Monday, December 23, 2013

Gross Profit Margin Percentages in the Chemistry Industry

Gross profit margin percentages (GPM%) were determined for 27 publicly-listed chemical companies.  The companies' most recent 10-K filings, submitted to the Securities and Exchange Commission (SEC), were used for the data to compute the GPM%.  Using WordsAnalytics (click here)  the revenues, cost of sales, and gross profits were found for 8 chemical companies with revenues above $5B (billion), for 11 chemical companies with revenues between $2B and $5B, and for 8 chemical companies with revenues less than $2B.  For each company, the GPM% were computed using the current year reported on in the 10-K and the previous year’s results also provided in the 10-K.

The average GPM% for all 27 companies was 27.9%.  Averages were also determined for companies included in each revenue size (< $2B; $2B - $5B; > $5B).  Interesting, the average for the companies with less than $2B in revenues was 31.6%; for the $2B to $5B revenue-size companies, 28.1%, and for the greater than $5B revenue-size companies, 24.1%.

If indeed, smaller revenue-size companies tend to have larger GPM%, as the data I computed shows, one explanation is that smaller companies are able (willing) to take on projects with higher risks.

Wednesday, December 18, 2013

Chemical Waste Disposals by US Chemical Companies

A United States Environmental Protection Agency (EPA) database (click here to go to the database) provides the quantities of chemical wastes generated by US chemical companies (and companies in other sectors).  Although the database is primarily intended to support EPA’s goals of excellent US environmental qualities, the database can also show how individual companies are handling individual chemical wastes.

For example, once a chemical is selected from a list of hundreds of chemicals, individual chemical companies disposing of that chemical can be found.  For the individual chemical company, various disposal methods used by the company, along with quantities disposed of, are provided.

It seems to me that this information on individual companies can be useful for such reasons as the following:  

1.  A company needing to dispose of a chemical can determine how other companies are disposing of that chemical;
2.  An assessment can be make of the attributes of a company’s disposal program (e.g. cost effectiveness inferences, e.g. recovery versus non-recovery; environmental desirability, e.g. the methods of disposal; and total wastes, data which is given; and
3.  Insights into the identities and quantities of company productions.
4.  Process operations management principles identify waste, especially inventory waste, as critical to contend with in improving process operations.  Details at this EPA database might be helpful in decreasing chemical company waste.

Friday, December 13, 2013

A Net Profits Ratio Alone Can be a Misleading Benchmark

The average net profit ratio (net profit as a percentage of revenues) was determined for five European-headquartered companies and compared to the average net profit ratios for six US-headquartered companies.  2012 data was used.

The five European-headquartered companies used for the data were:   BASF, DSM; Solvay; Borealis; and Laxness.  The six US-headquartered companies used were:  Dow; Huntsman; Monentive; Celanese; Cytec; and FMC.  

The average net profit as a percentage of revenues for the European companies is 5.2% and for the US companies, 7.4%.  

The lower average net profit ratio for the five European chemical companies suggests a poorer performance for these five companies compared to the six United States companies.  However, this would be a wrong conclusion.
For example, the average 2012 revenues for the five European companies were $30.7 billion and the average US companies’ revenues were $14.1 billion.  This difference in average revenues is important.  Europe’s 5.2% average net profit as a percentage of revenues represents $1.605 billion in net profit, whereas the US 7.4% represents $1.037 billion in net profit, a difference of $568 million in favor of Europe.  A conclusion is the $568 greater profit being made by the five European-headquartered chemical companies represents a significantly higher increase of value generated by the European companies.  This increased value (wealth) that these European companies generated was reflected in the European companies’ 2012 stock prices, which were significantly higher than for the US companies

Using net profit ratios in comparing companies’ performances without applying the ratios to the companies’ revenues can lead to incorrect comparisons.  The profit amounts being generated are what are important.

Friday, December 6, 2013

Mark-up Ratios for Materials Used in 3D Printing Products

According to a report issued by IDTechEx, an estimated amount of materials used in 3D printing products in 2013 is 1,980 tons.   Click here to go to this report.   Another report from the same company states that of the total materials used in 2013 3D printing products, an estimated 56% will be photopolymers and an estimated 40% will be thermoplastics.  The same report also estimates that the prices obtained for these 1,980 tons are approximately $425 million.  Click here to go to this report.

From this data, identified in the paragraph above, along with market (open) prices for photopolymers and thermoplastics, a ratio of prices obtained for the materials when used in 3D printing products to open market prices of photopolymers and thermoplastics can be obtained.  This ratio represents to me a “mark-up” being obtained by the sellers of the materials as 3D printer-used material compared to when the material is sold on the open market for other uses.

Open market sales prices for photopolymer liquid resins intended for use with 3D printers can be found on the Internet.  Prices seem to be in the $35 to $50 per liter range.  Click here to go to a website that has such prices. 

Plastic News presents current (December, 2013) prices for a variety of thermoplastics.  Prices provided range from $.94 to $1.68 per pound.  Click here to see the prices provided.

Using the above data, I computed ratios of the estimated total prices for the quantities of photopolymers and thermoplastics in 3D printers ($425 million) to the total open market sales prices for 1,109 tons of photopolymers and 792 tons of thermoplastics (1,109 tons + 792 tons = 1,901 tons, which is 96% of the estimated 1,980 tons of materials used in 3D printing; see above for links to data).

Using an average price of $40 per liter for photopolymers and $1.31 per pound for thermoplastics gives a total price of $37.3 million when sold on the open market, versus an estimated $425 million for the same amount (1,901) sold for use in 3D printing products.  The ratio is 11 ($425 million/$37.3 million).  This is a markup of 11 times over the open market pricing assuming the above data is reasonably accurate.

Varying the open market prices for photopolymers and thermoplastics can noticeably affect the mark-up.  For example, if the average price of $50 per liter is used for photopolymers and $1.68 per pound for thermoplastics, the mark-up becomes 9.

Users of 3-D printers have complained about the high prices of materials, which they have been locked into buying when purchasing 3D printers.   The ratios computed above gives some indication of how much higher the prices are, if the assumptions made and the calculations used are correct.

Thursday, November 21, 2013

Chemical and Material Shortage Alerts – November 2013

The purpose of this blog is to identify chemical and material shortages reported on the Internet.  The sources of the information reported here are primarily news releases issued on the Internet.  The issue period of the news releases is from the middle of October 2013 to the middle of November 2013.

Section I below lists those chemicals and materials that were on previous Chemical and Material Shortage Alerts lists and continue to have news releases indicating they are in short supply. Click here to read the October 2013 Chemical and Material Shortage Alerts list.

Section II lists the new chemicals and materials (not on the October list).  Also provided is some explanation for the shortage and, when appropriate, geographical information.  The blog attempts to list only actual shortages situations – shortages are being experienced currently as of the news release.   Chemicals and materials identified in news releases as only being in danger of being in short supply status are not listed.

Section I.   Chemicals and materials that continue from October to be reported as in short supply are: aluminum scrap; coal (coke); palladium; styrene; and urea.  See the October list (click here) for explanations for the shortages and for geographical information.

Section II.   Shortages Reported in November Not Found on the Previous Month’s List

Copra (Coconut Oil).  Reports from India and Sri Lanka indicate a shortage of coconut oil due to lower production levels of copra (obtained from coconuts).

Natural Gas (China).  Natural gas shortages are being reported in China.  Apparently a main reason is the government’s requirements on reducing the use of coal.  This is increasing natural gas demand as a replacement for coal, outstripping internal natural gas supplies.

Platinum.   Platinum has reached global shortage levels not seen in several years, with demand exceeding supply.   Increased demand from the chemical, electrical, and glass industries apparently account for the imbalance.

Timber.  Insufficient timber supplies are being reported in the United Kingdom and the United States.  In the Untied Kingdom, a reason reported is increased government regulations, e.g. requiring local timber use.   In the Untied States, timber production has recently been less than demand.

Reasons for Section II shortages can be broadly categorized as: 

1.  Mining not keeping up with demand: platinum.
2.  Production not keeping up with demand: copra; timber – US.
3.  Government regulations: timber – UK; natural gas – China.

4.  Sources no longer available: none.

Thursday, November 7, 2013

Sustainability Reports as a Source of Benchmarking Data

Sustainability reports are being issued by large chemical companies.   For example, most, if not all, of the 50 companies listed on the Chemical & Engineering News 2012 “Global Top 50" issue sustainability reports.  (Click here to view the “Global Top 50” list. PDF file.)  These reports offer lots of data, based on company measurements, about important non-financial attributes of the companies.  For example, often such measurements as: water usage; solid waste generation rates; worker injury rates; air emissions; employee diversity; and may others, are reported on.  It seems to me that much of this data offers opportunities for benchmarking one own company’s performance against other companies’ performances.  Such benchmarking comparisons can be useful for setting goals and achieving improvements.

One measurement that is often reported on is the total energy a company uses for a year.  I found from the 2012 sustainability reports of 16 chemical companies on the C&EN Top 50 list data on their total energy use.  I only selected companies on the list that received 100% of their sales from chemical sales, in order to better compare companies more alike in their activities.  I found a wide variety of energy use: from 19 petajoules per year to 593 petajoules per year.  Then, I thought about how I could use this energy data for useful benchmarking.  I came up with the idea of determining how many revenue dollars are generated by a company per one gigajoule of energy.

Using the energy data I found, in the reports, and the 2012 sales for the chemical companies, found on the “Top 50” list, I determined the revenue dollars to gigajoule ratios.  What I found was a range of revenue dollars per gigajoule from $374 per gigajoule to $49 per gigajoule.  The average was $154 per gigajoule with a standard deviation of $96 per gigajoule.

These results might be useful for a company to compare their results to.  A low sales generation per energy use, compared to other companies, might suggest not only a need but a potential to improve energy use efficiencies.

The revenues to energy use ratios described above are one example of how data found in sustainability reports might be used for benchmarking benefits.  Certainly other data in these reports can be used in useful benchmarking.  I would be happy to explore with you these opportunities.

Tuesday, October 15, 2013

Chemical and Material Shortage Alerts – October 2013

The purpose of this blog is to identify chemical and material shortages reported on the Internet.  The sources of the information reported here are primarily news releases issued on the Internet.  The issue period of the news releases is from the middle of September 2013 to the middle of October 2013.

Section I below lists those chemicals and materials that were on the September 2013 Chemical and Material Shortage Alerts list and continue to have news releases indicating they are in short supply. Click here to read the September 2013 Chemical and Material Shortage Alerts list.

Section II lists the new chemicals and materials (not on the September list).  Also provided is some explanation for the shortage and when appropriate geographical information.  The blog attempts to list only actual shortages situations – shortages are being experienced currently as of the news release.   Chemicals and materials identified in news releases as only being in danger of being in short supply status are not listed.

Section I.   Chemicals and materials that continue from September to be reported as in short supply are: coal; copper scrap; helium; iron ore; hydrochloric acid; palladium; propylene; tin; and urea.  See the September list (click here) for explanations for the shortages and for geographical information.

Section II.   Shortages Reported in October Not Found on the  Previous Month’s List

Aluminum Scrap.  Scrap aluminum metal shortages are being experienced in China and in Europe.  One reason for the shortage is the increased demand for aluminum in China, with the supply of scrap aluminum not keeping up with the demand.

Jade.  A jade shortage is being experienced in Asia.  Prices have been increasing sharply.  The reason is that that jade is an important status symbol in many Asian cultures and the increased prosperity of many Asians is increasing the demand for jade.

Leather.   Leather has been in short supply in at least three countries: China; Pakistan; and Uruguay.  An explanation for shortages in Chain is the increased environmental regulations at tanneries, decreasing the leather output.   In Pakistan, an explanation is the decreased slaughter of sacrificial animals for religious observance purposes.   A reason in Uruguay is a much lower slaughter of cattle.

Sand.   Due to government-imposed restrictions on sand excavation, inadequate sand supply is available in parts of India to meet the construction industry’s demand.

Styrene.   Styrene production in China is not keeping up with its demand for use in polystyrene production.  One reason is that several styrene-producing facilities in many parts of the world have been down at the same time due to maintenance and technical problems.  This has resulted in a tight styrene supply world-wide.

Reasons for Section II shortages can be broadly categorized as: 

1.  Mining not keeping up with demand: jade;
2.  Production not keeping up with demand: leather; styrene;
3.  Government regulations: leather; sand;

4.  Sources no longer available: aluminum scrap.

Thursday, October 3, 2013

Chemical Plant Concentrations by States in the United States

The United States Department of Labor’s Bureau of Labor Statistics (BLS) provides employment data by states for specific occupations.  One occupation for which employment data is provided is chemical plant and system operators.  Using this data as a surrogate for the number of chemical plants by states (the correlation between chemical plant operators and chemical plants should be high), I generated the two graphs below.

The first graph shows the BLS chemical plant operator employment data by state.  Red represents the state (Texas) with the highest number of chemical plant operators (6,820 operators; as of 2012; based on BLS surveys).  The graph shows in the lower left corner what the states’ colors indicate; from light green to dark green to blue to red signifying increasing numbers of chemical plant operators (and presumably numbers of chemical plants).   Based on the data used for the graph, Texas has the higher number, followed by Louisiana, South Carolina, and Ohio.  BLS reports no data for the states in white.

The second graph shows a somewhat different picture.   On the graph, states are colored by the number of chemical plant operators per state’s square mileage.   Note that whereas New Jersey and Massachusetts do not show high numbers of operators on the first graph, the second graph shows a high concentration of chemical plant operators (and presumably chemical plants) per square mile in these states.  Absolute numbers (number of employed plant operators) versus concentration numbers (density; rate) for other states are also different, e.g. Texas and California.  Data used to generate the second graph show that New Jersey has the highest density of operators (and presumably plants) followed by Louisiana, South Carolina, and Ohio.

Having relative comparisons of chemical plant operator concentrations (reflecting chemical plant density) seems to me to be a useful metric, perhaps more useful than the absolute numbers of operators and plants.   Such a metric could be of value to chemical companies seeking a site for a chemical plant.  Selecting a state with a high concentration (rather than only a high absolute number) might be advantageous.  For example, finding chemical operators to employ might be easier in high concentration states and high concentrations indicate clusters and clusters are known to lead to competitive advantages. 

The chemical plant operator employment data can be generated at a Bureau of Labor Statistics (BLS) site (click here).  Details on the BLS occupational employment statistics program can be found by clicking here.  Square mileage per state data is available at this site (click here).

Thursday, September 19, 2013

Chemical and Material Shortage Alerts – September 2013

The purpose of this blog is to identify recent chemical and material shortages reported on the internet.

Coal.  Shortages of coal exist in India and Pakistan.  India is significantly increasing the amount of coal imported.  Primary suppliers of coal to India are Indonesia, Australia, and South Africa.  Although India has a fairly large amount of coal in the ground, quantities mined are not keeping up with demand.

Copper Scrap.   Scrap copper metal shortages are being experienced in China and in Europe.  This is leading to a decline of refined copper production.  One reason for the shortages is less construction is being demolished globally, and therefore less copper scrap.  Also, China is more restrictive on what copper scrap can be imported, due to increased environmental standards.

Helium.  Helium global shortages continue to be reported on the internet.  The primary problem seems to be that the US Government has been selling helium reserves at below market prices, so companies are reluctant to maintain and expand helium production.  Most helium production and inventory is currently in the United States.   The US Congress has recently directed a change in the US Government’s selling helium at below market prices, but this will take some time, e.g. a year or more, to correct the supply-demand in-balance.  

Iron Ore.   India’s steel mills continue to not have enough iron ore supplies available to meet their needs.  The supply problem apparently is caused, at least partially, by Indian-government bans, for environmental reasons, on iron ore mining in some regions.

Hydrochloric Acid.  Pakistan has been experiencing a shortage of hydrochloric acid, affecting certain manufacturing sectors.  The cause seems to be a ban on hydrochloric acid production imposed by the Pakistani government.

Natural Rubber. A global shortage of natural rubber supplies globally is increasing the use of synthetic rubber.  The shortage of natural rubber is primarily due to harvesters in Southeast Asia not being able to keep up with the demand.

Palladium.  Due primarily to increases in automobile production, especially in emerging markets, global demand for palladium is exceeding the supply in 2013.

Propylene.  Due to a higher reliance on natural gas as a petrochemical feedstock in the United States, due to the shale gas bonanza, less propylene is being produced from petroleum.  This is creating a propylene supply deficiency.

Tetracycline.  Tetracycline continues to be in short supply in the US market (since 2011).  A problem seems to be shortages in active ingredients that are used in producing tetracycline, a shortage due to economic reasons.

Tin.   The global supply of tin should continue to be tight due to Indonesian government restraints that applied to tin exports.  Indonesian production capacity of tin accounts for about 40% of world production capacity.   Demand has exceeded supply for several years causing tin prices to triple since 2005.  The primary use of tin is in soldering needed in electronic devices.

Urea.   India has a shortage of indigenously-produced urea.  One reason is that the price of imported urea is much less than the cost for Indian manufacturers to produce urea.  Pakistan also must import urea to meet the country’s needs.

This blog provides the locations and other limited information on 11 chemicals and materials recently reported on the internet as being in short supply.

Reasons for the shortages can be broadly categorized as: 

1.  Mining not keeping up with demand: coal, palladium;
2.  Production not keeping up with demand: natural rubber, propylene, urea;
3.  Government regulations: helium, hydrochloric acid, iron ore, tin;
4.  Sources no longer available: copper scrap, tetracycline.

Tuesday, September 10, 2013

Ideas Matter – Gross Profits and Research & Development Expenses Correlate in the Chemistry Industry

2010 and 2011 revenues, gross profits, and research & development (R&D) expenses were found for 25 chemical companies from data on submitted 10Ks to the US Securities & Exchange Commission.   These data was obtained because of an interest in examining the concept that a company's R&D expenses can represent how well a company’s “good” ideas (with R&D expenses reflecting such ideas) correlate with how well a company generates value.  The assumption is made that if there is such a correlation, than the R&D expenses as a percentage of revenues would show a correlation with gross profit margin percentages (GPM%) for a series of chemical companies.

The following two graphs show the GPM% for 25 chemical companies plotted against the corresponding R&D expenses as a percentage of revenues for the 25 companies.   These two graphs show what appears to me to be a good visual correlation between the two sets of data.  That is, as R&D expenses represent a higher percentage of the revenues for a company, the GPM% goes up.  Regression analysis (using Excel) was done to determine R-Square values for the two sets of data.  For the 2010 data, R-Square results were 63% and for the 2011 data, 65%.  Both R-Square values generally are considered to show good correlations between sets of data.

A basic finance principle is that it is primarily “ideas” (good projects) that matter in creating a company's financial value.  If the assumption is that a company that puts more emphasis on R&D could be expected to generate more good ideas, then one might expect a correlation between such companies’ emphasis and the value it creates.  Another assumption is that GPM% relate to values creation, with higher GPM% creating more value.

The chemical industry is a good sector to use R&D expenses as a surrogate for idea generations since,  antidotally, R&D has long been recognized as critical for chemical companies in creating new products (in having good ideas).   Two to five companies were selected from the US Census Bureau’s seven sub-categories (basic; plastics; agriculture; pharmaceuticals; paints; soaps; and other).  (The companies identify their business sub-categories as in the 10K filings.) 

The 2010 average GPM% and the percentage of R&D expenses of revenues for the 25 chemical companies are 41.7% and 5.5%, respectively.   In 2011, the respective averages are 42.6% and 5.2% for the 25 companies

Thursday, August 22, 2013

Chemistry Industry Financial Ratios from US Census Data

In an early blog (Chemical Industry Data Found at the US Census Bureau Website; click here), I identified some of the data that the US Census Bureau collects and makes available on its website about the chemical industry.  In this blog, I provide results of my analysis of some of the chemical industry financial data provide by the US Census Bureau.

From the financial data provided by the US Census Bureau (click here for the data), I determined an approximate gross profit margin percentage (GPM%) and a percentage of revenues that chemical companies, surveyed by the Census Bureau, have spent on capital projects and on payroll for 2010 and 2011.

For all chemical companies surveyed, the GPM% is 49% for 2010 and 48% for 2011.  This assumes that the data presented by the Census Bureau under the total value of shipments column represents revenues and under the total cost of materials column, the cost of the shipments.  All chemical companies’ capital expenditures were approximately 3% of revenues in both 2010 and 2011.  Payroll expenses were approximately 7% of revenues in 2010 and a slightly less 6% in 2011.

In addition to providing financial data on all chemical companies surveyed, the Census Bureau also categorizes the chemical companies into seven sub-categories and provides data for each sub-category.  These sub-categories are: basic; plastics; agricultural; pharmaceuticals; paints; soaps; and others.  A more detailed description of what the sub-categories cover can be found at the Census Bureau webpage I provide a link to above.  I also computed GPM%, capital expense as a percentage of revenues, and payroll expense as a percentage of revenues for these seven sub-categories.    I can provide these numbers to you if you email me.

The US Census Data used to compute these financial ratios (GPM%; capital expenditure as a percentage of revenues; and payroll as a percentage of revenues) are probably the best data available.  Being able to benchmark your company’s performance against the ratio results from the Census Bureau data should be useful.

Wednesday, August 21, 2013

Estimating Gross Profit Margin Percentages for Raw Material to Chemical Product Conversions

In my last blog, I wrote that the butadiene product price was on average 2.6 times the raw material oil price.  In other words, the sales price (revenue price) of butadiene, on average, was 2.6 times the cost of goods (cost of raw material - oil price), from which the butadiene was obtained. This 2.6 average is based on price data for oil and for butadiene from 1988 to 2012,

Using the same data, a gross profit margin percentage (GPM%) for the butadiene sales can be found since sales prices (of butadiene) and cost of good (oil) prices are known.  The average GPM% for the oil to butadiene process is 57% based on the 1988 to 2012 data.   Note this only includes the oil raw material as a cost of good sold.  It does not include other costs of goods, such as labor.  Including these other costs would reduce the 57% GPM% for the business of converting oil to butadiene.

The same GPM% computations should be possible for other raw material to chemical product conversions, if annual raw material and product price data is known.  To test this, I found Brazilian price data of sugarcane and ethanol and US corn and ethanol price data.  Then from this data I determine GPM%s for the conversion of raw material to chemical product..

Brazilian sugarcane and ethanol price data was found (e.g. click here and here) searching the Internet.  For anhydrous ethanol, I found the average GPM% to be 41% and for hydrous ethanol 33% (date range from 2008 to 2012).   In order to do these computations, an amount of ethanol from sugarcane needs to be assumed (85 liters from one ton of sugarcane for anhydrous alcohol and 89 liters for one ton for hydrous ethanol, as reported in Brazilian literature).  Again, as in the case of oil to butadiene, these GPM%s are only for the raw material to product conversion; they do not include other costs of goods.

For US corn conversion to ethanol (e.g. click here and here for price data for corn and ethanol), the average GPM% for the years 1996 to 2012 is 37%.  This includes an assumption of obtaining 2.8 gallons of ethanol from one bushel of corn, which seems to be the present accepted amount.

My experience is that knowing the actual GPM% for an industrial sector (e.g. butadiene and ethanol producers) can be a very useful benchmark metric for single producers to use in evaluating their performance.   I would be happy to research and analyze other raw material to chemical product price data and try to compute gross profit margin percentages from that data.  Please email me if you are interested.

Thursday, August 15, 2013

Butadiene Production and Price Trends

The first two graphs below show approximate annual butadiene global production amounts and approximate average price amounts for butadiene from 1988 to 2013.   This data was obtained from various websites found by exhaustively searching the Internet.  The data sources are believed to be reasonably reliable.  (One purpose of this blog is to indicate that such data is openly available on the internet.)

Another purpose of the blog is to analyze butadiene prices.

A regression analysis (using Excel) was done to determine the relationship between changes in butadiene production and butadiene price.  An R square value of 71% was found, indicating a reasonably good connection between changes in production with changes in price of butadiene.

A regression analysis was done to determine the fit of the changes in average oil (Brent) prices with changes in butadiene prices.  The R square value is 74%, indicating a reasonably good connection.  (Changes of Brent prices over time are shown in the third graph below.)

A regression analysis was done on the changes in butadiene production, year to year, from 1988 to 2012, with the changes in oil production over the same period.  The R square value was a convincing 98%, indicating a strong connection between the amounts of butadiene produced to the amount of oil produced.   So, it is not surprising that butadiene prices directly and strongly relate to oil prices.   (Changes in oil production over time are shown in the fourth graph below.)

From 1988 to 2012, the butadiene price was on average 2.6 times the oil price.  The standard deviation (using Excel) for this average 2.6 is 1.0.  Therefore, with a good probability, the butadiene price can be estimated to be between 1.6 and 3.6 times the expected oil price, assuming the above is correct.      

Another interesting idea about the 2.6 number is that it might represent a “premium” – an additional cost for the processing of butadiene from oil.  Such a number might be used as a benchmark, to achieve or surpass.

The close correlation between changes in butadiene prices with oil prices suggests to me that the raw material cost (e.g. cost of oil) is an important variable cost.   This would seem to offer a real opportunity for producers of butadiene using cheaper raw material costs, e.g. microbial fermentation of sugars.

With cheaper raw materials (and cheaper butadiene prices), more value should be created for both butadiene producers and users.  Also, with such a raw material as sugar, much less price variance in the raw material would be expected (compared to oil) leading to greater stability in planning and production, another value-creating result.

Tuesday, July 30, 2013

Websites with Guidance for Exporting Chemical Products

Companies who are interested in exporting chemical products, and who have no experience in doing so, can find useful guidance on the Internet.  This blog identifies some websites with such guidance.  And, the blog makes some general comments about exporting.

A good website to begin to with is a British government site on international trade regulations for chemicals.  (Click here to go to this site.)  Although presented for British companies, guidance provided should be useful to any company developing procedures for exporting chemical products.   An important first point is that chemicals have to be registered according to a classification system acceptable to the importing country.  In exporting, much must be considered, understood, and implemented, and this British guidance covers a lot of those needs.

If a European Union (EU) country is the export destination, a good place to start for guidance is a 2-page EU pamphlet (available in a PDF file – click here).  This pamphlet identifies what a company should do to successfully export chemical products to an EU country.  As indicated above, chemical registration is necessary.  In 2007, the EU established a new regulation that governs exporting chemicals into the EU.  This regulation goes by the acronym REACH (R – registration; E – evaluation; A – authorization; CH – chemicals).  From this site (click here), the necessary details can be found on what is needed for exporting chemicals to an EU country.

REACH is a regulation that likely will serve as a model for other countries when establishing and/or updating their requirements for chemical product imports.  For example, news articles suggest that China is evaluating REACH as a model for its regulations.  REACH seems to be considered a high standard (high bar) with respect to regulatory requirements for exporters to meet.  So, meeting REACH standards will likely put a company into a status of being able to meet other country standards.  This may be a wise objective – reaching the REACH standards – as the apparent global evolution of countries reviewing and raising importing requirements likely will make importing standards increasingly comprehensively.

As mentioned above, a first step in exporting a chemical to a country is to classify the chemical according to the classification system used by the country.  Such a classification system has been established by the United Nations and some countries may be planning or already are using the UN system.   Malaysia, Indonesia, and Vietnam may now be using the UN system.   Click here to go to an Untied States government website that provides a guide to the United Nations chemical classification system.

Although as stated above, being able to meet the EU’s REACH regulatory standards will likely place a company in a good place to meet other country standards, the company should also seek out (e.g. on the Internet) and understand the standards for the country that is being exported into.  Chemical importing guidance and requirements for the United States can be reviewed by clicking here.

Along with knowing the requirements of exporting chemicals into a country, a company also needs to know the other requirements of exporting any product into a country.  Information on these other requirements also often can be found on the Internet.

Countries can, and have, imposed large fines on companies who have exported chemicals into their territories that violate their import requirements.  Companies should know and meet these requirements.  This blog is not met to provide an exhaustive identification of how to export chemical products, but to provide some links to information that can help in starting the process of identifying, understanding, and implementing export requirements.

Thursday, July 11, 2013

Using Cost Data for Decisions

In this blog, I will show how a decision can be made between the purchase of two pieces of chemical production equipment, when based on the initial and maintenance costs.  Assumptions are that the two equipment pieces provide basically the same result, but initial costs, maintenance costs per year, and length of maintenance costs are different.

Determining which equipment choice based only on the net present value (NPV) of the two choices leads to an incorrect decision.  The decision should be based not on the net present value, but based on the annuity payment (discounted payment) per year that the initial and maintenance costs represent.

For example, suppose the following (amounts in millions):

                        Initial cost         maintenance      maintenance      maintenance
                                                year 1               year 2               year 3
Equipment A      20 M                 2M                   2M                    0
Equipment B      25M                  1M                   1M                    1M

The NPV of Equipment A, with the above amounts, is 23.72M and the NPV of equipment B is 27.72M.  On the basis of NPV, Equipment A would be chosen, with the assumptions above.

This would be the wrong decision because the lengths of maintenance costs for the two pieces of equipment are different.  The NPV comparisons should not be used for projects of different lengths.  What can be used, and will show the less costly decision correctly, is determining the per year annuity (discounted) payment for each purchase.   Equipment A has an annual payment annuity of 12.76M and Equipment B 10.18M.  Equipment B is less costly on a per year basis.

I would be glad to work with you on determining your annuity costs for your situations similar to what is described above.

Friday, May 31, 2013

Eight Reports on Global Material Shortages

Eight reports with substantive data, information, and analysis on the state of global material shortages are identified below.  These reports were found during an exhaustive Internet search.

The reports are associated with what I judge to be authoritative institutions and authors.  The reports, in my opinion, represent very thorough research and analysis. The resources behind these reports are substantial.  If the resources were used in preparation of the reports, then collectively, the reports likely represent correct facts and views related to global material shortages as of the dates of the reports.   The reports are from: three organizations that represent governments (United States; United Kingdom, and European Union); one from a university (Germany); one from professional associations (United States); and three from consulting groups (the Netherlands; United States).

1.  A December 2011 US Department of Energy report (click here to read report; PDF file) identifies raw materials with potential supply risks.  The focus is on materials important in clean energy technologies, but many of the materials are important in several industries.  The report identifies strategies for addressing the potential risks.

2.  A March 2012 report from the UK Department for Business Innovation & Skills and the Department for Environment, Food, and Rural Affairs (click here; PDF file) was prepared because of concerns about the availability of raw materials.  The report provides an analysis of the various impacts of raw material shortages.

3.  A February 2011 European Commission report (click here; PDF file) identifies 14 raw materials that the authors consider critical to the European Union and which also have supply shortage risks.  The report makes suggestions for responses to material supply shortage risks.

4.  A 2011 University of Augsburg report (click here; PDF file) identifies 19 materials critical to the energy industry and which also have potential supply risks.  Each material is discussed with respect to its use in the energy industry and the potential supply risks.

5.  A November 2009 report from the Dutch Materials Innovation Institute and Corus Research, Development, and Technology (click here; PDF file) discusses expected material shortages.  The report provides analysis of the present situations with respect to material shortages, the potential impact, and solutions.

6.  A 2010/2011 report (click here; PDF file) from the American Physical Society and the Material Research Society makes recommendations on what the United States Government should do to insure the supply of energy-critical materials, which are identified.

7.  An August 2011 report (click here; PDF file) from Skyworks Solutions, Inc. provides a summary of several studies that addressed raw material scarcity.  The summary provides historical data and the various perspectives and assumptions that are used in conclusions made on raw material scarcity.

8.  A December 2011 report provides the results of a 2011 survey conducted by PriceWaterhouseCoopers (click here; PDF file).  Sixty-nine senior executives of manufacturing companies answered questions on the impacts, opportunities, and risks to their companies from material shortages.

These 8 reports likely represent as correct a recent assessment of global material shortages as is available on the Internet.  And, as such, the reports are a valuable resource for those seeking knowledge in this area.

A conclusion I reached from reading the reports is that several variables affect supplies, prices, and other aspects of material availability.  And, these variables change over time.  Therefore, it is very difficult to estimate future market availability of many materials.  Market availability does not equate to amounts of the materials available in the earth.  For amounts present in the earth, the materials will be available for long periods, at today’s annual usage rates.  Nevertheless, shortages can exist in market availability based on the many variables that influence market availability. And, these market availability levels change over time.

Friday, May 17, 2013

Pounds per Person of Acrylonitrile Use

Based on Internet data, the United States consumed approximately 545,000 metric tons of acrylonitrile in 2009 as a starting chemical from which many products were produced.   And, Western Europe in 2010 used approximately 750,000 metric tons.  Using these quantities and the approximate populations of these areas, this acrylonitrile consumption converts to approximately 4 pounds of acrylonitrile used per person in both the USA and Western Europe.

Does 4 pounds per person represent a “mature” amount of acrylonitrile to produce in order to have the desired products that well-developed economies want?  If yes, then estimating the per person use for the world population shows a gap in acrylonitrile needed to provide on a world-wide basis the types of products for everyone that those of us in well-developed economies desire and use.

The estimated world-wide consumption of acrylonitrile in 2011 was 5.25 million metric tons or approximately 1.7 pounds per person.   This suggests a need for a lot more acrylonitrile production as more people become better developed economically and seek to use those acrylonitrile-based products widely used in developed countries such as the United States and Western Europe.

Another conclusion is the importance of increasing demand in lesser-developed countries for certain mature industries in developed countries to grow.

Data used for the above were found at such sites as: clickhere (a Chemical & Engineering News report with acrylonitrile use); click here (a PCI Acrylonitrile, Ltd report on acrylonitrile prices and production); and click here (a Wikipedia site defining Western Europe and providing its population).

Thursday, May 2, 2013

Fluorspar Price and Mine Production Data Trends

The United States Geological Survey (USGS) publishes regularly fluorspar price, mine production, and other data.  Using this data, the graphs below on fluorspar, using 1996 to 2012 price and mine production data, were created.

Also, a regression analysis of the data, using Excel, was done to determine how closely the price and mine production quantity changes correlated with one another from year to year.

The R square result of this regression analysis is 81%, generally considered to indicate a good correlation between changes in two sets of data.  This suggests that often when fluorspar price went up (or down) so did the amount of fluorspar mined go up (or down), from year to year.  There seems to be a relationship between the two events – price changes and amounts mined.

Fluorspar’s price per ton increased 287% from 1996 to 2012, using average fluorspar acid prices for the year provided by the USGS in their reports (from $141 per ton in 1996 to $545 per ton in the first quarter 2012).  This is an average annual increase of 22%.  And, the fluorspar mine production went from 4,090,000 metric tons in 1996 to 6,850,000 metric tons in 2012, a 5% per year increase.

USGS estimates 240,000,000 metric tons fluorspar in mining company’s reserves (2012).  This is enough fluorspar inventories to last 35 years at 2012 mine production levels (6,850,000 metric tons).  So, it seems that it is not insufficient amounts of fluorspar reserves but other constraints that mostly affect the price fluctuations from year to year.

Projecting the amount of fluorspar mined over the short-term upcoming months, based on best mining activity data available and good estimates, could be useful in predicting price trends.

The USGS reports used for the data in the graphs below can be read by clicking here: 1, 2, 3, 4, 5, and 6.   USGS issues similar reports on many other minerals, elements, and compounds mined.  The USGS reports are an excellent data source on these materials.

Monday, March 18, 2013

Quantity Estimates of Neodymium Used in Magnets in 2012

An exhausted Internet search was done to try to determine 2012 global use of neodymium in magnets found in the following five product categories: hard drives; electric vehicles; electric bicycles; wind electric generators; and mobile phones.  Determining the quantity of neodymium used in these products depended on finding the following estimates:  1) a reasonable range of the 2012 unit sales in each product category and 2) a reasonable range of the quantity of neodymium used in each unit sold.  What follows describes what was found for each category.

A.  Hard Drives.  2012 global hard drive sales was settled at between 900 million and 1.04 billion.  A range of neodymium used in hard drives was settled at between 2 and 6 grams.  This gives a total of between 1,800 and 6,240 metric tons of neodymium used in hard drives sold in 2012.

(For each product category, an exhaustive search of the Internet was done to find sources for product sales and for the amounts of neodymium used in the products.  These sources can be difficult to find, but sources were found for the data needed for each product.  Sources include: individual analysts/scientists estimates; market research product synopsizes (no reports were purchased or any other payments made to find the information in this blog article); news releases; company data; government data; conference presentation slides; trade associations; and research institutes.  I settled on the data to use from these source sites based on my subjective evaluation of the likelihood the sources and their data were reliable and what was presented was sensible and consistent with other data and my analysis of what I was finding.  Further details on the sources, data, and analysis used can be provided.  Click “View my complete profile” to the right to email me.)

B.  Electric Vehicles.  Global sales for electric vehicles (all electric and hybrid) were settled at between 1,775,000 and 2,427,000.  A range of neodymium use per vehicle was settled at between 0.193 and 1.8 kg.  This gives a total of between 343 and 4,369 metric tons of neodymium used in electric vehicles sold in 2012.

C.  Electric Bicycles.  A range of 2012 unit global sales of electric bicyles was settled on as between 30 and 34 million.  And, I settled on a range of neodymium used in each bicycle as between 85 and 115 grams.  With these amounts for electric bicycles sold and neodymium used per bicycle, and doing the math, gives a total of between 2,550 and 3,910 metric tons of neodymium used in electric bicycles sold in 2012.

D.  Wind Electric Generators.  The range of 29,946 to 68,250 megawatts of additional wind power generated in 2012 compared to 2011 was settled on.  And, based on data found in my searching, 15% of this additional power is estimated to have been delivered by generators using neodymium-base magnets, or a range of 4,492 to 10,238 megawatts.  A range of 0.12 to 0.4 metric tons was settled on as the amount of neodymium used for generating one megawatt of power from a wind electric generator.  This gives a total range of 539 to 4,095 metric tons of neodymium used in 2012 installed neodymium-based wind electric generators.

E.  Mobile Phones.  The 2012 sales of mobile phones (cell and smart) range was settled at between 1.6 and 1.75 billion units.  The range of grams used in each phone was settled at between 0.05 and 0.1 grams.  This gives a range of 80 to 175 metric tons of neodymium used in mobile phones sold in 2012.

Adding up the low and high neodymium-use range for each of the above five product categories in which neodymium is used gives a low amount of 5,312 metric tons and a high amount of 18,789 metric tons of neodymium used in these products sold in 2012. 

Some conclusions from the above work are:

1.  Too many data variables, gaps, and uncertainties and needed estimates and assumptions exist to ever be able to determine one amount for total neodymium used in a year with any degree of confidence that the amount is correct.  However, a range can be determined.
2.  Whenever an element (e.g. the rare earth element neodymium) or a chemical compound is used in multiple products, similar uncertainties are likely in estimating the quantity of that element or chemical compound that was used during the year.  A range is best provided.
3.  Using persistent and skillful search and the right analytical skills, the Internet can be a source of data for quantities of chemicals used.
4.  Chemical use data for a year can be determined from two sets of data:  sales and unit quantities.  The accuracy of the chemical use data depends on the accuracy of these two data sets.
5.  The use data is for product sales.  It does not include neodymium mined but not used in the products represented by the sales data, in products made but not sold, and neodymium lost as waste in the manufacturing process.  

Tuesday, February 19, 2013

Future Important Chemical Company Capabilities

The graph below was created using Google’s graphing tools.

The graph shows the results of a 2011 survey, conducted by Accenture, on important capabilities that chemical companies need in order to succeed.

Two interesting conclusions can be reached about the results. First, that effectively managing feedstock supply chains was found to be the most important capability suggests the importance that raw material availability and costs will have on chemical industry success in the future.   Second, that business intelligence and analytics rate second (tied with product/service innovation) indicates the growing importance of the Internet and available online information and technology on decision-making in the chemical industry.

The 2011 Accenture survey was sent to readers of ICIS Chemical Business, mostly in Western Europe and North America.  Most of the respondents held general manager and higher positions in their companies.  The results of the survey can be read by clicking here.

Future Important Chemical Company Capabilities

Tuesday, January 22, 2013

Chemical Executives’ Top Management Initiatives in 2013 & 2014

The graph below was created using Google’s graphing tools.

The graph shows the top 9 initiatives that top executives at chemical companies plan to take in 2013 and 2014.

The data in the graph was obtained by KPMG International in a 2012 KPMG survey of approximately 155 top US, European, and Asian Pacific chemical company executives.  The executives were asked to select the top initiative planned.  The graph shows the selections by percentage.

Click here to go to the KPMG report showing the results of this survey.

Besides top management initiatives, other areas surveyed and reported on include:  cash on hand; planned capital expenditures; highest strategic priorities; and expected revenues.

Interesting in the results is the high percentage of respondents who selected making significant changes in their business model as the top priority.  Just what this means with respect to the other initiatives that could have been selected, e.g., new products and geographic expansions is not clear, except that it suggests problems with the current business model.

Chemical Executives Initiatives in 2013 & 2014

Thursday, January 3, 2013

Finding Chemical Prices on the Internet

My experience has been that finding current prices on the Internet for bulk-size amounts of chemicals is difficult, without providing information to the suppliers.  Producers and distributors of chemicals are willing to provide quotes, but require information from the requestor, e.g. requestor name, amounts, use, etc, before providing a quote, and likely only after the vendor judges the request to be legitimate.   Because pricing is likely to depend on so many factors, such as amounts, requestor, location, etc, the vendor’s need to obtain information from the requestor is understandable.  (This difficulty in obtaining chemical price data does not apply to laboratory quantities of chemicals.  Prices for laboratory sizes are readily available on the Internet without needing to send a request to the vendor.)

Although difficult, with determination, time, and the right search strategies, relative recent (but not current vendor’s pricing without contacting the vendor) bulk chemical prices often can be found on the Internet.  For example, with rigorous searching, I was able to find relatively recent bulk prices (2010, 2011, and/or 2012), with various terms and delivery locations, for the following chemicals:  benzene; sulfuric acid; titanium dioxide; sodium hydroxide (caustic acid); glycerin; polycarbonate; soda ash; caprolactam; ethylene; propylene; p-xylene; and polystyrene.  These were most, if not all, the chemical prices I searched for. 

The US Labor Department’s Bureau of Labor Statistics maintains producer price indexes for several categories of chemicals, e.g. petrochemicals; industrial gases; synthetic dyes and pigments; basic inorganic compounds; basic organic compounds; and plastics and resins.  (Click here to access these indexes.)   These chemical price indexes might be useful in projecting a dated price found on the Internet for a chemical, e.g. a 2010 or 2011 price, to a more recent price.  However, because of chemical price volatility, and probably other factors, using the chemical price index may not always give projected prices that are reasonable close to the actual current prices.