Landscape of the European Chemical Industry 2017

Landscape of the European Chemical Industry 2017

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United Kingdom

Turnover

56.2 billion €

Number of companies

3,153

Direct employees

140,000

National contact

Chemical Industries Association (CIA)

Stephen Elliott

Chief Executive

elliotts@cia.org.uk

United Kingdom

Chemical industry snapshot

The third-biggest industry

With £45.3 billion of revenues and £14.7 billion value added in 2014, chemicals & pharmaceuticals is the UK’s third largest industry. Only food processing and automotive are bigger.

Offering a full product range

The UK industry is active in all key areas: basic inorganics, petrochemicals, polymers, agrochemicals, paints, detergents and personal care products, in specialties such as adhesives, flavours and fragrances, and in a host of industrial specialties including lubricants, fuel additives, construction chemicals and catalysts. It is also a global leader in pharmaceuticals.

Employing and investing

Together these employed 140,000 in 2014, and around half a million if you include all whose jobs depend on the industry. Public and private R&D spending in chemical and pharmaceutical manufacturing businesses was £4.6 billion (€5.8 billion) in 2014, of which £4.0 billion in pharmaceuticals.

Recovering growth

Chemical and pharmaceutical production expanded in 2015, pharmaceuticals for the first time since 2009. Both sectors have struggled in the face of uncompetitive energy costs due to ambitious climate policies in the UK.

Revitalising pharmaceuticals

Output of pharmaceuticals, for decades the fastest-growing sector, fell as companies sought to counter increased R&D and regulatory costs and fewer blockbuster drugs by moving production elsewhere. This led to outsourcing of active ingredient production both elsewhere in Europe, including Ireland, but also to industrializing nations with or near large consumer populations, including India, China and Singapore.

 

But the outsourcing trend has been called into question, because of higher-than-expected costs, extended supply chains and poor quality control in some new production locations.

 

But the UK’s strong science base has helped UK R&D spending stay high. Recent large investments in UK pharmaceutical production and R&D facilities suggest the production increase of 2015 will continue.

Strong in the north

There are chemical manufacturing sites in all UK regions. Primary commodity chemicals are produced mainly in Scotland and Northern England. Feedstocks include hydrocarbons (mainly gas and refined petroleum fractions), minerals and vegetable or animal-derived oils and fats.

Clustered with customers

Sequential processing is the norm, with co-located processing clusters adjacent to industrial customers in other industries.

Close to feedstocks

North West England is the leading chemical producer, followed by Scotland, North East England and the Yorkshire/Humber areas, while the South East and East of England regions also rank highly. Locations often depend upon availability of feedstocks such as North Sea hydrocarbons, salt and limestone, and energy (originally coal).

Handy for ports

Though peripheral to the centre of the European market, all chemical-producing regions have access to good ports and many benefit from an ethylene pipeline network, while Liquefied Natural Gas (LNG) re-gasification terminals complement natural gas supplies from the North Sea and Europe.

Investing to cut costs

Recent investments underpin long-term viability by enabling several petrochemical crackers to use cheap ethane from the US or UK shale gas, if available.

Building on knowledge

Speciality chemicals and pharmaceuticals are more widely distributed. In recent years pharmaceutical R&D has increased in South-East and Eastern England, close to the renowned universities of Oxford and Cambridge.

How are we doing?

Strengths

  • Ethane import infrastructure and three crackers able to use ethane as a feedstock
  • LNG import and re-export facilities
  • Several closely integrated clusters
  • An extensive ethylene pipeline network
  • Modern chlor-alkali and derivatives production based on membrane technology
  • Strong exports to geographically diverse markets
  • High resource efficiency
  • Strong pool of highly-skilled researchers and staff
  • Highly innovative, backed by exceptional research and university infrastructure
  • Excellent labour relations
  • Strong safety and responsibility culture in production and distribution
  • Able to satisfy sophisticated consumer demands
  • Government becoming more supportive of  new technologies and domestic shale gas exploration
  • Improving public perception

Weaknesses

  • The uncertainty of Brexit
  • Fragmented ownership of plants within clusters can lead to non-optimal long- term strategies
  • Energy prices are globally uncompetitive, driven up by EU and UK climate policies while US Middle East and Russian rivals access cheap hydrocarbons
  • Mature European market: growth is faster in Asia and the US
  • Scarcity of skilled craft workers because of ageing and competition from other sectors
  • Relatively weak domestic manufacturing base despite strengths in automotive, aerospace and pharmaceuticals

Our contribution to a competitive Europe

Strengthening strategic planning

Following the June 2016 referendum decision to leave the EU, government has set up a Business, Energy and Industrial Strategy (BEIS) department to continue working with industry on long-term growth initiatives. These include the Chemistry Growth Partnership (CGP), established in 2014, with a 2030 growth target via energy, innovation and supply chains, skills development and exports. A government consultation on Industrial Strategy was published in January 2017.

Putting science to work

Public science investment aims to strengthen national innovation performance directed by a Technology Strategy Board and by developing Catapult Centres to help businesses turn ideas into products and services. Among the seven are centres for High Value Manufacturing; Offshore Renewable Energy and Cell Therapy, which should benefit our industry. The Chemistry Growth Partnership is working with these initiatives, and with the Centre for Process Innovation on Teesside to deliver a National Formulation Centre.

Working together

Through cross industry collaboration, chemistry aims to facilitate solutions the growth of automotive, aerospace, construction, life sciences and personal care through development of better products. Chemical industry links with UK academic centres are strong and R&D spending intentions rising, despite concerns triggered by the Brexit referendum over future access to talent and the EU’s Horizon funding programme.

Removing barriers

A ban on shale gas exploration was ended in 2016, with planning permission granted in the north of the country. These actions, allied to the more immediate benefit of imported ethane feedstock from the US into Grangemouth and Teesside should enable growth in primary petrochemicals, fertilisers and related sectors.

Navigating Brexit

Modified Patent Box incentives and the National Formulation Centre, combined with pharmaceutical re-shoring, should aid investment. The UK chemical and pharmaceutical industry will be working hard with Cefic and the European chemical industry to minimise any adverse impact from the Brexit referendum and its aftermath.