the future of the european chemical industry_2009

CHEMICALS

The Future of the European Chemical Industry

KPMG INTERNATIONAL

About KPMG’s Global Chemicals PracticeThrough its member firms, KPMG has invested extensively in developing a highly experienced chemicals team.KPMG’s understanding of the industry comes from KPMG member firms’ global experience, knowledge sharing, industry training and the use of professionals with chemical industry experience as well as participation in a variety of industry forums.

KPMG member firms work with many of the chemical industry market leaders, using their industry experience to understand the business priorities as well as the strategic challenges faced by these organizations.

Our presence in many international markets enables our firms’ professionals to assist clients in recognizing and making the most of opportunities as well as advising on the implementation of the changes dictated by industry developments.

Executive summaryThe European chemical industry is facing the dawn of a new reality. While the industry worldwide is still reeling from the current cyclical downturn and the recent global recession, chemical companies in Europe are faced with the ongoing rise of new competition in the Middle East and Asia (especially from China and India). These factors appear to be driving an inexorable shift eastward in the global chemical industry, particularly at the bulk / commodity end of the sector.

Indeed, our research suggests that new global capacity being developed in the coming years will render 14 of 43 crackers in Europe uneconomic by 2015. The closure of these plants would correspond to the loss of 26 percent of total cracker capacity in Europe.

At the same time, Middle Eastern chemical producers continue to seek expansion along the value chain into higher value-add solutions. Their Chinese counterparts are attempting to fulfill a government directive to make the country self-sufficient in chemicals. These Middle Eastern and Chinese entities are often cash-rich and backed by government support. A rapid path to achieving these goals appears to be offered by acquisition of technology and intellectual property from a European chemical industry seemingly beset by structural problems.

However, KPMG believes that the death knell of the European chemical industry has been sounded prematurely. This remains an industry that employs over 1.2 million people and contributed in 2007 to a European Union (EU) trade surplus in chemicals of EUR35.4 billion.1 There is no doubt that the shape of the global chemical industry is changing, but the industry in Europe can continue to play a significant role in this new reality if it can:

• Makehardchoicesnowtorationalizeunprofitablefacilitiesthatmightnotbeabletocompetewithnewer,moreefficient plants being built outside of Europe

• Ruthlesslyidentifywhichchemicalclusterswillremaincompetitiveontheglobalstageandfocusresourcesandinvestment in these areas to ensure their long-term survival

• Capitalizeonitshistoricadvantageininnovationtostayaheadofthecompetition,especiallyintermsofsustainablesolutions which will be increasingly in demand

• Leverageitslong-standingcustomerrelationshipstodevelopmorespecialized,higher-performancesolutions

• ActivelyseekbeneficialjointventuresandstrategicalliancesthatprovideaccesstobothcheapMiddleEasternfeedstocks and growing Asian markets

Many European companies are already recognizing the possible advantages — and the necessity — of repositioning themselvesassolutionsprovidersratherthanjustbasicsuppliersfortheircustomers.Thiscanincludefindingnewwaystoworkwithcompaniesthathavetraditionallybeenperceivedasmajorcompetitors.Thecompaniesthatsuccessfullyachievethis transition should be better positioned to meet the global competitive challenges of the 21st century.

1 “HighLevelGroupontheCompetitivenessoftheEuropeanChemicalsIndustry,FinalReport,”EuropeanCommission,July2009“The European chemical industry must capitalise on its historic advantage in innovation to stay ahead of the competition.” Chris Stirling

Head of Chemicals, KPMG in Europe

2 THEFUTUREOFTHEEUROPEANCHEMICALINDUSTRY

©2010KPMGInternationalCooperative(“KPMGInternational”),aSwissentity.MemberfirmsoftheKPMGnetworkofindependentfirmsareaffiliatedwithKPMGInternational. KPMG International provides no client services. All rights reserved.

THEFUTUREOFTHEEUROPEANCHEMICALINDUSTRY 3


Contents1. Current state of the industry in Europe 4

1.1. Industry overview 4

1.2. Impact of the current downturn 8

2. Challenges from the East 12

2.1. A global shift 12

2.2. Middle East 17

2.3. China 21

3. Innovation: the key to survival 24

3.1. Evolving from commodities to specialties 25

3.2. Maintaining a technological advantage 26

3.3. Strengthening customer relationships 28

3.4. Developing joint venture relationships 28

4. Case study – Going green with Cognis – a flexible strategy 30

5. Case study – BASF – verbund manufacturing 32



As with any crisis, the recent economic downturn presents both risks and opportunities for businesses. This is especially true for the European chemical industry.Longapowerhouseintheglobaleconomy,theindustrynowfacestheneed to make difficult choices about its future development and role in the face of increased competition from overseas.

KPMG member firms believe that today’s risks need to be clearly assessed, especially in the light of continued economic uncertainty. We also feel, however, that companies can respond with innovative solutions in terms of market focus, technology and business relationships. Properly developed and managed, these innovations can help companies to not only adapt and survive but even thrive in the 21st century.

1.1 Industry overview

Geographic breakdown of world chemicals shipments

0

100150

50

200250300350400450500550600650700750

800850900

736

529

157113

109

304

204

375

Chem

ical

s sh

ipm

ents

(€ b

illio

n)

World chemicals shipments in 2008 were €2,257 billion***The EU accounts for 29.1% of the total

Other* = Oceania and Africa Rest of Europe** = Switzerland, Norway and other Central & Eastern Europe.World chemical shipments*** = ACC uses as a proxy for sales

ASIA

= 8

83

EU 2

7 =

537

Asia

China

Japan

Rest of Asia

2008

EU 27 NAFTA Latin America Rest ofEurope**

Other*

EU

Source:AmericanChemistryCouncil,2009

1 Current state of the industry in Europe



EU chemical industry sales by country

Percentage share of European chemical sales

Big 8 = Germany, France, Italy, United Kingdom, Netherlands, Spain, Belgium and Iceland

NL 10.2%

UK 10.3%

IT 11.0%

FR 14.5%

DE 25.3%

ES6.7%

BE5.8%

IE 4.5%

Other 11.7%

PL

SE

AT

FI

CZ

HU

PT

RO

Others

2.3%

1.7%

1.3%

1.3%

0.9%

0.7%

0.7%

0.6%

2.2%

Source:CeficChemdataInternational

Sector-wise breakdown of EU chemical industry sales

Perfumes & cosmeticsSoaps & detergents

Petrochemicals

Plastics & synthetic rubber

Man-made fibresOther basic inorganicsIndustrial gasesFertilisers

Other specialty chemical

Paints & inks

Crop protection

Pharmaceuticals

Base chemicals 44.8% Pharmaceuticals 27.4% Specialty chemicals 17.0% Consumer chemicals 10.8%

Source:CeficChemdataInternationalandEurostat



The European chemical industry drives a significant part of the economy across the EU. Over 1.2 million workers are employed in the industry, manufacturing products, supporting research and providing supplies in many regions of the EU.

The European chemical industry is based on the following four categories of products:

• Basechemicalsthatincludepetrochemicals,theirderivativesandbasicinorganics. Produced in large volumes, they are sold as commodities to manufacturers in the chemical industry or to other industries.

• Specialtychemicalsthatareforspecializeduseandproducedinlowervolumes than base chemicals. Examples include ingredients used in adhesives, additives, plastics, coatings, paints and inks, crop protection, dyes and pigments etc.

• Pharmaceuticalsincludingbothbasicpharmaceuticalproductsandpharmaceutical preparations.

• Consumerchemicalsthataresoldtoendusersandconsumersinthe form of soaps, detergents, perfumes and cosmetics.

Largeindustrialcustomersrepresent25.1percentofchemicalconsumptioninthe EU. This category includes metals, mechanical and electrical industries, textiles and clothing, the automotive industry and paper and printing products.

The remaining areas of chemical consumption can be divided into the following:

• 30.3percentforendusersinprivatehouseholds,governmentandnon-profitorganizations

•16.4percentforservices

• 6.4percentforagriculture

• 5.4percentforconstruction

• 6.1percentformanufacturingnotlistedabove

•10.3percentforotherindustries2

Over the years, the European chemical industry has shown considerable resilience, strength and adaptability. In 2007, 12 of the 30 leading chemical companies in the world were headquartered in Europe, representing 10 percent of world chemical sales.

Recentindustrygrowthhasbeendrivenmainlybyregionalsales.From1997to2007, sales more than doubled among EU partner countries.3 This growth has been supported by the removal of trade and nontrade barriers among the EU countries and by the size of the internal market — almost 500 million consumers across Europe.

In 2008, 23 percent of European chemical sales were for customers outside of the EU, in particular to markets in North American Free Trade Agreement (NAFTA), neighboring countries (especially Turkey and Russia) and Asia.4

2 “FactsandFigures:TheEuropeanchemicalindustryinaworldwideperspective:2009,”Cefic3 Ibid.4 Ibid.

“We see a sustainable future for chemical companies in Europe based on specialties and better strategies to support the success of the customer.”

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

THE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY 7



1.2 Impact of the current downturn

European chemical industry output, July 2008 — August 2009

-12.00%

-10.00%

-14.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%%

cha

nge

on y

ear e

arlie

r

July

Augu

st

Sept

embe

r

Octo

ber

Nov

embe

r

Dece

mbe

r

Janu

ary

Febr

uary

Mar

ch

April

May

June

July

Augu

st

Source:CIAMatters

EU chemicals production: sector outlook

-25

-20

-15

-10

-5

0

5

10

15

Prod

uctio

n (v

olum

e): g

row

th ra

te (y

oy)

-6.6

5.0

-20.1

-5.5

5.3

-19.7

-4.5

4.7

-12.4

-4.6

6.0

-10.6

-3.8

5.5

-9.3

-1.9

2.6

-6.5

ConsumerChemicals

2008 2009 2010

SpecialtyChemicals

Petrochemicals Chemicals Polymers Basic Inorganics

Source:CeficEconomicOutlookTaskForce(November2009)

Likevirtuallyeveryotherindustryworldwide,theEuropeanchemicalindustryhas felt an enormous impact from the recent global recession. At its lowest point inMarch2009,theindustrysawamonthlyyear-on-yeardeclineof13.2percent, a figure that if annualized would represent an output decline of approximately EUR56 billion.5

Describingtheindustrydownturn,Grahamvan’tHoff,GlobalV.P.BaseChemicalsatShellsaid,“Therewasacompletemeltdownofdemandinthefourthquarterof2008,”addingthat,“adoublewhammyiscomingatus[as]wenowfaceasupply-leadproblemcausedbythenewMiddleEastcapacity.”6

5 CIAMatters,July20096 “CantheEuropeanpetrochemicalindustrycompeteagainstemergingproducersbasedintheMiddleEast?,”ChemicalWeek,September21,2009



In Europe, the chemical industry saw massive reductions in demand for plastics, paint and man-made fibers, especially in key markets such as automotive and construction. This fall in demand led to a severe destocking by many companies, with some companies (particularly in the base chemicals, polymers and specialty chemicals sectors) watching their own output decline by 30 to 60 percent.7

Tight credit continues to hold back recovery. Many large companies are finding majorcreditlinesbothdifficultandexpensivetoobtain.Smallandmediumenterprises(SMEs)areexperiencingevengreaterdifficultiesinobtainingguarantees and letters of credit for imports and exports. The credit ratings for a number of chemical companies have been downgraded, prompting banks to carefully re-evaluate the entire industry. However, the bond markets in Europe are currently relatively healthy, providing access to financing for those companies that retain an investment-grade credit rating.8

7 “Reaction:KPMG’sviewsontheeconomicoutlookforthechemicalindustry,”September20098 “WeatheringtheStorm:theChemical&PharmaceuticalSector,”webcastconductedbyChrisStirling,KPMG

“Large companies are findingmajorcredit lines both difficult and expensive to obtain.”



Many analysts and industry observers predict a gradual though modest recovery, with demand not returning to 2007 levels until probably 2012 or even later. Cefic, European Chemical Industry Council expects a five percent increase in output growthin2010comparedto2009.9 Henrik Meinke, writing on behalf of the EuropeanChemicalMarketingandStrategyAssociation(ECMSA),alsooffersguarded optimism, suggesting that a significant global recovery should not be expected before 2011, although industry conditions should improve in 2010.10

In the meantime, the industry recognizes that hard decisions need to be made, and these have included downsizing and massive restructurings, which to date have resulted in the redundancy of approximately four percent of the pre-recession chemical industry workforce in Europe. Clariant, for example, sought to shrinkitsworkforcebyatotalof3,220positionsin2009(equivalentto17percentof its global workforce).11 Akzo Nobel has announced plans to cut 20 percent of the workforce at its Amsterdam head office and Arnhem shared service centre.12

Even with recovery, the European petrochemical industry and its markets may continue to contract. Many end-user industries have started to move operations outside of Europe. The textile industry has offshored to the Middle East and Asia to be closer to high-growth markets and benefit from lower manufacturing and logistics costs. Parts of the automotive industry have moved to Eastern Europe, followed by their tier 1 and tier 2 suppliers to improve their competitiveness.

9“EUchemicalindustryexpectedtofollowamodestandfragilerecoveryin2010,”pressrelease,Cefic,17November200910“INSIGHT:Gatheringsignsofrecoveryforchems,”ICIS,11March200911“ClariantToCut570Jobs,”Chemical&EngineeringNews,30November200912“Resultsfallonweakdemand;economybeginstostabilize,”ChemicalWeek,2November2009



A key issue is how the European chemical industry and European governments seek to respond to these changing dynamics. Certainly recently, there has been a trend toward protectionism in the industry. China, the EU and India recently initiated anti-dumping measures against the Middle East.13 China has also imposeddefinitiveanti-dumpingdutiesofbetween5.9percentand35.4percentonimportsofadipicacidfromtheEU,KoreaandtheUS.14

With the scale of capacity expansion under way in the Middle East and Asia likely to result in significant overcapacity in the industry in the medium term, there is a real danger that individual countries or regions could resort to protectionist measures which is likely to harm the industry and hamper growth. Whilst new plants are typically in the lowest-cost position on the global cost curve and, as a result, can expect to be profitable in most market conditions, older plant in Europe is likely to become uneconomic.

Global ethylene capacity and demand

100

110

90

80

120

130

140

150

160

170

180

(mill

ion

tonn

es)

2007 2008 2009 2010 2011 2012 2013

Global capacity Global demand

Source:BankofAmericaSecurities/MerrillLynch

KPMG analysis shows that European petrochemical capacity may decline dramatically in the coming years. According to recent estimates, 40 out of 200 crackers worldwide are likely to become uneconomic by 2015, and approximately 14 out of these 40 will be in Europe. The closure of these plants would correspondtothelossof26percentoftotalcrackercapacityintheEU.Similarly,10 out of 17 European ethylene glycol plants may become uneconomic, corresponding to 65 percent of total European capacity.15

USchemicalproducersarelikelytobesimilarlyimpacted.However,thereisasentimentwithintheindustrythattheUSwillbemoreruthlessinrestructuringuneconomic plant as the industry there is less encumbered by political issues which can make restructuring difficult in Europe. The challenge for the European chemical industry is to resist the urge to hide behind protectionist barriers. Rather, there should be a process to identify and rationalize chemical plant and clusters made uneconomic by the new world order (principally, likely to be small, land-bound, non-integrated units). This should allow future investment to focus on those areas in which the European chemical industry remains competitive on the global stage (see verbund manufacturing, section 5). “Clariant

sought to shrink its workforce by a total of 3,220 positions in2009.”13“AntidumpingCasesTargetMideastPetchemExports,”ChemicalWeek,30November2009

14“ChinaDumpingDuties,”ChemicalWeek,16November200915KPMG research and analysis



As European chemical companies recover from the recession, they will face even greater challenges from increased competition overseas. Although most of this competition will come from the Middle East and China, the relative importance of these regions can be best understood as part of a larger transition in economic strength from developed to emerging markets.

2.1 A global shift

International comparison of chemical production growth

1997 – 2007

Prod

uctio

n in

dex

(199

7 =

100)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

95

105

115

125

135

145

155

165

175

Average growth p.a. (1997-2007)Asia Pacific* 5.7%Latin America 3.2%NAFTA 1.4%EU 1.3%

EU NAFTA Asia Pacific* Latin America

*Asia Pacific includes Japan, China, India, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, Pakistan,Bangladesh and Austraila

Source:CeficChemdataInternational

Challenge from the East2



Chemical demand (excluding pharma)2008 EUR1,700 billion

€650 billion

€1,150 billion

2020 EUR2,400 billion

Rest of world 10%

South America 6%

Western Europe 25%

North America 21%

Asia Pacific

Rest of world

South America

Western Europe

North America

Asia Pacific

+ 4.5 – 5.0% p.a.

38%

11%

6%

19%

18%

46%

Source:BASF,2008

World natural gas costs

Canada

US

Venezuela

Argentina

Trinidad

Russia$1.25

West Europe

Ukraine$3.60

North Africa$0.75

Indonesia

Middle East

$5.75

$6.75

$0.80

$1.50

$2.50

$7.60

$2.00

$0.75

Source:JPMorgan’sChemicalprimer,June,2008



Global ethylene trade

-15

-10

-25

-20

-5

0

5

10

15

25

20

(mill

ion

tonn

es)

Net imports

North America South America West Europe Middle East

India Sub. Northeast Asia Southeast Asia Others

2002 2003 2004 2005 2006 2007 2008 2009f 2010f 2011f 2012f

Net exports

Source:JadwaInvestments,GPCAAnnualForum,December2009



New polyethylene plants planned for start-up, October 2009 – 12

Company Location GradeCapacity ('000

m.t./p.a.) Startup

Saudi Kayan Saudi Arabia HDPE 400 Q1 2011

Saudi Kayan Saudi Arabia LLDPE 400 Q1 2011

Qatofin Qatar LLDPE 450 End 2010

Borouge 2 UAE HDPE 540 Mid 2010

Borouge 2 UAE LLDPE 650 Mid 2010

Ilam PC Iran HDPE 300 2010

Kermanshah Iran HDPE 300 2010

Lorestan Iran HDPE 300 2010

Kordestan Iran LDPE 300 2011

Mahabad Iran HDPE 300 2011

Sinopec Tianjin China HDPE 300 Online 2009

Sinopec Tianjin China LLDPE 300 Online 2009

Sinopec Zhenhai China LLDPE 450 Q2 2010

Baotou Shenhua China PE 300 May 2010

PTT Chemical Thailand LLDPE 400 Online 2009

PTT Chemical Thailand HDPE 300 Online 2009

Siam Cement Thailand HDPE 400 Mar 2010

Siam Cement Thailand LLDPE 350 Mar 2010

Haldia PC India PE 670 Jan 2010

GAIL India HDPE 200 Apr 2010



Indian Oil Corp India HDPE 350 2012

Indian Oil Corp India HDPE 300 2012

BPCL India HDPE 220 After 2010

ONGC India HDPE 360 Dec 2012



Total 9,940

Source:Platts,GPCAPetrochemicalReport,December2009

Top 10 chemical producers (sales value), 2008

Rank Company Country

1. BASF Germany

2. Exxon Mobil US

3. Dow Chemical US

4. Royal Dutch Shell UK/Netherlands

5. Ineos UK

6. SABIC Saudi Arabia

7. Lyondell Basell US/Netherlands

8. Sinopec China

9. DuPont US

10. Total France

Source:ChemicalWeek



Top 10 chemical producers, 2015?16

Rank Company Country

1. SABIC Saudi Arabia

2. BASF Germany

3. Reliance India

4. Exxon Mobil US

5. Sinopec China

6. Sinochem China

7. Dow Chemical US

8. Saudi Aramco Saudi Arabia

9. Dupont US

10. ADNOC / IPIC Abu Dhabi

Source:KPMGintheUK,December2009

Even before the current recession, the European chemical industry saw a gradual but steady decline in global market dominance. This shift can be measured by a number of metrics.

• Between1995and2005,worldchemicalproductionincreasedbyalmost40percent.However,over95percentofthatgrowthwasconcentratedindeveloping countries.17

• From1997to2007,globalchemicalssalesincreasedby60percent,buttheportion of global EU sales declined by 2.7 percent.18

• BASFestimatesthatglobalchemicaldemandfrom2008to2020willincreaseeight percent in the Asia-Pacific region but decrease six percent in Western Europe.19

Severalfactorscanbecitedtoexplainthisshiftinmarketleadership.Forexample, the cost of raw material feedstock is significantly higher in Western Europe than in most other regions of the world, and this cost difference will almost certainly continue in the future.

Inparticular,itshouldbenotedthatchemicalproducersontheUSGulfcoasthave an advantage over Europe since they are primarily fed by lower-cost ethane rather than the more expensive heavy feeds that supply Europe.

In addition, strong demand in Asian markets supports growth in production for domestic chemical companies in that region. Meanwhile, weakening consumer demand for end products in Europe has led to significant underutilization of capacity, plant shutdowns and margin erosions.

As a result, most analysts and industry observers agree that the global chemical industry will continue in its steady shift to the East, with a greater portion of chemicalmajorsheadquarteredoutsidetheEUinthefuture.In2008,4ofthetop10 chemical producers were located in Europe, but KPMG suggests that by 2015, only 1 of the top 10 producers is likely to be still in Europe while six are likely to be based in the Middle East or Asia.“Between

1995and2005,95percentofworld chemical production growth was in developing countries.” 16“Thisassumesthattherateofgrowthinpetrochemicalcompaniescontinuesatthecurrentrateuntil2015.”

17“ThestateoftheEuropeanChemicalsIndustry–athoughtstarterfortheHighLevelGrouponthecompetitivenessoftheEuropeanChemicalsIndustry,”EuropeanCommission,2007

18“FactsandFigures:TheEuropeanchemicalindustryinaworldwideperspective:2009,”Cefic19BASF,2008



Thiswillmarktheconclusionoftheprocesstobreakupthemajorityofthehistoric, integrated European chemical giants (which began with the break up of the likes of Hoechst and ICI), with their 21st century equivalents being created in the Middle East and Asia. The opportunity for European chemical producers is to focus their remaining activities on emerging mega-trends and to retain a level of flexibility that enables them to rapidly adapt as these trends change.

2.2 Middle East

Middle East – Major ethylene oxide producers

The Kuwait Olefins Co - (TKOC)

Equate Petrochemical Co

Yanbu NationalPetrochemical Co - (YanSab)

Rabigh Refining andPetrochemical Co - (Petro-Rabigh)

Jubail United Petrochemical Co - (JUPC)

Eastern Petrochemical Co - (Sharq)

Saudi Kayan Petrochemical Co

Arabian Petrochemical Co

Ras Tanura Integrated Petrochemical Co

Arak Petrochemical Co - (ARPC)

Marun Petrochemical Co

Gachsaran Petrochemical- (Arvand)

Morvarid Petrochemical Co

Farsa Chemical Co

ExxonMobil Chemical/Qatar Petroleum

ChemaWEyaat

Duqm Refining & Petrochemical Complex - (DRPC)

Plants operating

Plants under study/planned/construction/delayed

Major seaports

IraqTo Lebanon

Qaisumah

Riyadh

East West Petroline

Yanbu

Muajjiz

Rabigh

Jeddah

Iraq Pipeline AcrossSaudi Arabia

East West NGL Line

Saudi Arabia

Yemen

Oman

UAE

Kuwait

Zubair

Al Jubail

Riyadh

PS3

Ras Tanura

Shaybah

Safaniya oil fieldZuluf oil field

Shaybah oil field

Ghawar oil field

Mazalij ManjouraShaden Waqr TinatNiban gas fields

North & SouthKidan gas fields

Iran

Qatar

Ca. 60% of Saudi Arabia’snatural gas reserves consist of associated gas mainly from Ghawar Shaybah and Zuluf fields

Source:BPstatisticalreviewtheworldenergy2007andICISplantresearchasofOctober2008.UpdatedbyKPMGInternational,2009

Operating margins, 2008

0

5%

10%

15%

20%

25%

30%

90

28.4

5.53.8

7.79.2

4.8

SABIC BASF Dow Chemical ExxonMobil DuPont FormosaPlastics

Source:Samba,September2009


“The availability of these resources provides the chemical industry in the Middle East with both energy and feedstock at relatively low prices.”

18 THE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY



Middle East ethylene capacity

0

5

10

15

20

25

30

35

40

(mill

ion

tonn

es)

0

5

10

15

20

25

(per

cent

)

2007 2008 2009 2010 2011 2012 2013

Capacity

Capacity as a percent of global capacity

Source:BankofAmericaSecurities/MerrillLynch,2009

Major Middle East sovereign wealth funds

Country FundsAssets under management

(US$ billion)

UAE Abu Dhabi Investment Authority 875

Saudi Arabia Various 300

Kuwait Kuwait Investment Authority 250

Libya Reserve Fund 50

Qatar Qatar Investment Authority 40

Iran Foreign Exchange Reserve Fund 15

Source:‘CIAtheWordFactbook’,2009

TheMiddleEasthasemergedasamajorcompetitorfortheEuropeanchemicalindustry, based mainly on ready access to cheap feedstocks, proximity to growing markets in Asia and support by governments and local authorities.

The Middle East region has about 67 percent of the world’s oil reserves and 45 percent of all natural gas reserves, the largest such reserves found anywhere. The availability of these resources provides the chemical industry in the Middle East with both energy and feedstock at relatively low prices. Companies like SaudiBasicIndustriesCorporation(SABIC)payonlyUS$0.75foronemillionBritishThermalUnits(BTU)ofnaturalgascomparedtotheaveragemarketpriceofbetweenUS$7–8inWesterncountries.20Someanalystsestimatethatethane-basedMiddleEastproducershaveacostadvantageofuptoUS$350/mtover some of their naphtha-based competitors in Europe.21 Whilst the government-backedoilproducersinSaudiArabiahaveannouncedplanstoincrease the cost of natural gas to petrochemical producers from 2012 (initial estimatessuggestUS$1.25/mBTU)therewillonlybeamarginalerosionofthismassive cost advantage.

20American Chemistry Council, October 2008 21“CantheEuropeanPetrochemicalIndustryCompeteAgainstEmergingProducersBasedintheMiddleEast?,”ChemicalWeek,21September2009



HDPE delivered costs to SE Asia

ME USGC S. Korea NWE

0.0

200

400

600

800

1000

1200

Freight to SEA

Overhead Utilities

Raw MaterialsFixed Costs

Source:ChemSystems,2009

Of more concern to Middle Eastern producers is continued access to cheap ethaneallocationsasalternativeLPGandnaphthafeedshaveasignificantlylowercost advantage. Whilst reports have suggested that additional ethane allocations were likely to be limited, His Excellency Ali Al-Naimi, Minister of Petroleum and NaturalResources,KingdomofSaudiArabiarecentlyannouncethatSaudiArabia’sprovengasreserves,whichstoodat263trillionstandardcubicfeet(SCF)attheendof2008,willincreaseby5trillionSCFin2010.TheKingdom’sgasproductionisexpectedtoincreasefrom8.8billionSCFadaynowto13billionSCFadayin2020,allowingitto,“stayaheadofdemandfornaturalgas[for]chemicalfeedstock.”22

Backedbyadependablesupplyofresourcesaswellassignificantcashreserves,Middle Eastern countries are making huge investments to increase capacity in both upstream and downstream production facilities (principally in the form of world-scale,integratedcomplexes).Morethan19millionmt/yearofethylenecapacitywillcomeonstreamintheMideastby2015,accordingtoSRIConsultingin a recent analysis.23

Somedevelopmentprojectshavebeendelayedbyfinancingconstraints.Theglobal downturn has led to questions about the ability of worldwide markets to absorb capacity from the Middle East and other regions. China, the EU and India have each begun antidumping procedures this year against petrochemical exports from the Mideast.24

Nevertheless, the region is still expected to become a leading producer for a range of petrochemicals and plastics, including ethylene glycol (EG), polyethylene (PE), and polypropylene (PP). EG capacity will increase in the region from 6.2 million mt/yearin2009,to8.8millionmt/yearin2014,raisingitsshareoftheglobaltotalfrom 28 percent to 32 percent over the five-year period.25 Forecasts until the year 2020predictthattheregionwillcontinuetogrowatanaverageofover9.5percent per year, more than twice the global rate.26

22GPCAAnnualForum,9December200923Quotedin“ReinforcingLeadershipinPetrochemicals,”ChemicalWeek,23November200924GPCA2009:MideastInfluenceContinuestoGrow,ChemicalWeek,7November200925Ibid. 26“Worldchemicalsmarket:Asiagainingground,”DeutscheBankResearch,July2008



Whilst a recent survey suggests that 85 percent of product that is sold from plant currently being built will specifically target China, the rest of Asia and the Middle East itself, Tom Crotty, CEO of Ineos Olefins and Polymers Europe said, “whatever is left over will have to find a home and the next obvious place is Europe,”addingthat,“someofthenewcapacitywillwashbackintoEuropebuttheunknownishowmuch.”27

Inaddition,recenttransactionssuchasSABIC’sacquisitionofGEplasticsandtheacquisition of Nova Chemicals Corp. by International Petroleum Investment Co. indicatealong-termstrategybymajorplayersintheMiddleEasttoexpandglobally into downstream areas.

This explosive growth and expansion in the Middle East has helped to drive significant changes in the European commodity chemicals market. Ten years ago, North America was the primary exporter and supplier of products such as PE and PP to the world. Europe was well balanced between supply and demand. However, trade flow patterns have changed dramatically, and the Middle East is now the dominant inter-regional exporter of polyolefins. Older European commodity-based plants will likely be less competitive in the years ahead. Many European customers have already turned to the Middle East for supplies of raw materials such as PE, and Europe is expected to become a net importer of polyolefins by 2010.28

The same cost advantages that help chemical companies in the Middle East to enter European markets will also help to increase their success in Asia. Although more port facilities, tankers and pipelines need to be developed, it is still cheaper to transport raw materials and products from the Middle East to Asia than from Europe. This geographical advantage will enable the Middle East to further expand into Asian markets, gain new customers and even displace European companies from markets where they have traditionally dominated.

2.3 China

0

1

2

3

4

5

6

7

8

9

10

(mill

ion

tonn

es)

1997 1998 1999 2000 2001 2002 2004 2006 20072003 2005

Dependency to foreign countries Growth of demand Consumption Output

Source:www.chemhello.com.Citedin“ChemicalsinChina:Respondingtonewchallenges,”2009

27Quotedin“ReinforcingLeadershipinPetrochemicals,”ChemicalWeek,23November200928Analysis by KPMG International 2008

“Whatever is left over will have to find a home and the next obvious place is Europe.

—Tom Crotty CEO of Ineos Olefins and Polymers Europe ”

http://www.chemhello.com



Chemicals sales growth rates of selected countries and regions

0

5

10

15

20

Aver

age

annu

al s

ales

gro

wth

rate

(%)

Chin

a

Mex

ico

Indi

a

Taiw

an

Kore

a, R

epub

lic

Braz

il

Russ

ia

Switz

erla

nd

EU-2

7

Cana

da

Afric

a

USA

Japa

n

1997–2007

8.77.6 7.6 7.3

5.44.0 3.9 3.4 2.9

2.1 0.1

World sales growth4.8% p.a.

6.8

16.5

Source:CeficChemdataInternational,2008

China Foreign Exchange reserves (US$billion)

US $

bill

ion

2000 2001 2002 2003 2004 2005 2006 2007 2008

166 212286

403

610

819

1,066

1,528

1,946

0

500

1000

1500

2000

2500

Source:ChinaStateAdministrationofForeignExchange,2009

The current economic downturn has reduced industry growth in China and limited further capital investment over the short and medium term. According to the China Petroleum and Chemical Industry Association, consumption of finished oil products (a key indicator of their chemical industry) dropped 8.6 percent in Decemberof2008.29

Despitetherecession,chemicalsoutputfromChinain2009maygrowbyoverfour percent.30 Part of this growth can be attributed to China’s massive stimulus programs, but questions remain whether the stimulus will have long-lasting benefits. Nevertheless, the Chinese chemical industry continues to grow in strength.By2015,ChinaisexpectedtoovertaketheUSasthelargestchemicalproducer in the world.31

Self-sufficiencyfortheindustryisanexpresslystatedpolicyofthegovernment.China has, in fact, been close to self-sufficient in base chemicals since the 1980s.Thecountry’sself-sufficiencyindexforbasicchemicals,resinsandfibersis now approximately 80 percent, according to estimates from Chemical Market Associates Inc. (CMAI), but significant additional capacity will be required to

29“China’spetrochemicalindustryreverses10-yhighgrowth,”www.chinamining.org,18February200930“Globalchemicalsoutputcouldfall6%in‘09”OxfordEconomicForecasting(SourceICISnews),24February200931“Worldchemicalsmarket:Asiagainingground”

http://www.chinamining.org



satisfy the expected growth in demand in the coming years.32 China also importedmorethanUS$84.5billionworthofchemicalsin2008,muchofitinspecialties, and the country currently lacks sufficient domestic manufacturing capabilities to completely satisfy domestic demand.33

To meet their growing demand for specialties, China is constructing its own chemicalplantsandhasbeenusingjointventureswithEuropeanplayerstoincreasecapacity.Beforetheeconomicdownturn,almostallmajormultinationalchemical companies established a presence in China. However, the financial crisis has caused many international chemical firms to reassess much of their investment plans and cut staff worldwide.

BASFisreconsideringtheopeningofamajormethylenediphenylisocyanate(MDI)chemicalplantinsouthwesternChina,becauseofweakenedglobaldemand. The plant was scheduled to begin production in 2010. The company, however,ismovingaheadwithplansforamajorpetrochemicalcomplexinNanjingwithSinopec.ThetwocompanieshaveinvestedUS$2.9billionintheNanjingventure.

Other European chemical companies will also continue to develop their partnerships and market presence in China, attracted by a low-cost base and expanding markets. For example, Clariant opened its first plant in Guangzhou in 1995,makingmasterbatches,orplasticdyepellets.Thecompanynowhasnumerous plants in other provinces as well. The plants operate through a local entity but are overseen by Clariant for all management, governance and investmentissues.Fully-ownedorjointventureoperationswithfulltradinglicenses have been established.

AsintheMiddleEast,theChinesechemicalmajorshavereadyaccesstomassive funding through their government, thus removing the credit barrier faced by companies in the West. At the same time, Chinese companies face critical challenges in terms of poor logistics, tight raw material supply and the lack of experienced management. Accordingly, the industry will continue to need access to Western technologies and resources, particularly at the specialty end of the chemicals value chain.

WebelievethatwewillincreasinglyseeChinesechemicalmajorsasbiddersinM&AauctionprocessesastheirfocusturnsfromattractinginboundWesterninvestment to establishing themselves on the global stage through outbound acquisitions. In the first instance, this is likely to focus on distressed Western assets which provide access to the technologies they require to reach their development goals.

32“ChemicalsinChina:RespondingtoNewChallenges,”KPMG200933EmergingMarketsInformationService,3April2009



Innovation – a key to survival

Share of country in total PCT filings, January 2008 – August 2009

0

5

10

15

20

25

30

35

Shar

e of

Cou

ntry

(%)

29.3

20.017.4

10.9 11.5

4.9 4.8 4.6 3.6 4.4 4.1 3.4 3.4 2.9 2.6 2.4 2.3 2.3 2.5 1.7 1.8 1.6 1.8

United Statesof America

Japan Germany Republicof Korea

China France Netherlands Sweden Italy CanadaUnitedKingdom

Switzerland

Jan. – Aug. 2009 Jan. – Aug. 2008

32.5

Source:WIPOStatisticsDatabase,2009

Annualized growth rate of PCT Filings, August 2008 – August 2009

Annu

alize

d Gr

owth

Rat

e ba

sed

tend

er L

ine

Unite

d St

ates

of

Am

eric

a

Japa

n

Germ

any

Repu

blic

of K

orea

Total PCT Fillings Growth Rate(-2.7%)

Note : 2009 data are provisional and incomplete. The growth rate is the annualized growth rate between August 2008 and August 2009. Counts are based on the international filling date and the country of residence of the first name applicant.

Chin

a

Fran

ce

Unite

d Ki

ngdo

m

Net

herla

nds

Switz

erla

nd

Swed

en

Italy

Cana

da

-15

-10

-5

0

5

10

15

20

10.9

-2.8-11.7 -4.3

15.7

5.7

-4.52.3

-0.6 -4.2 -6.9 -7.6

Source:WIPOStatisticsDatabase,2009

3



We believe that a key to survival for European chemical companies is based on innovation at three different levels — moving from bulk chemical production to the specialty end of the value chain, leveraging their traditional advantage in technology and establishing closer customer and competitor relationshipsthroughjointdevelopmentagreements,acquisitions,valueaddservices and other strategic initiatives.

3.1 Evolving from commodities to specialtiesInitsfinalreportinFebruary2009,theEuropeanCommission’sHighLevelGroup(HLG)ontheCompetitivenessoftheEuropeanChemicalsIndustryrecognizedthatabandoning petchems and focusing on specialty chemicals is a clear necessity.34

Inmanyways,thismovetospecialtiesisamatterofboth“push”and“pull.”Asnoted above, European companies are being pushed out of commodities because of the cheap feedstocks available to producers in the Middle East. In addition, the last 15 to 20 years have seen relatively little investment in the EU in the basic chemicalsub-sectors;thelastcrackerwasbuiltintheearly1990s.Thishasledtoasignificant loss in competitive advantage. The average cracker size in the EU is currently about 450,000 tons/year while the new, world-scale crackers being built in Asia and the Middle East reach a capacity of more than 1,000,000 tons/year. European companies that continue focusing on commodities will have to make massive investment simply to survive.

Intermsof“pull,”Europeancompaniesareattractedbothbystrongspecialtymarkets and the fact that value-added, specialty manufacturing requires a high level of technical capability found more often in the EU than in developing countries. Becauseofthis,theEuropeanpetrochemicalindustryisanaturalchoiceforcomplex specialties for biotechnology and nanotechnology, as well as for emission-abatement products such as insulation materials for residential and industrial buildings.

34“FinalReportoftheHighLevelGroupontheCompetitivenessoftheEuropeanchemicalsindustry”



Obviously, this move up the value chain by European companies will require strategic investment in the face of tight credit, rising costs and other business pressures. European companies also need to maintain sources for commodity chemicals through clustering of crackers with downstream manufacturing, even though this strategy will become more challenging as commodity production increases in the Middle East, China and other areas.

Despitethesechallenges,specialtychemicalsremainsahighlyattractiveglobalmarketworthmorethanUS$680billion.EstablishedEuropeancompanieshave theresourcesandexperienceinthismarkettohelpthemcompeteasmajorplayers worldwide.

3.2 Maintaining a technological advantageThe overall technological advantage of one region over another can be estimated in various ways, including the rate of patent filings and the number of patents in force.

ChinaisnowthethirdlargestpatentapplicationjurisdictionintheworldandmaysoonovertaketheU.S.intotalpatentapplications.TheStateIntellectualPropertyOffice(SIPO)receivedatotalof828,328patentapplicationsin2008, ayear-on-yearincreaseof19.4percent.35However,EUcountriesalsoenjoyaleadership position in patented technology, accounting for 28 percent of Patent CooperationTreaty(PTC)filingsfromJanuary2008toAugust2009.Duringthesame period, China accounted for only 4.6 percent of PCT filings.

To protect their technological advantage, European companies should review theirR&Dplansandextendcorporateresearchprogramstomediumandlongtermobjectives.Thepublicsectorshouldalsoprovideeffectivesupportfortheseefforts,inparticularforSMEs.Inaddition,intellectualpropertyshouldbeprotected by appropriate and cost-effective rules regarding intellectual property rights (IPR). The European Commission supports the development of a more coherent IPR policy, with a more centralized and coordinated approach.36 Thisincludesacommonjurisdictionalframeworkandgreateralignmentofinternational patent law through the World Intellectual Property Organization (WIPO) and initiatives such as the Transatlantic Economic Council (TEC).

SustainabledevelopmentisanotheropportunityforinnovationbyEuropeanchemical companies. Using their technological advantage to stay ahead of the market, these companies are uniquely positioned as leaders in the development of new energy-efficient products, efficient manufacturing processes and alternative feedstocks based on natural materials such as sugar,vegetableoilsandplantextracts.(See“GoinggreenwithCognis– aflexiblestrategy,”section4).

35“Firmsgetupperhandinapplicationprocess,”ChinaBusinessWeekly,23February200936“FinalReportoftheHighLevelGroupontheCompetitivenessoftheEuropeanchemicalsindustry”



Despitethelackofconcretecommitments resulting from the recent Copenhagen Climate Conference, the green agenda is increasingly being driven by the chemical industry’s end customers who are demanding sustainable products and solutions. There is a clear opportunity for the chemical industry in Europe to capitalize on its historical technological advantage and provide global leadership in the realm of sustainable development.

For the chemical industry, another metric is especially important — the number of graduates in chemical engineering and related fields. Highly qualified human resources are vital to European chemical companies: an average of 32 percent of their employees have attained third-level education as compared to an average of 26 percent for other industries.37

However, the last decade has seen a serious drop in the number of European students taking chemistry at the third level. Chemistry currently scores last among the most preferred subjectsstudiedatsecondaryschool.38 Duringthesameperiod,surveyshaveshown a dramatic rise in the number of chemistry and engineering graduates in Asia.39 European companies recognize the consequences if these trends continue.

Fortunately, the EU has one of the most well developed and successful educational systems in the world. Chemical companies should take the opportunitytojoinwithgovernmentsand private organizations to encourage more students to enter fields that support the chemical industry.

37Source:Eurostat38“ThestateoftheEuropeanChemicalsIndustry–athoughtstarterfortheHighLevelGrouponthecompetitivenessoftheEuropeanChemicals

Industry,”EuropeanCommission,200739HigherEducationStatisticsAgencyLimited2009



3.3StrengtheningcustomerrelationshipsEuropeanchemicalcompaniesshouldseektoexpandbeyondjusttrading,supplying commodities or competing on price. Now is the time to focus on the successoftheircustomers.Thiscaninvolvestrategicpartnershipsandjointinitiatives with engineers, researchers and other professionals from different companies,workingtogetheronR&Dprojectsandprovidingvalueaddservices.

The benefits of these initiatives are clear, but they also require new strategies andattitudesonthepartofcompanies.AsPeterLinderofClariantinChinastated, “We have to keep our sales force focused on adding value through strong customer relationships, rather than simply getting drawn into competition with lower-costrivalproducers.”40

3.4DevelopingjointventurerelationshipsEuropeancompaniescandevelopjointventuresandstrategicallianceswithcompetitors — in the Middle East to gain access to feedstocks and in China to develop a local market presence.

The most successful European chemical companies in the coming years are likely to be those that embrace the changing dynamics in the global industry and positionthemselvestotakeadvantage.Inevitably,jointrelationshipsinvolveanelement of trade-off and a challenge for European chemical companies will be to establishagreementsthatallowthemtoenjoythebenefits,withoutgivingawaytoo much of their technological advantage, so as to preserve their long-term competitiveness.

40“ChemicalsinChina:RespondingtoNewChallenges,”KPMG,2009.

“”

THE FUTURE OF THE EUROPEAN CHEMICAL INDUSTRY 29

European chemical companies should seek to expand beyond just trading, supplying commodities or competing on prices.




Raw material basis of Cognis in terms of volume in 2008*

Naturals(Natural oils, fats and derivatives, glucose, plants and extracts) 50%

Inorganics(Inorganic acids and bases, salts) 8%

Inorganics(Silicates) 17%

Petrochemicals25%

*Core businessess CC, N&H, FP

Source:Cognis,2009

Headquartered in Monheim, Germany, Cognis is one of the world’s leaders in specialty chemicals, providing raw materials and ingredients for products for personal and home care, nutrition and health, and for a number of other industries such as coatings and inks, lubricants, agriculture and manufacturing.

Cognis is one of the leaders in green solutions for the chemical industry, dedicating its activities to a high level of sustainability and the use of natural source raw materials and ingredients.

As a European chemical company, the strategies adopted by Cognis offer several advantages. For example, the use of natural raw materials such as fats and plant extracts has significantly reduced its dependence on petrochemical feedstocks from the Middle East. In addition, its raw materials are gathered fromanumberofcountriesacrossAsia,thePacificandSouthAmerica,furtherreducing its dependence on any particular region.

Cognis has also taken care to establish a local presence in emerging markets such as China, enabling it to target rapidly moving markets for specialty chemicals and consumer goods. The company recognizes that the time and cost required to manufacture products in Europe and then ship them to Asia would hurt their competitive position. As a result, Cognis has focused on expanding theirpresenceinAsiathroughplantexpansionsandjointventureswithlocalcompanies.

Case study – Going green with Cognis – a flexible strategy4



In its European plants, Cognis continues to develop more efficient manufacturing processes to reduce costs and improve their regulatory position. This emphasis on innovation applies to its focus on product performance. As with other European chemical companies, it can leverage a strong background inR&Dtohelpensurethatitsproductsremaincompetitiveinglobalmarkets.

RichardRidinger,ExecutiveVicePresidentCareChemicals,recentlysummedupthe situation facing many of today’s European chemical companies. “In Europe, we have unique challenges but also unique advantages in terms of technology, innovation and flexibility. Those chemical companies that work hard to balance sustainabilitywithperformanceandpricewillsucceed.”

“”Cognis is also recognized as a leader in green solutions for the chemical industry.



Casestudy–BASF–verbund manufacturing5

Source:EuropeanChemicalSitePromotionPlatform,2009

HeadquarteredinLudwigshafen,Germany,BASFisoneoftheworld’sleading chemical companies with production and sales facilities in many economicregions.TheBASFportfoliocomprises chemicals, plastics, performance products, functional solutions, agricultural solutions and oil and gas.

BASFiswidelyrecognizedasthefounder of the verbund manufacturing concept.Worldwide,BASFoperatessixVerbundsitesandabout330productionsites.InVerbund,theylinkproduction plants intelligently to save resources and energy. The largest VerbundsiteinBASFGroupislocatedinLudwigshafen,Germany.Thiswas

wheretheVerbundconceptwasdeveloped and optimized before it was applied to other sites around the world.

BASFestimatesthatitsavesmore than EUR500 million each year at its Ludwigshafensitealone.BylinkingplantsinaProductionVerbund,theyareable to create efficient value-adding chains starting with basic chemicals and extending to higher value products like coatings and crop protection products. In addition, by-products from one plant can be used as raw materials elsewhere. Production plants are connected by an intricate network of pipes that provides an environment- friendly method of transporting raw materials and energy quickly and safely.

TheVerbundprinciplealsoappliestoenergy.IntheEnergyVerbund,theexcess heat given off in chemical reactions is immediately converted into steam and is fed into the steam network so that it can be made available to other plants.41

Speakingabouttheimportanceoftheverbundconcept,Dr.AlbertHeuser,HeadofBASF’sPetrochemicalsDivisionstated,“strengthenedcooperation between companies and efficientVerbundstructureswithineachcompany, as well as optimization of logistics and infrastructure, will play a majorroleintheEuropeanpetrochemicalindustry’sfuture.”42

Major Chemical Cluster in Europe

FRAN CE

(U .K.)

GREECE

BUL G ARIA

Ceut a

(U .K.) Man of Isle

(U .K.)

CR O A TIA

ES T ONIA

MOLDO V A

ANDORRA

MON A C O

LIEC H.

Gibralt ar

(SPAIN)

GERMANY UKRAINE

BEL AR US

POL AND

Jer se y Guer nse y

(U .K.)

(U .K.)

TURKEY

L A T VIA

DENMARK

IREL AND KIN GDOM

UNITED LITHU ANIA

R USSIA

CZEC H REPUBLIC SL O V AKIA

HERZEGO VIN A B OSNIA AND

SERBIA

MONT.

HUN G AR Y

SL O VENIA

S WITZ.

A US TRIA

R OMANIA

MA CEDONIA

MARIN O

V A TIC AN CIT Y

IT AL Y

POR TUG AL

S AN

ALB.

R USSIA

SP AIN

KOS.

·

¸

P orto

A thens

Bar celona

Algier s

P alermo

Naples

Cagliari

Tir an a

Podgorica

Smolensk

Str asbour g

Gene v a

Genoa

Flor ence

V enice

Sta v anger

Aber deen

Chernivtsi

Rivne

Myk

Sk opje

Ljublj an a

Manchester

l a V ell a Andorr a

T oulouse

Nantes

am Main

´

´

´

Bern

Rig a

Lisbon

M adrid R ome

Sofi a S ar aje v o

Belgr ade

Z a gr eb Buchar est

V aduz

Vienn a Bud apest

Br atisl a v a Chisin au g

Pr a gue

L ondon

Kyiv Berlin W ar s a w

Dublin

Minsk Copenha gen Vilnius

T allinn Stockholm Oslo

T hessalon í ki

Milan

Br est

Hr odna

Mahily o w

Vits y ebsk

Z ü rich

Brno

Hom y el'

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Iasi Cluj- Napoca

Malm ö

G ö tebor g

Ber gen

Gdansk

K aliningr ad

Bur

Se villa

Z ar agoz a

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M á laga

Bilbao

L y on Bor deaux

Mar seille

Car diff

Edinbur gh

L eeds

Belf ast

Kr ak ó w

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L'viv

Munich Stuttgart

Liv erpool

Izmir

Istanbul

T urin

P oznan

W r ocla w

Glasgo w

F r ankfurt

Hambur g

emen

L eipzig

Pristina

Sicily

Sardinia

Rhodes

ISLANDS B ALEARIC

Corsica

Ö land

Bornholm

Gotland

ALAND ISLANDS R ock all

ORKNEY ISLANDS

HEBRIDES

PYRENEES

MASSIF CENTRAL

PYRENEES

MASSIF CENTRAL

CelticSea

O c e a n

N o r t h A t l a n t i c

SeaNorth

AegeanSea

AdriaticSea

LigurianSea

BalearicSea

AlboranSea

TyrrhenianSea

IonianSeaMediterranean Sea

Strait of Gibraltar

Tagus

Bay of Biscay

n a D b u e

h s i r I aeS

Barents

Sea

EY

FRANCE

L.

GERMANY

London

GREAT BRITAIN

BELGIUM

Antwerp

NETHERLANDS

Chemsite

Chem Cologne

Ludwigshafen

Hamburg Brunsbuttel

WilhelmshavenBremerhaven Eemshaven

Amsterdam

Rotterdam

Zeebrugge

Dunkirk

Le Havre

CHANNELGhent

NORTHSEA

41basf.com,200942“SustainableManufacturingofPetrochemicalsinEurope,”ChemicalWeek,September21,2009



Contacts:In Europe

Chris StirlingKPMG in the UK Tel: +44 (0)20 7311 8512 e-mail: [email protected]

In Asia

Norbert MeyringKPMG in China Tel:+86(21)62882298 e-mail: [email protected]

In USA

Mike ShannonKPMGintheUS Tel:+19739126312 e-mail: [email protected]

Author

Paul HarnickKPMG in the UK Tel: +44 (0)15 1473 5226 e-mail: [email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

©2010KPMGInternationalCooperative(“KPMGInternational”),aSwissentity.MemberfirmsoftheKPMGnetworkofindependentfirmsareaffiliatedwithKPMGInternational.KPMGInternationalprovidesnoclientservices.Nomemberfirmhasany authority to obligate or bind KPMG International or any other memberfirmvis-à-visthirdparties,nordoesKPMGInternationalhaveanysuchauthoritytoobligateorbindanymemberfirm.Allrights reserved.

KPMG and the KPMG logo are registered trademarks of KPMGInternationalCooperative(“KPMGInternational”),aSwissentity.

Publication name: The Future of the European Chemical Industry

Publication number: 1001503

Publicationdate:January2010

kpmg.com

http://www.kpmg.com

mailto:chris.stirling%40kpmg.co.uk?subject=

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the future of the european chemical industry_2009

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