Trends in global production and trade

This report examines key trends in global production and trade in Industrial Chemicals. Our focus is on the competitiveness of emerging economies ('low-cost countries', LCCs) as global source countries.

As to the composition of the Industrial Chemicals industry, we distinguish between (a) inorganic chemicals, (b) organic chemicals, and (c) primary plastics.

The study is based on an analysis of cross-border trade flows. Flows of cross-border trade reflect the views of investors and traders on the ability of source countries to supply international markets.

Between 2002 and 2006, world exports of Industrial Chemicals grew at an average annual rate of 17.1 percent.

With exports from emerging economies growing at a higher rate (23.2 percent), their share of world exports increased from 21.5 percent in 2002 to 26.4 percent in 2006.

Chart 1B shows the importance and dynamics of LCCs as locations of global production by sector:

► In terms of world export share, LCCs are more important as source countries for inorganic chemicals and primary plastics than for organic chemicals.

► Over time, LCCs have gained most ground in organic chemicals; in inorganic chemicals, their share of world exports has declined since 2005.

According to Chart 1C, Asia is the leading low-cost source region for Industrial Chemicals. Moreover, Asia's share of world low-cost exports has increased over time, mainly at the expense of European LCCs.

The geographical reach of a product's supply chain reflects the tradeoff of users between (a) accessing the most competitive source of supply worldwide, and (b) the benefits of proximity to end-product markets.

In this study, we measure the reach of supply chains by examining the extent to which imports from LCCs cross regional borders (as reflected in the relative size of intra and extra-regional import flows).

Chart 2A brings out the importance attached by users of Industrial Chemicals to LCC sourcing within their home regions.

Regional supply chains are more important in primary plastics than in organic and inorganic chemicals. In primary plastics, however, global sourcing tends to gain in importance over time.

Reflecting the dominance of Asia as a low-cost source region, Chart 2B shows that Industrial Chemicals users in the Americas and Europe rely to a greater extent than those in Asia on global sources of low-cost supply.

Chart 3A lists the ten leading low-cost source countries for Industrial Chemicals. With world export shares of 4.6 and 4.5 percent, respectively, China and South Korea are the leading source countries, followed by Taiwan (3.2), Saudi Arabia (2.3) and Russia (1.5).

Since 2002, the share of the Top-5 source countries in world low-cost exports has remained stable at about 61 percent. This underlines the importance of these countries as locations of production in the Industrial Chemicals industry.

Between 2002 and 2006, China's share of world low-cost exports increased by 3.5 percentage points to 17.3 percent in 2006.

Relative to other LCCs, China has an advantage in inorganic chemicals. Over time, China has strengthened its relative position primary plastics.

Since 2002, South Korea's share of world low-cost exports has remained more or less constant at about 17 percent.

Relative to other LCCs, South Korea's competitive advantage lies in primary plastics.

Since 2002, Taiwan's share of world low-cost exports has declined by about 0.8 percentage points to 12.3 percent in 2006.

Taiwan's relative advantage lies in primary plastics. Over time, however, Taiwan has lost some ground in this sector, while strengthening its position in organic chemicals.

Since 2002, Saudi Arabia's share of world low-cost exports has remained stable at about 8.5 percent (athough declining since 2005).

Relative to other LCCs, Saudi Arabia's advantages lie in organic chemicals and, to some extent, primary plastics.

Since 2003, Russia's share of world low-cost exports has steadily declined to 5.7 percent in 2006.

Besides China, Russia is the only Top-5 source country with a competitive advantage in inorganic chemicals. Over time, Russia has slightly strengthened its position in organic chemicals.

Emerging economies are today the origin of about one quarter of world exports of Industrial Chemicals.

Supply chains in LCC exports are organised mainly on a regional basis. Yet, the geographical reach of supply chains varies markedly across sectors as well as the home regions of importers.

Based on our assessment of low-cost export flows between 2002 and 2006, we expect the following trends to shape global production and trade in Industrial Chemicals in the short to medium term:

► The LCC share of world exports continues to increase, especially in organic chemicals.

► Asian LCCs gain in importance as source countries, but within supply chains that are mainly restricted to their home region.

► The five leading LCCs continue to account, as a group, for about 60 percent of world low-cost exports.

Emerging economies (LCCs) are defined to include the 35 leading exporters of manufactures with a GNI-per-capita below USD 15 000.

Export growth is calculated as the compound annual rate of growth between 2002 and 2006.

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