PATRICIA L. SHORT, C&EN LONDON
Location, location, location. the real estate agent's rule for success holds particularly true for the chemical industries of the Netherlands and Belgium. The two countries' chemical sectors are characterized by exceptionally high exports that dwarf modest domestic markets. And although each is a middle-tier chemical player, taken together they make up the third largest chemical entity in Europe, behind Germany and France. Key to the two countries' ability to compete in the chemical superleagues comes down to one important point: their position as an entry point into Northwestern Europe and thus the ease of distribution radiating out from the two main ports of Rotterdam and Antwerp into continental Europe and elsewhere in the world.
What officials at Fedichem, the Brussels-based Belgian chemical industry association, term "the trump cards of the chemical industry" are the same cards held by the industry in the Netherlands: a geographical position in the center of an industrialized Europe, deep-water ports, rail and road networks, waterways, pipelines, and a closely interconnected network of chemical producers.
||INFRASTRUCTURE Steam cracker at DSM site in Geleen, the Netherlands.
More than 160 million people are within a 300-mile radius of the chemical industry along the Belgian and Dutch coasts. Double that radius and there are about 250 million people, and about 350 million within roughly 800 miles.
Europe's two largest ports in terms of tonnage--and two of the world's major ports--distinguish the two countries. Rotterdam, in fact, is generally reckoned to be the world's largest port in terms of tonnage, and Port of Antwerp promoters say it is in the top five. In the roughly 60-mile stretch between Antwerp and Rotterdam, enough chemical operations have been established that it is easy to accept Antwerp's claim to be "the world's second largest chemical industry cluster," after Houston.
Antwerp, its promoters add, is "probably the most diversified and integrated chemical production site of its kind." They point to the fact that no less than 10 of the world's top 20 chemical producers are there, along with four steam crackers. Nearly 30% of European phenol, 18% of caprolactam, and 33% of aniline are produced in and distributed through Antwerp.
ANTWERP IS also the main hub of the West European pipeline network. Within the vast site around the port, there is a network with about 100 pipelines carrying natural gas, ammonia, butadiene and isobutylene, chlorine, ethylene, propylene, nitrogen, fluid hydrocarbons, oxygen, and hydrogen.
And the Aethylen-Rohrleitungs-Gesellschaft (ARG) pipeline links Rotterdam and Antwerp with inland destinations in Belgium and the Netherlands, and with various sites in the Ruhr Valley around and just north of Cologne, Germany. Private pipelines in turn link to the pipeline at Cologne, heading south to Frankfurt and Ludwigshafen.
"If you look at our strategic situation, based on hydrocarbons from Pernis, it is a super site," says Roelf Venhuizen, chemical manager at Shell Chemicals' Moerdijk, the Netherlands, site. "There is full integration of refinery and petrochemicals--it is feedstock optimization."
He points out that the area is a European ethylene hub. "We are in the Northwest Europe grid, with access straight into Germany, for example," he says. "This is the only place in Northwest Europe where we have this degree of infrastructure."
The crackers in Germany, he argues, are inland focused. With the coastal crackers, on the other hand, "we can move inland but also we have the export facilities as well--for example, to South America and the Far East. Sometimes it is even easier to export to South America from here than from North America. This is a pretty strategic place."
Given the fierce--but civil--rivalry between the two ports, neither port authority is sitting still in developing its region.
For example, the Port of Rotterdam received authorization in 1999 to expand available land through a massive reclamation and in-fill project in its Maasvlakte section. Maasvlakte was developed years earlier at the delta in the mouth of the rivers, particularly the Maas, flowing into the North Sea around Rotterdam. The new project, Maasvlakte 2, will initially cover more than 1,200 acres; it is being designed to be doubled in the future.
And even as it reclaims the new land, the Rotterdam Port Authority is heavily promoting "co-siting"--encouraging new companies to set up chemical operations on, or adjacent to, existing sites. That enables established companies to make better use of the sites they are already on, executives at the port argue, by optimizing existing chemical manufacturing and terminal locations.
BOTH PORT AUTHORITIES are busily promoting their sites for new projects. One of the largest recent investments is the Lyondell-Bayer joint-venture propylene oxide/styrene plant scheduled to start up in 2003 in Maasvlakte. It will have capacity of 625 million lb of propylene oxide and 1.4 billion lb of styrene, using Lyondell's proprietary technology.
A large portion of Lyondell's share of the output will be used as feedstock for the company's new butanediol plant being built at Botlek, just a bit upstream from Maasvlakte. When it starts up early in 2002, the plant will have capacity of 280 million lb per year of butanediol and, according to Lyondell, will be the lowest cost and the largest single-train butanediol unit in the world.
Investments like that, and a number of projects recently brought onstream in Antwerp, are welcomed by chemical industry managers. But they also bring to light problems the two regions may face.
Strong and continued growth has implications for carbon dioxide emissions, which the two countries have pledged to cut under Kyoto protocol provisions. And warning signs are appearing in chemical production regions indicating that skilled labor will be increasingly difficult to recruit in the coming years.
Those are the "down" sides to what are clearly important industries to the Belgian and Dutch economies.
The combined sales of the two countries' chemical industries--using 2000 exchange rates--were $54.9 billion in 1999. Sales of German chemicals in 1999 were $89.5 billion, and those of the French chemical industry, $67.4 billion. Next in line, after the Belgian-Dutch industry, comes the U.K., at $43.1 billion in 1999 sales.
That's not bad for two small countries. Belgium has a population of about 10 million in an area of 11,800 sq miles; in comparison, Maryland has an area of 9,800 sq miles and a population of about 5 million. The Netherlands has a land area of 13,100 sq miles, with a population of 16 million.
Chemicals make up Belgium's second largest industrial branch, after metal-working, and the Netherlands' second largest industrial sector after the food and beverages industry. Moreover, Belgium's chemical industry has the world's highest relative contribution to its gross domestic product (GDP)--followed in second place by the Dutch chemical industry.
Chemicals represent more than 20% of the sales of the entire Belgian manufacturing industry and more than 20% of the country's total exports. And although Belgium accounts for slightly less than 3% of the population of the European Union, the country rings up 8% of European chemical sales, while accounting for 6% of total EU chemical employment, 14% of exports, and 6% of capital investment.
Similarly, in the Netherlands, the chemical industry accounts for 10% of total industrial employment within the country, 15% of industrial output, 20% of exports, 25% of industrial investments, and 30% of industrial R&D expenditures within the country.
In addition, the Dutch chemical industry's 1999 trade surplus was larger than the comparable trade surpluses of the U.S. or European countries such as Great Britain, France, Italy, or Spain. Exports account for 70% of the Dutch chemical industry's total sales.
THE DRAMATIC LEVELS reached by chemical exports, in fact, bring up one of the more notable characteristics of the two countries' chemical industries: Statistically, exports are larger than sales.
There are two major reasons for this seeming impossibility, says Peter Claes, manager of the economics department at Fedichem.
First, sales, as set by national statistical offices, are measured by major business classifications. For example, he says, if a company is classified as a chemical company, all its sales are considered chemical sales. But if a metal company, as an example, is producing and exporting sulfuric acid, the acid sales will be included in the country's metals category.
Exports, on the other hand, are classified differently, on product lines. The metal company's sulfuric acid exports would be shown in exports as sulfuric acid, a chemical category. "There are more nonchemical companies making chemicals than we sometimes are aware of," Claes observes.
The other major reason for the discrepancy between sales and exports, he adds, comes in the transit of goods in export and import. "The enormous flows of transit goods through the Ports of Antwerp and Rotterdam are all added to the real exports, so they are counted twice," he says.
Jean-Marie Biot, managing director of Fedichem, points out that roughly 75% of his industry's overall trade is within the euro zone, the grouping of 11 countries within the EU that have adopted the euro as a common currency. Only 25% of Belgium's chemical trade is in other currencies, he points out.
Exchange rates have been locked in the euro zone for the past three years. And between Germany and Belgium, exchange rates have been locked "for more than 10 years." The result is that the industry does not suffer much currency fluctuation. "There is very little currency risk," Biot says.
Indeed, Belgium is used to trading partnerships, having established a trade and currency union with its diminutive neighbor Luxembourg in 1921. And the addition of the Netherlands, to form the Benelux group, was one of the forerunners of the European Economic Community formed in the 1950s.
The EU single currency, however, is a significantly more ambitious project. And so far, it has benefited European chemical producers--and particularly chemical exporters like the Dutch and Belgians.
According to Kees Linse, chairman of the Association of the Dutch Chemical Industry (VNCI), the euro as a single currency has had a big impact because it has weakened against a strong dollar. "The euro is weaker than we thought it would be," Linse says. "It is still around the 90-cent level, rather than what we had thought--that it would be about at parity."
Until parity is reached, however, the two countries' exports are priced at "summer sale" bargain levels. "If the euro does rise," Linse adds, "it will put pressure on us."
The weak euro is even credited by some industry observers with giving the European industry an advantage--particularly given U.S. producers' wrestle with high energy costs--in exporting to areas traditionally in the U.S. orbit.
Currency effects are transient, however, and countries that historically are strong trading partners learn to shrug them off and emphasize more permanent things. For the industries in Belgium and the Netherlands, permanence has come with investment in infrastructure supporting chemical manufacturing.
As John Beard, president of Lyondell Europe, points out, the chemical industry in the Netherlands and Belgium "was all based on trading in the first place, but built up from that."
THE BUILDING has mostly come after World War II. For example, investment in Antwerp became serious in the 1950s. Similarly, chemical site investment in the Netherlands spurted after the end of the war.
The chemical operations of Anglo-Dutch oil company Royal Dutch Shell is a case in point, Venhuizen notes. Shell's first site in the region was a refinery in Pernis, built about 100 years ago. "That is our longest standing base in Benelux, although we had some hydrocarbon solvents maybe even before that," he says. "But mostly, our operations were postwar."
The company built on the refineries' streams, developing its chemical business in Pernis with a small cracker of 125,000-metric-ton-per-year capacity. By the late 1960s, however, Shell's main refining and chemical site at Pernis was becoming congested. So Shell studied more than 30 locations, the company history has it, before finally selecting a 1,200-acre industrial site being developed by the Port of Moerdijk, halfway between Rotterdam and Antwerp.
Shell began the first phase of its construction in 1970 and the second phase in 1976. A third construction phase, started in 1996, featured a second styrene/propylene oxide plant, now part of Basell, the joint venture between Shell and BASF, and an expansion by roughly 50% of Shell's ethylene cracker, from 650,000 to 900,000 metric tons per year.
With those last two projects, the company points out, Shell Chemicals' total capital invested at Moerdijk is nearly $3 billion, and its total capacity at the site is more than 4.5 million metric tons per year.
The Rotterdam area holds Lyondell's biggest concentration of European operations, Beard says. That includes a propylene oxide derivatives plant, built in 1972 by predecessor company Arco Chemical, and the butanediol plant under construction.
"It will be the largest butanediol plant in the world. Why there? We want to be close to the market," Beard says. "You look at a lot of things in siting a plant--you want to be close to raw materials and to the markets, with good infrastructure. Rotterdam has all those, in close proximity to customers. It is a huge industrial complex. We can leverage each other."
"Chemistry attracts chemistry--everything is linked to the petrochemicals," Fedichem's Biot observes. "For example, if you have ethylene, you will attract plastics, then processors, and so on."
As Shell's Venhuizen observes, the polymer industry in Antwerp and Rotterdam "gives Belgium a tremendous polymer-processing industry relative to its population. That developed on the back of the pipeline."
Moreover, the industry as it developed was not strictly homegrown. Biot notes that even though there was an important Belgian industry--for example, with Solvay, Agfa Gevaert, and others--Belgium has been "particularly successful in attracting foreign investment, especially in the 1960s and 1970s."
WHAT'S MORE, he notes, the investment came not just in Antwerp, but along the Albert Canal, for example, running inland from Antwerp. It also came in a wide range of derivative industries--in pharmaceuticals as well as chemicals. "About three-quarters of the capital invested in the Belgian industry is foreign--from Germany, the U.S., Japan, Sweden, and so on," he says.
Those investors are entering two chemical industries that historically have had among the highest growth rates in Europe. And although the growth seems sure to fall off somewhat this year from last year's strong showing, officials at both chemical industry associations are fairly optimistic about the year.
As Claes of the Belgian trade group notes: "We have had very good performance in 2000--at first sight. Production was up by 9%, and employment up 3%. Price rises contributed 20% to the increase in sales."
||COMPLEX BASF's ethylbenzene/styrene plant is part of the company's integrated chemicals site in Antwerp, Belgium.
However, he observes, "Are these increases sustainable? Already, if you look at costs, we see that there will be a decrease in profitability in petrochemicals and plastics processing," because of the continuing impact of higher oil and fuel prices. "The impact will be lower, the closer to consumers a manufacturer is."
Moreover, "Europe always lags behind the U.S. economy by about six months." The slowdown in the U.S. is starting to have an impact now in Europe, he adds. GDP growth last year in Belgium was 3.9%, and this year it will probably be about 3.5%--a rate that has already been revised downward a couple of times.
Belgian chemical production is now running at the rate of 4%. The year, Claes concludes, "won't be bad, but it won't be as good as 2000."
That assessment finds basic agreement from VNCI's Linse and Peter F. Noordervliet, its director general. "The cost of raw and ancillary materials increased by an average of 25% in 2000," Noordervliet says, while "sales prices in the domestic and international markets increased by an average of 14%." The price hikes during 2000, he adds, can "primarily be attributed to the large increase in the value of the dollar, and to the high price of oil and products associated with oil, such as naphtha."
"The dynamics that have helped the industry with enormous profit increases will slow this year," VNCI's Linse predicts, "but we don't see a collapse. The ability of the industry to work oil-price increases into product-price increases has been faster than I would have thought."
IN FACT, the solid performance of the two industries is having an impact on labor demand--to the point that managers can see problems looming ahead. As Fedichem's Biot notes: "The problem is the availability of skilled people. In the north [of Belgium], in particular, if you want to work, you can probably find a job."
Shell's Venhuizen, speaking of the Netherlands, comments that the country has "a well-educated workforce--but what is coming increasingly under pressure is access to labor."
And that tightening labor market, Biot adds, is putting pressure on wages. In Belgium, for example, Fedichem is involved in the social aspects of the chemical sector, advising company executives and human resources managers, for example, on wage settlements.
"We started in the early 1980s to restore our wage-cost competitiveness," he says. "We fear that in the latest round of wage negotiations, that will be lost. A maximum increase had been agreed at 7% for the next several years, but some company settlements seem to be 15%." Such a level across the board "will reverse our competitive wage position. We have launched an appeal to our partners--'Hey, don't overdo this.' "
Venhuizen notes that at one time, Shell had its own training program for incoming employees, but that this has been expanded into an industrywide training effort. The problem is in part the drop in students going into the sciences in Europe. Both Fedichem and VNCI have programs working with grade schools as well as universities.
As Venhuizen observes, "You have to work with schools at a very early age, when young people begin making choices." He sees a particular problem in recruiting chemical engineers--"the influx into those studies has gone down. There is a major issue attracting people; it is across the board."
THE DROP-OFF stems partly from the desire of students to go into "sexy" subjects such as electronics or telecommunications or into "softer" subjects such as social sciences. But it is also a reflection of a general public perception of the chemical industry as an unattractive and socially irresponsible sector.
That phenomenon is no different in Benelux than in other European countries, Fedichem's Biot says. However, he sees a glimmer of hope: faint but distinct indications that perceptions may have improved over the past two or three years. As he points out, "The last pan-European survey from CEFIC"--the European Chemical Industry Council--"showed a slight improvement in attitudes toward the chemical industry."
In fact, one of VNCI's projects is an effort to boost public approval of the chemical industry in the Netherlands from just under 50% now to 60% by 2010, if not sooner.
Biot believes the industry's efforts to improve its image are slowly feeding through to students. But it has little time to waste. "The big investments here were in the 1960s and 1970s," he notes. "The people working at those sites will soon retire, and there will be a gap" in filling the slots with new employees.
However, even a lukewarm perception of the chemical industry by the general public has not fed into hostility to new investment, both associations report.
"In Belgium, generally, there is no big problem when companies want to make new investments," Biot says. "Most chemical plants are situated in large chemical sites--Antwerp, for example, or Feluy and Tessenderlo. Chemicals are part of the landscape."
It is also a fact, the associations say, that the local populace and governments accept investment from chemical producers in the Netherlands and Belgium because of their success in meeting environmental regulations.
Such regulations are accepted as tough but workable. Lyondell's Beard, for example, observes that "in the Netherlands, environmental regulations are strict, but they are what they are--they are very transparent."
For the Netherlands, the transparency has been built on covenants, or pledges, between the Dutch government and the chemical industry. The essence of the covenants: The industry pledged to cut emissions and boost energy efficiency, and the government pledged not to change the regulatory-requirement goalposts midway through the time period covered.
The first set of covenants expired last year. VNCI's Noordervliet says: "Our members were able to fulfill virtually all their agreements with the authorities. The chemical industry had agreed to ambitious objectives, and the branch made a great deal of effort to achieve these objectives."
The industry had set itself the target of a 20% improvement in its energy efficiency by 2000, in comparison with 1989, and it achieved 25%, Noordervliet says.
On the other hand, the industry had also pledged to reduce emissions for roughly 90 compounds. It more than met its commitments for about 85 of those but has had trouble with a few, like carbon dioxide, that have remained stable because of growth.
VNCI is now negotiating with the Dutch government for new covenants to carry on the program. "The emphasis of the second phase of the Environmental Covenant, for the period to 2010, will move from the reduction of emissions to the theme of sustainable development," Linse says.
As he said in a foreword in the VNCI annual report for 2000, the government's own Social & Economic Council "submitted its recommendations to the government. The Council stated that sustainable development can be achieved by the business community's endeavors to impart three fields with a value: profit (earnings and employment), people (social policy), and the planet (the environment and the ecological returns). The Board of the VNCI endorses these principles. It is evident that the concept of sustainability is acquiring an increasingly pivotal role in the development of our policy and our operations."
ONE OF THE COVENANTS being negotiated, Noordervliet adds, will look at the remaining areas for emissions reductions.
A second covenant, on energy efficiency, develops the idea of benchmarking the Dutch industry against worldwide industry practice. And a complementary covenant on energy efficiency, designed to cover small to medium-sized companies, is being negotiated.
"The nice thing about our new covenants," Noordervliet says, "is that we have promised to do something to better our competitive position, while at the same time doing something the government wants to accomplish."
He explains that the Dutch government made a Kyoto protocol pledge to reduce CO2 emissions 6% by 2012. The Dutch government will find about 3% outside the Netherlands, from emissions credits, he says, and will ask the chemical industry to effect the remaining 3%.
"That is the point of the benchmarking," says Noordervliet, who expects the industry to be able to capture efficiency savings of 5 to 10%. "We have promised to be the most energy-efficient industry in the world by 2012. We are saying, 'Dear government, can you expect us to be better than the best?' Now we are measuring to see how far we are from the best of the different sectors."
The savings will be for each company, which is why, he adds, "we will be doing a [benchmarking] for the smaller firms."
IT ALL ADDS UP to what Noordervliet calls "a typical Dutch covenant." On the other hand, he is aware that his Dutch colleagues are more fortunate than their counterparts in Belgium, who, in a sense, are victims of their own success.
"The Kyoto protocol is a specific problem in Belgium," Fedichem's Biot agrees. "The chemical industry has seen its CO2 emissions rise by about 60% since 1989, following massive investment in the early 1990s." A case in point is the huge cracker and olefins complex in Antwerp that BASF brought onstream in the past couple of years.
"The Belgian government looks at gross emissions, not at emissions per ton of output," Biot frets. "We can improve efficiency, although in some areas we are approaching thermodynamic equilibrium.
"If Kyoto is applied in a linear way, we would have to close 25% of our plants and permit no growth for the others," he adds. He also points out that the Belgian government made its commitments before the declaration by President George W. Bush in the U.S. "If it is clear that the U.S. won't comply, and it is not clear about Japan, we should take into account what these two countries are doing," Biot argues. "We should not commit economic suicide without any economic advantage at all. It is an enormous challenge."
The other major environmental challenge facing the industry throughout Europe is the potential impact of a newly drawn EU chemical policy. In a white paper published earlier this year, the EU opened discussion on a set of regulatory possibilities covering the industry (C&EN, Feb. 26, page 34).
"The white paper opened up the discussion," Noordervliet says, "but it will be at least two or three years before there is any action. In large scale, we agree with what the white paper proposes. We have had something similar in the Netherlands--a 'strategy of handling substances'--that also formed part of the Dutch input into EU discussions."
According to Biot, the white paper "is a very big challenge. The content is quite good: There are a lot of things we can agree to without any problems." Yet "there are some areas where we have queries--the wording is too vague and needs more explanation--and some areas where we disagree."
For example, he says the proposed definitions of hazardous chemicals and the subsequent means to control them would hit small to medium-sized firms particularly hard. And despite the visibility of industry giants such as Solvay and the big foreign-owned companies in Belgium, he explains, most of the 800 members of Fedichem are small to medium-sized operations.
"One of the big problems for these smaller companies is that competition would be distorted," he says. For example, to require a company that produces a particular intermediate to divulge information on applications could damage proprietary know-how or market ideas.
In its first counterproposals to the draft white paper, VNCI has pointed to what it sees as two fundamental problems. The first is the authorization scheme, which proposes that a substance that is intrinsically dangerous should not be marketed. "We think a chemical policy should take into account the use, as well as the intrinsic properties--a risk assessment," Noordervliet says.
The other major problem arises from the EU's suggestion that, for all substances marketed, there should be a certain number of parameters available so that the substance can be judged. "This scheme is impossible to fulfill," according to Noordervliet. "We're talking about 30,000 substances--there is not enough lab-testing capability in Europe to fulfill the commission's wishes."
"The chemical industry wants good chemical legislation," Fedichem's Biot says. "But to make good European chemicals legislation, you need some time. It is impossible from the statements of the white paper now to agree without restrictions to the actual content--it is too general."
Given the general importance of the chemical industry to both the Netherlands and Belgium, it is difficult to see that their respective countries would easily accept a chemical policy that could seriously damage it. Government officials are aware of the interrelated nature of the industry, extending through a series of customer industries to the final consumer.
As VNCI's Noordervliet puts it, "When you want a chemical, you can find it here--every petrochemical, and so on."
Even beyond that, however, companies come to the Benelux, some observers say, because it is just a pleasant place to be.
Biot's observation of the benefits of working in Belgium could just as easily be about the Netherlands: "The advantage of a small country is that everything is in the neighborhood. The food is good. This is a central area; we speak many languages, which helps a multicultural acceptance. We work hard, but we also live hard."
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BELGIAN CHEMICAL INDUSTRY AT A GLANCE
Industry, agrochemical specialties:
Misc. consumer products:
Paints & varnishes:
Soaps, detergents & cosmetics:
Number of trade association members: approximately
|Note: All figures are for 2000.
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DUTCH CHEMICAL INDUSTRY AT A GLANCE
Basic chemicals: (includes fertilizers, olefins)
Number of companies in sector:
|Note: All figures are for 2000, except for R&D spending, which is for 1999.