's significance to Australia has halved, when compared
to other industrialised countries, it is today broadly comparable in importance
at between 1 and 2 per cent of gross domestic product. That said, it is hugely
below it potential as signalled by its resource base.
One conclusion is that its value added (profitability and activities) had been overextended by trade restrictions. With new investments, there is today every indication the two decade downturn has bottomed out. We believe with Australia's resource base, it has outstanding potential!
Of course relevant to this section and elsewhere, these are macro perspectives. Major shifts in relative significance between commodity and specialty chemical producers, and between synthesis manufacturers and formulators have also occurred.
Comment
Press to see full size Since 1974 tariffs have been reducing to a maximum of 5 per cent leading
to big declines in profits and employment. The profitability of the synthesis
sector of the chemical industry since 1976 is shown in the above graph.
(The chemical sector of the Plastics and Chemical Industries Association [PACIA], derived by ACTED from their publications "Facts and Figures"
to 1996 and their Performance Surveys to 1998. Their survey is based on
around 32 chemical manufacturers (though only two-thirds are significant
manufacturers). Margins during 1998 had increased while capacity utilisation
had fallen from 93 to 86 per cent.
To be updated:
It shows that for the last five
years including 1998, that sector of the chemical industry averaged a 10.0
per cent
return on shareholders funds. Over the five years including
1996, Australia's largest firms (those with public disclosure) achieved
only a 5.1 per cent weighted return.
Orica,
as the country's largest chemical firm, achieved 11.9 per cent over
5 years and Millennium Inorganic Chemicals (formerly SCM Chemicals) 25
per cent also over the same period. (Source IBIS Business Information "Secrets
of Spectacular Success", Business Review Weekly Feb 17, 1997).
Given the reductions in tariffs which slashed potential gross operating
margins, the status of the industry today is little short of remarkable.
It should be contrasted against the predictions made by industry spokespersons
about the consequences of reduced protection.
Much of the resilience can be attribute to reducing the labour intensity,
especially of the larger operations. Management practices helped. Byvest
purchased Penrice Soda Products, that
had been operated for fifty years under a single owner, and its shareholders
were returned 42 per cent per year over six years until sold in
1996 (to A G Harris). Also the performance of Symex
Holdings.
More generally, though only for the year 1995, the industry represented
by ANZSIC 25 (Petroleum, coal, chemical and associated product manufacturing)
achieved an 8.1 per cent operating profit before tax on sales turnover
which is the same as all manufacturing sectors. (ABS Cat 8221.0
Table 3).
It is worth noting that the formulators of chemicals (i.e.. the larger
balance of the chemical industry not involved in synthesis) have experienced
a smaller decline in employment.
The following table shows some data published by Business Review Weekly
October 1997 (showing data prepared by IBIS Business Information Services
using latest available data ranked by sales). A 1998 update is shown where
available.
This table is reproduced below for the commodity chemical producers
in the above table (ranked from largest on left).
Press to see full size
It is relevant to note that Australia's chemical synthesis industry
is overwhelmingly owned by multinational companies. From the late 1930s,
multinationals either purchased or invested in Australian activities using
trade barriers to exploit the profitable domestic market. Strong links
with government, especially at the federal level was important to ensure
the maintenance of protection to offset lack of international competitiveness
(and sometimes operational inefficiencies). With a decline in protectionism,
multinationals have been investing based on Australia's competitiveness
and their global strategies.
Between 1991 and 1996, the share of foreign companies in the Top
1000 (IBIS Business Information) revenue doubled from 13 per
cent to 24 per cent (to return the levels of 1980) - a shift not reflected
in multinational investment in Australia's
manufacturing sector. In the chemical industry it is estimated that foreign
ownership exceeds 70 per cent - higher for some sectors such as soaps and
detergents at 90 per cent.
In PACIA's Performance Survey '98, table 4.2.7 shows that only 20 per
cent of companies in their survey, are independent of "overseas
initiatives"! (70 per cent have more than 50 per cent dependence).
Para 4.2.5 could be indicative as well. This section identifies extent of
remuneration for use of intellectual property or provision of technical or
management assistance of services. Some 60 per cent of surveyed companies pay OR
receive remuneration (no distinction on direction). We estimate that by value,
85to 95 per cent of income is paid out to overseas principals.
It is worth noting that WMC has invested some A$700 million in an ammonium
phosphate plant in Queensland and Dyno and/or Wesfarmers in an ammonia/ammonium
nitrate plants in Queensland and Western Australia. There are feasibility
studies for large world-scale ammonia/urea plants in Western Australia and
Victoria. Recent
announcements on new investment.
Click on the graph to see it as a pie chart The chemical industry represents about 8 per cent of manufacturing
activity (5 per cent by employment) having declined to about 1.3 per cent of the Australian economy
(by GDP). At this level it is typical of other industrialised nations (though
below it potential given Australia's resource base).
Manufacturing turnover in 1997-98 was A$17 billion so that the Australian
market for chemicals is around $25 billion of which three quarters is locally
manufactured (see trade profile).
Equally interesting is the change in its profile in the fifteen year period
since 1982. The commodity chemical sector has declined substantially largely due
to reductions in import tariffs.
Press to see full size.
Basic chemical synthesis activities employed 13 000 down 25 per cent
from 20 000 in 1971-72 and chemical formulating 32 000 down 25 per cent
from 40 000 in 1971-72. The following graph provides an indication of growth for each sector
in the period 1996-97 compared with 1994/95. Press to see full size
The scope of the chemical industry is defined by the Australian Bureau
of Statistics to include the petroleum industry. It excludes the manufacture
of aluminium oxide (ie. alumina) but includes titanium dioxide pigment.
Metals too are excluded though produced by chemical means - some like titanium,
tungsten, nickel and tantalum by sophisticated means. The boundaries of
the chemical industry are arbitrary broadly starting with raw materials
such as salt, limestone, sulfur, fossil fuels (such coal, gas and petroleum),
minerals (such as phosphates) and ending with end products arbitrarily
defined. The chemical industry is generally its own major customer. The statistics about the chemical industry can be misleading not only
because they bring together those that manufacture by chemical reaction
(synthesise) with those that mix to customer requirements (eg. detergents,
adhesives, sealants, paints etc) but also of heavy industry with light
and more valuable products.
Though a major manufacturer of raw materials, Australia manufactures less
than one-half of its needs of chemicals. Again though often exporting most
of its potential raw materials, exports of chemicals are generally less
than one-tenth of its production, generally discounted to be competitive
in the world market. Compared to overseas countries, Australia's chemical
industry has underperformed. As shown later, this has largely been an outcome
of past protectionist policies that encouraged the manufacturing industry
to be oriented to the home market - fragmenting production units in favour
of large scale, cost effective, manufacture so necessary to enter world
markets. For Chemical Industry association
structure
Relative growth (1992-1998)
Press to see full size The following graph shows shows the variation
in turnover compared with variation in employment. The chemical industry's
weighted average was set at 1.00 with adjustment for other sectors.
Press to see full size In the following graph the turnover growth and productivities have been
combined for the period 1982 compared with 1994.
Press to see full size
Note that these figures were estimated on turnover. During the course
of the 12 year period used in the above evaluations, import tariffs reduced
by around 30 per cent for the commodity chemicals, deflating their prices
compared with the formulated chemicals. Though formulated chemicals also
incurred tariff reductions, the potential price benefit of tariff assistance
was often underutilised with local, rather than foreign, competition determining
market prices. Accordingly, the previous two graphs may tend to understate
growth for commodity chemicals (and overstate it for formulated chemicals).
A quantity (mass) or corrected valued added analysis would provide a clearer
estimate. A large contributor to this performance profile is of course
industry rationalisation that in recent years has promoted greater change
than indicated in this 12 year profile.
The pattern confirms that consolidation of production centres has provided
greater growth than efficiency improvement at individual centres through
automation and other measures to reduce the labour intensity.
Outperforms manufacturing sector
The chemical industry has outperformed other sectors of Australia's
manufacturing industry. The industry represented by ANZSIC 25 (Petroleum,
coal, chemical and associated products) from 1989-90 to 1994-95 increased
its gross product (turnover) per employee by 21 per cent compared with
Australia's manufacturing average of 19 per cent. (ABS Cat 8221.0 Table
4).
It is worth noting that in 1960, Australia's labour productivity in
manufacturing value added per hour was 51 per cent of the US, 91 per cent
of West Germany but 270 per cent compared with Japan. In 1995 it had remained
about same as US, at 52 per cent of the US, fallen by one-third compared
to Germany at 64 per cent and fallen behind Japan to just one-quarter the
1960 value at 71 per cent. (Source OECD, The Economist). Given the generally
small scale of chemical manufacturing in Australia, the productivity in
the chemical industry can be anticipated to be comparable, and with a trend
comparable to all manufacturing.
Press to see full size Australia has been ranked the 12th most expensive country in
which to do business, according to the Economist Intelligence Unit which
assessed business operating costs in 31 key countries around the world, giving
Japan a rating of 100 because of high labour, rents and expatriate costs while
Australia rated just 38.3. The United States is in second place on 66.3, just
ahead of Germany (66.0) - both of which have high labour costs. The United
Kingdom is fourth on 64.0, largely because of high transport costs and office
rents. Apart from Japan, Australia is slightly more expensive than many
Asian regions because of its high labour costs with Hong Kong (14th place with a
rating of 27.3), South Korea (15th with 27.1), Taiwan (16th with 26.6) and
Singapore in 17th place with 22.4 all offering better value for companies
seeking to set up business. The report said Singapore benefited from some of the
lowest costs in terms of taxes, corruption, telecoms and transport. China is in
28th place with 7.7 points, Thailand is 29th on 7.3 while Indonesia is 30th at
1.7. Hungary is the cheapest country of the 31 surveyed and was given a rating
of 1.0. The rankings are published in a new report, Worldwide Business
Cost Comparisons, which analyses the costs of doing business around the world,
focussing on the countries which attract the most direct investment or have the
potential to do so. The report examined statistics relating to eight categories:
labour costs; business travel; costs for expatriate staff; corporation taxes;
perceived corruption levels; office and industrial rents; telecommunications;
and transport costs. The costliest country was given a score of 100 and the
cheapest a score of 1 with the variables then weighted and combined to produce
an overall score. Apart from Japan, the US and Canada in ninth place, European
countries made up the rest of the top 11 with Spain the cheapest in western
Europe with a score of 39.5.
ALSO..
A summary of trade is summarised in the following graph for the nine
principal sectors of the chemical industry (SITC groupings).
From 1965, Australia's largest oil and gas reserves in Bass Strait, on
the door step of the Altona petrochemical complex, enabled Australia to
become almost self sufficient in oil and gas. We contend, it provided little
more than cheap gasoline and super normal profits for some (like 106
per cent return on shareholders funds in one year). No project can be attributed
to it despite very high import tariffs and over-used anti-dumping legislation.
The North West Shelf reserves in Western Australia are being exploited
but will they repeat Bass Strait in failing to add value? (See also 1996 Chem Systems presentation).
Profits - recovered (a little)
Company
Revenue
(A$ millions) 1997
19988
update
1999
Net
profits after tax % shareholders funds
1998
update
1999 update
1 year SROR* %pa
(to 1999)
5 year SROR* %pa
(to 1999)
10 year SROR* %pa (to
1999)
Orica (ICI Aust)
3508
2722
3960
13
15
11.7
-8.8
1.5
9.7
Incitec
955
905?
1028
23
23
7.6
13.9
11.4
19.4
BOC Gases
781
782
28
25.6
Wattyl
547
7.0
Kemcor Olefins
326
5
Koppers
296
64.8
Dow
Chemical
275
269
11
-163
Millennium Inorganic
Chemicals
239
198 (est)
17
BASF
236
239
0.1
8.7
Basell
214
239
9
3.3
Huntsman
Chemicals
247
14
Australian Chemical
188
7
APS Chemicals
158
117
219
12
5
7.8
-15
11.1
-
Penrice
158
26.5
Notes::
* SROR is the annualised return to shareholders from
maintaining their investment by returning all returns such as dividends,
participating in rights issues and selling stock as required so as not to
contribute to any new capital.
Ownership
Investment
Turnover profile
For more industry
description
Employment
In 1997-98 the chemical industries employed 45 200 down 38 per cent from
70 000 in the mid 1970s reflecting substantial rationalisation and change.
Structure
As in most countries, the industry is broadly divided into manufacturers
that mix chemicals and those that manufacture by a process of chemical
synthesis. The Australian chemical industry in 1997-98 had a turnover of A$18 billion.
By turnover, two-thirds of Australia's chemical industry is represented
by manufacturers that combine chemicals to achieve desired characteristics.
Included are manufacturers of paints, adhesives, detergents and pesticides.
Their competitiveness is derived by manufacturing close to markets using
locally available solvents and diluents often helped by close customer
relations.
The other third of the chemical industry manufactures by chemical synthesis
- a process that changes the chemical identity. This industry is dominated
by petrochemicals such as synthetic resins and rubbers. A broad range of
petrochemicals are produced depending on available feedstocks,
markets and investment timing.
The heavy chemical industry includes the manufacturers of plastic resins
(eg. polythene plastic resin, sulfuric acid) where the scale of operation
is large with few employees evident.
The light chemical industry tends to use more people and produces more
valuable products at smaller scales. Australia has both type of industries.
Performance
Internal comparative performance
Over the same period between 1996/97 compared with
1994/95, there has been a marked variation of employment and labour-intensity
in the chemical sectors.
Trade performance
- national
Example
of exports for 1999 by State. Contact
us for list of detailed chemical imports (like
exports) by State.What are Australia's
top
ten chemical exports for 1999
Product
$
%
total
Medicaments
(excl.antibiotics,hormones,steroids, alkaloids, derivatives thereof), in
doses or for retail sale
902081713
23%
Pigments and
preparations based on titanium dioxide
388380079
10%
Alkaloids of
opium and their derivatives; salts thereof
119398348
3%
Medicaments
cntg hormones, (excl. insulin, adrenal), steroids used as hormones, in
doses or for retail sale
116861459
3%
Wheat gluten
89266443
2%
Casein
77400518
2%
Aluminium
hydroxide
72714457
2%
Blood
fractions (incl. antisera); vaccines
63877491
2%
Preparations
for use on the hair
59870397
2%
Silicon
56728246
1%
What are Australia's
top
ten chemical imports for 1999.
Product
A$
%
Total
Medicaments
(excl.antibiotics,hormones,steroids, alkaloids, derivatives thereof), in
doses or for retail sale
2048779246
17%
Heterocyclic
compounds, with nitrogen hetero-atom(s) only, nes
248781392
2%
Beauty or
make-up preps for skin (excl. medicaments, incl. sunscreen/suntan preps);
manicure/pedicure preps
246456448
2%
Sodium
hydroxide in aqueous solution (soda lye or liquid soda)
230501381
2%
Diammonium
hydrogenorthophosphate (diammonium phosphate)
218995605
2%
Chemical
products and preparations, nes
186360635
2%
Medicaments
(excl. hormones, steroids, antibiotics, alkaloids), not put in doses or in
packs for retail sale
185800936
2%
Urea
167858290
1%
Blood
fractions (incl. antisera); vaccines
157515223
1%
Heterocyclic
comps with nitrogen hetero-atom(s) only, cntg pyrimidine, piperazine,
triazine ring; nucleic acids
154813754
1%
Press to see full size
Generally imports exceed exports by a factor of three with the exception of colouring matter which is represented by rapidly growing exports of titanium dioxide pigment.
Over a long time frame, industry restructuring is promoting the growth of exports at a faster rate than imports. Imports now exceed exports by three having only recently been six-times greater than the value of exports. Since 1994, imports have grown faster than imports.
Press to see full size
Trade figures by industry sector are shown in the following graph showing the ratio of the value of exports to the value of imports by industry sector from 1989 to 1999 for all Australia.
By petrochemical exports can be summarised in the following table. Only
polypropylene is exported with imports assuming a substantial share of
the the market ranging to 100 per cent! (Data 1997).
| Petrochemical | Market size (tonnes) | Net trade as % market |
| Ethylene | 430 000 | 0 |
| Propylene | 320 000 | 0 |
| LDPE | 140 000 | 9% Import |
| LLDPE | 85 000 | 7% Import |
| HDPE | 200 000 | 23% Import |
| PP | 185 000 | 57% Export |
| VCM | 180 000 | 100% Import |
| PVC | 195 000 | 12% Import |
 |
 |
It should be noted that these two States also have had the earliest
and largest chemical industries in Australia. Of course being also the
largest, the allocation could be justified but if recalculated on a per
capita basis, the significance relationship barely changes.
It is worth commenting that in a decade the ratio of the value of Australia's exports compared with imports, has improved from just one-fifth to one-third the value of imports! A balance of trade in chemicals is still some time away (unless aluminium oxide is included).
A
state by state comparison (five digit resolution available on request)
.
Press to see full size
The contributors to Australia's trade imbalance in chemicals is clearly shown, the largest imbalance is NSW, WA the best.
Notes
The following graph shows the value of exports of chemicals as a percentage
of the value of imports this time by Australian state.
Of course relevant to this section and elsewhere, these are macro perspectives.
Major shifts in relative significance between commodity and specialty chemicals,
and between synthesised products and formulated products have also occurred.
Pharmaceuticals are growing but largely influenced by the export incentives offsetting in part the monopsonist status of Australia's
Pharmaceutical Benefits Scheme. With some minor exceptions, Australia's
pharmaceutical industry does not synthesise the active ingredients. (Note: the Government announced April 1997, that
it was extending the scheme (that has cost A$1bn over past 8 years) though
reducing the rebate from 25 per cent to 20 per cent. See also commentary.)
It is worth noting that by
turnover, 40 per cent of establishments do not export, and only 2 per cent
export more than 50 per cent of sales. (ABS Cat 8221, Table 10).
Press to see full size
The above chart shows that....
Broadly, Australia is the 14th largest economy (ranked by GDP) but 21st in science and technology. Almost 45 per cent of business R&D is undertaken by affiliates of international companies - much on the development and adaptation of products to suit the Australian market.
In PACIA's 1998 Performance Survey; R&D outlays are expressed by size of business (large, medium and small that are defined by range) that increases with size of business.
| Small | 0.7 per cent |
| Medium | 0.8 per cent |
| Large | 1.1 per cent |
In the following graph, R&D by PACIA members (Red for Australia) is compared with R&D outlays of international companies (prepared by SalomonSmithBarney in Gyrus 1999).
Surprisingly, over 80 per cent of participants of their survey indicated that the reduced reduction of the R&D tax concession (from 150 to 125 percent), would have NO impact on planned expenditure.
