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GLOBAL TOP 50
Mergers make the biggest chemical producers even bigger, while 'rest of world' proportion grows with addition of China's Sinopec for the first time
PATRICIA L. SHORT, C&EN LONDON
Germany's chemical giant BASF has succeeded for five years in a row in leading the Chemical & Engineering News ranking of the Top 50 chemical producers worldwide, but its margin is diminishing. The others among the five largest producers were also the same as in 1999, although the rankings have been shuffled slightly. DuPont retains its number two slot, but Dow in third position and Exxon in fourth, bolstered by its merger with Mobil, have nosed out Germany's Bayer, which rounds out the top five.
In the second half of the top 10, though, things become interesting in this year's listing of the Top 50 chemical companies, whose aggregate sales in 2000 reached $442.4 billion, up 14.3% from the previous year. In this year's listing, mergers have made their mark.
||Table: Global Top 50
The biggest of the world's leading chemical firms got even bigger in 2000
||CRANK IT UP Top 50 leader BASF's joint venture with Yangzi operates this plant in Nanjing, China, that manufactures plastics for the packaging and construction industries and for manufacturers of electrical and electronic equipment.
A case in point is TotalFinaElf, whose Atofina chemical operations have jumped to the number six position, up from number 11. And Degussa, formed from a merger of Degussa-Hüls and SKW Trostberg, has moved up two slots to number seven. Those two mega-companies have nudged the chemical operations of Royal Dutch/Shell into slot number eight. Britain's ICI and BP make up the remainder of the top 10.
A handful of newcomers joined the ranking this year. Most prominent of these is Switzerland's Syngenta, formed from the merger of the agrochemical operations of Swiss pharmaceutical giant Novartis and Anglo-Swedish drug company Astra-Zeneca.
Syngenta is closely followed by the publicly traded portions of Chinese petroleum and chemical producer Sinopec (China Petroleum & Chemical Corp.). Sinopec has been an unrecognized specter over the past few years--a chemical presence undoubtedly large enough to win it a place among the Top 50, but whose financial data were not transparent enough to analyze. However, since the listing on foreign stock exchanges of parts of Sinopec, data from Sinopec have become sufficiently reliable and detailed that the company can now be included in the rankings of the Top 50 for the first time.
British-based Ineos, another newcomer, was formed in 1995 through a venture-capital-supported management buyout of the ethylene oxide and glycol operations of Inspec, which had acquired them from BP Chemicals. Through a series of opportune acquisitions over the past several years, the company has been built up into a major chemical producer of a variety of commodity chemicals. It--like Huntsman Corp. of the U.S.--remains privately held.
Nova Chemicals of Canada is also a newcomer. And Occidental Petroleum, which has been in and out of the Top 50 over the past decade has bounced back to wrap up the list.
The 14.3% increase in aggregate sales was paced by the 17 U.S. companies, which together logged a 15.5% sales increase in 2000 to $154.0 billion, or 34.8% of the global total. In 1999, that proportion was 32.1%. The number of U.S. companies was up one from the previous year.
On the other hand, the weakness of the nominal single European currency, after conversion into U.S. dollars, slightly dampened the increase in sales of Europe's chemical companies compared with those in the U.S. The 22 European companies on the list--down from 25 last year--had total sales of $213.6 billion, up 14.2% from the previous year.
Aggregate sales of Japanese companies in the listing were $46.1 billion, up 7.3% over 1999. As in the previous two years, six Japanese producers appeared in the C&EN rankings; however, the results of Japanese mergers and reorganizations have begun to show up.
Three of the companies--Sumitomo Chemical, Mitsubishi Chemical, and Mitsui Chemicals--are in the top 15, with only the Netherlands' Akzo Nobel between them and the top 10. A fourth Japanese company, Dainippon Ink & Chemicals, has moved up two slots to 18th place. Mitsubishi, in particular, has benefited from the reevaluation by C&EN of its chemicals sales as a proportion of the firm's entire revenues.
Although the chemical industries in both Europe and Japan showed strong growth, their shares of the Top 50 sales total shrunk and stagnated, respectively. In the rankings for 1999, European companies accounted for 54.4% of the Top 50. In 2000, by contrast, the proportion was 48.3%. And the ranking for 2000 shows Japanese companies accounting for 10.4% of total aggregate sales, up only slightly from the 10.0% figure for 1999.
The segment that clearly benefited in 2000 was the "other regions" grouping. From three companies with a 3.5% share of total sales in 1999, the rankings for 2000 show five companies with a 6.5% share. Sinopec and Nova joined Saudi Basic Industries Corp., Reliance Industries, and Formosa Plastics, bringing the sales of this group to $28.9 billion, up from $13.7 billion in 1999.
In the 1999 ranking, the strong sales growth shown by the chemical industry raised the cutoff point for the Top 50 to an individual company level of $3.54 billion in sales. The 2000 ranking showed similarly strong growth, but the cutoff point was even higher, with the last company on the list--Occidental Petroleum--coming in with sales of $3.8 billion.
On the other end of the spectrum, all the companies in the top 10 had sales of more than $10 billion. It seems that the recent spate of mergers is creating a strong tier of mega-producers and a second tier of "everybody else."
Companies might generally have increased sales, but profitability did not follow along. Nearly half of the Top 50 producers saw operating profits decline in 2000 from the year before. The average profit margin--total chemical operating profits divided by total sales--was a mere 8.5%. That marks the fourth consecutive year of a decline in profit margins, from the wobbling peak in 1995.
Despite the decline, the average of 8.5% is far from the previous decade's low of 7.2% that was hit in 1993. And the fact that the rate of decline seems to be slowing--the average profit margin in 2000 was down only 6.6% from 1999--ordinarily might be seen as a hint of an upturn in the business cycle. However, the spate of earnings warnings that chemical companies have been issuing in the past month seems to have squelched recovery expectations.
Also down from 1999 was capital spending by the Top 50. Total 2000 capital spending for the chemical companies and chemical subsidiaries that identified such figures was $27.5 billion, or 6.2% of sales. The same companies in 1999 spent $31.5 billion, or 8.1% of sales, a figure that was down in turn from 1998.
The increase in spending on R&D shown in the 1999 analysis continued into 2000, when R&D spending by those Top 50 firms that reveal it grew 3.1% to a total of $11.0 billion. Although up as a total, average R&D spending was 2.5% of sales, down from just under 3.0% for 1999. The lower spending on R&D compared with that for capital spending is perhaps not surprising given C&EN's ground rules, which exclude formulated products such as pharmaceuticals--traditionally with high R&D spending but lower capital spending.
The impact of mega-mergers in the chemical industry was vividly apparent in 2000 and will be again in 2001. The merger of Dow Chemical and Union Carbide--based on 2000 figures--will propel Dow over DuPont as the largest chemical company in the U.S., changing the complexion of that long-standing rivalry.
Moreover, a straightforward addition of the 2000 sales of Dow and Carbide--which merged early in 2001--shows that the combined firm, had it existed in 2000, would have just overtaken BASF to top the list. So the likelihood of a change at the top for next year's ranking is particularly strong. For year-to-year consistency, this year's ranking includes BASF's pharmaceutical business, which in 2000 was broken out in segmental reporting but in 1999 was included in a lump category of "health and nutrition." However, BASF sold its drug business to Abbott Laboratories this year and will no longer have those sales as part of its total.
Dow and Union Carbide aside, many of last year's chemical mergers were by-products of totally nonchemical parent company deals. For example, Totalfina acquired Elf Aquitaine to merge the two companies' petroleum and energy interests. The resulting chemical company, Atofina, was cobbled together from the chemical operations of Totalfina--itself a merger between the two oil companies Total and Fina--and Elf.
Similarly, when Veba, the parent company of Degussa-Hüls, merged with Viag, the parent company of SKW Trostberg, to create an electric utilities giant, the "new" Degussa was pulled together from the respective chemical operations.
Whether that trend will continue, however, is not clear. Large mergers aimed at consolidating various industrial sectors are being looked at with ever-tighter scrutiny by regulatory authorities in the U.S. and Europe.
For example, another merger that would coincidentally have created a chemical giant--with 2000 sales of $11.8 billion--was that of General Electric and Honeywell. That merger bit the dust earlier this month, however, following objections by the European Union over market concentration in aircraft services.
Most of the mergers announced so far this year, by comparison, are on a smaller scale and therefore less likely to seriously shake up the rankings of the Top 50.
Rather than big upsets, jockeying between near-ranking neighbors is the sort of change likely to show up in C&EN's list for 2001.
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Copyright © 2001 American Chemical Society