In 2005, the global chemical industry experienced steady growth, with strong earnings reported by major companies and rising chemical prices. However, this growth was challenged by volatile energy markets, as international crude oil and natural gas prices remained high. Additionally, two hurricanes striking the U.S. had a significant impact on the industry, particularly affecting the American chemical sector.
According to a recent report from *Chemical Engineering News*, the profitability of global chemical companies continued its upward trend from 2004. In the first quarter of 2005, profits for 24 surveyed companies surged by 55% compared to the same period in 2004, with total sales reaching $39.3 billion and net profits hitting $4 billion. The rising cost of raw materials, combined with hurricane-related disruptions, led to a slowdown in profit growth during the third quarter, though the industry still maintained positive earnings.
The American Chemistry Council (ACC) projected that chemical production in the U.S. would grow slightly by 0.5% in 2005, following a 3.1% increase in 2004. Basic chemicals were hit hardest, with an estimated decline of 4.7%, while specialty chemicals and pharmaceuticals continued to show strong performance. It was anticipated that the U.S. chemical industry would grow by 2.7% in the following year, with plastic resins leading the way at a 4.9% growth rate.
Mergers and acquisitions remained active throughout 2005, with investment bank Y&P reporting that global M&A activity remained stable. Although the total value of deals was expected to drop by 15-20% compared to the previous year, reaching around $25 billion, the pace of transactions was still considered normal. Notably, most chemical M&A activity during the first three quarters of 2005 focused on basic chemicals.
Ineos, a relatively new player in the industry, made a major move by acquiring BP’s olefins and derivatives business for $9 billion, becoming the sixth-largest chemical company globally. Meanwhile, Access Industries acquired Basel, a joint venture between BASF and Shell, for $5.4 billion. This deal strengthened Access's position in polypropylene and polyethylene markets.
Europe remained the dominant region for chemical M&A, accounting for 41% of all transactions in the first three quarters of 2005. The U.S. saw a decline in M&A activity, dropping from 37% to 26%, while Asia and other regions saw a sharp increase, rising from 14% to 33%.
Asia, especially China, became a key investment hub for multinational chemical firms. With a growing population, abundant resources, and rapid economic expansion, the region showed strong demand for chemical products. Several major petrochemical projects were completed in 2005, including the Shanghai SECCO ethylene plant and the Nanjing Yangba project. The Shell/CNOOC joint venture, valued at $4.3 billion, was also completed by year-end. DuPont planned to invest $1 billion in a titanium dioxide plant in Dongying, set to start operations in 2010, while Wacker Chemicals and Dow Corning announced plans to build a silicone factory in Shanghai.
Meanwhile, the Middle East emerged as another attractive investment area due to its low-cost oil and gas resources. Over the next decade, ethylene production capacity in the region is expected to double to 30 million tons per year, and propylene capacity will triple to 7 million tons. Major players like Borealis and Saudi Arabian companies are investing billions to expand their petrochemical presence, with several large-scale projects scheduled for completion by 2010 or later.
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