Chemical IndustryAnalysis of the

Group 7 Jian J. Huang

Megan McDonald Sining Shao     Thet Win

    Eric Wong

• Overview of the Chemical Industry

• Top Companies

• Porter’s Five Forces

• Impacts on the Industry

• Our Prediction

Agenda

“96% of all manufactured goods are touched by the Chemical industry”

–ACC

Chemical Manufacturing

Consumer Product Manufacturers

Consumers

Chemical Manufacturers

Oil/Petroleum Companies

$4,200,000,000,000○ 23% of the United States’ Public Debt: $18,152,519,173,098○ Would be the 4th largest country by GDP, below the US, China, and

Japan

2013 Global Chemical Sales

Sales By Region

China $1,391

Rest of Asia $1,014

Europe $836

North America $701

Rest of the World $250

Total $4,192

*All numbers in billions

China $1,391

USA $618

Japan $201

Germany $199

Rest of the World $1,782

Total $4,192

Sales By Country

Top 5 Companies by Sales

Company Country Chemical Sales*

% of Total Sales

BASF Germany $78.6 80%

China Petroleum & Chemical Company (Sinopec) China $60.8 13%

Dow Chemical Company USA $57.1 100%

Saudi Basic Industries Corporation (SABIC) Saudi Arabia $43.6 87%

ExxonMobil USA $39.0 9.3%

*All numbers In billions

Buyer PowerPlayers:o Manufacturers of plastic products,

consumer chemical manufacturers, water utility companies, etc.

Strengths:o Medium to Large businesseso Commoditization of chemicals

Weaknesses:o Large number of buyerso Low threat of backward integrationo Contractual obligations

Buyer Threat is Medium

Supplier PowerPlayers:o Multinational oil and gas

companies

Strengths:o Oligopolyo Forward Integration

Weaknesses:o Reduction in oil priceso Commoditization of raw materials,

Supplier Threat is Medium

Threat of New Entrants

Weaknesses:● Economies of scale

● High start-up capitals

● Power of existing companies

Threats of New Entrants is Medium

Threat of Substitutes

Weaknesses:● Fundamental Raw Materials

● Low Cost Switching

Threat of Substitutes is Weak

Degree of Rivalry

Strengths:● Undifferentiated nature of

commoditized chemical products

Degree of Rivalry is Strong

Summary of The Five Forces

Buyer Power: Medium

Supplier Power: Medium

Threat of New Entrants: Medium

Threat of Substitutes: Weak

Degree of Rivalry: Strong

Impacts on the IndustryShale Gaso United States has 2,700 trillion

cubic feet (estimated) of natural gas

o 40% is from shale depositso Reduced the price of natural gas

from $12USD to $2.79USD/ TCF Meet

o 115 years of demand

Impacts on the IndustryTradeo TAFTA (Trans-Atlantic Free Trade

Agreement)o TPP (Trans-Pacific Partnership)o EU-China Summit

Impacts on the Industry

Capital investment• $447.3 b (2014)• $ 592 billion by 2019

R&D expenditure• $57.5 b (2014)• $ 69.8 billion by 2019

Most successful firmDOW Chemical Company

Vertical integration o US Shale gas vs Oil-based fuelo Joint ventures in middle east, Asia Pacifico Increase profit margino Increase in revenue $3 billion annually

Most successful firmGeographical reach

o Customers in 180 countrieso 201 production plants in 36 countrieso Trans Pacific Partnership

▪ Asia Pacific, Latin America & E. Europe

Diversified product portfolios o 6 business segments

DOW Chemical Company

DOW Chemical Company

Game changing product innovationso Spent $1.6 billion in R&Do Sales new products composed of 30% of revenueo R&D in agricultural chemical segment $1b

incremental revenue by 2018

Intellectual propertieso 2014 635 US patentso 23% of revenue

Financial performanceo Positive revenue growth & Profit margino Stock Price jumped 90% in 5 years

($27.04 to $51.44)

DOW : Key Financial Ratios

Ratio 2010 2011 2012 2013 2014

Profit margin 4.3% 4.6% 1.9% 8.4% 6.5%

Revenue Growth 19.6% 11.8% -5.3% 0.5% 1.9%

Debt/Asset Ratio 67.5% 66.1% 68.6% 59.8% 67.1%

Return on assets 3.4% 4.0% 1.6% 6.9% 5.5%

DOW Chemical Company

Thank you! Questions?