REPUBLIC OF TÜRKİYE MINISTRY OF INDUSTRY AND TECHNOLOGY – CHEMICAL SECTOR REPORT (2020) (Part 1)

Sector Overview 1.1. Status of the Sector in the World Economy and EU Countries The chemical industry supplies inputs to all sectors—including automotive, information and communication technologies, machinery, capital goods and consumer goods—that will be active in global production and trade in the years ahead. Scientific developments in the global chemical sector are observed in nanotechnology, biochemistry, catalysts, genetics, organic chemistry and polymer chemistry. Research conducted in these fields in recent years has begun to bear fruit. Europe is the world's second largest chemical producer. Global chemical sales reached EUR 3,347 billion in 2018. Figure 1. Distribution of global chemical sales by region Source: CEFIC Examining global chemical sales over the past decade (2008-2018): In 2009, China became the world's largest chemical producer for the first time, accounting for 23.6% of global chemical sales, followed by the EU with 23.4% of global sales. Since 2009, China has continued to gain market share at Europe's expense. Global chemical revenue was valued at EUR 3,347 billion in 2018. Global sales increased by 2.5%, rising from EUR 3,266 billion in 2017 to EUR 3,347 billion in 2018.

With EUR 1,198 billion in 2018, China remained the world's largest chemical producer, accounting for 35.8% of global chemical sales. The EU chemical industry, with 16.9%, ranked second in total sales, while the US share was 14%.

Global competition has changed significantly over the past decade because developing countries in Asia now rank at the top in sales. The BRIC countries (Brazil, Russia, India and China) accounted for 42.8% of global chemical sales in 2018. In 2018, nearly three-quarters of global chemical sales could be attributed to BRIC, the EU and the US. The remaining quarter of global chemical sales is made up primarily of developing countries in Asia, including the Middle East. Figure 2. Distribution of Chemical Sales Among the Top 10 Countries Worldwide (2018—billion €) Source: CEFIC The top 10 chemical-producing countries in 2018 accounted for 86.7% of global chemical sales, with total revenue of EUR 2,901 billion. Six of the top 10 largest producers are in Asia (China, Japan, South Korea, India, Taiwan and Saudi Arabia), accounting for 51.5% of the world market with EUR 1,886 billion in chemical sales. China's sales levels are higher than the combined markets of the EU and US (EUR 1,198 billion compared to EUR 565 billion + EUR 468 billion). Two of the top 10 are European producers, providing EUR 640.5 billion (19.1%) in sales revenue (EU28 + Russia). EU chemical sales increased by 2.8% from 2017 to 2018. In most EU countries in 2018, sales revenues increased.

Two of the top 10 country sales are American producers, providing EUR 537.6 billion (16.1%) in chemical sales (US and Brazil). Sales revenues in the US chemical industry increased by less than 1% in 2018 compared to 2017.

Business development in Brazil did not progress, declining by approximately 2% in sales revenues in 2018. The global outlook for the chemical industry is changing rapidly. China is taking its chemical industry to the next stage of development, transitioning from "following" to "leading" in the oil and chemical industries and from "large country" to "major power" status, seeking to lead in technology innovation and trade and dominate international markets. As developing markets rise, EU market share falls significantly. Figure 3. Change in global chemical sales over 10 years (Billion €) Source: CEFIC China's share of the world chemical market in 2018 rose from 18.2% reported in 2008 to 35.8%. The EU's share of global chemical sales fell from 26.5% in 2008 to 16.9% in 2018. The EU gradually lost its peak position in global chemical sales to China and the rest of Asia (excluding Japan). The results also show the declining share of chemical sales for industrial regions (NAFTA and Japan) over the past decade. NAFTA's share of global sales fell from 21.8% in 2008 to 15.8% in 2018. The result is less dramatic for Japan, where market share declined from 7% to 5.4% in the same period.

The European chemical industry remains a world leader and is an extremely innovative sector. Over the next decade, the challenge will be to remain competitive as 90% of GDP growth occurs outside Europe.

Taking advantage of emerging market opportunities will require EU leadership in creating attractive framework conditions that enhance the global position of European chemicals. Although specialty chemicals are produced in small volumes, their share of total chemical sales was 31% in 2017. Although specialty chemicals are produced in small volumes, their share of total chemical sales was 31% in 2017. Figure 4. Share of total chemical sales (1997–2018) Source: CEFIC The EU's global market share of chemical sales has halved. Figure 5. EU Sales and Global Share Over the Past 20 Years Source: CEFIC Global chemical sales in 2018 are three times larger than twenty years ago. Global chemical sales have grown steadily since 1998, tripling by 2018 (EUR 1,097 billion to EUR 3,347 billion). In 1998, the EU accounted for 32.9% of global chemical sales by value, reporting EUR 361 billion in sales. By 2018, sales values in the EU region had recovered to 56% of their original 1998 values. As a result of excessive growth in the global chemical market, the relative share of the EU chemical market fell nearly in half over 20 years, from 32.9% to 16.9%. Figure 6: EU chemical sales in 2018 (EUR 565 billion) Output from the EU chemical industry encompasses three broad product areas: basic chemicals, specialty chemicals and consumer chemicals. Basic chemicals, also known as commodity chemicals, include basic inorganics and petrochemicals and their derivatives (polymers). They are produced in large quantities and sold directly to the chemical industry or other industries.

Basic chemicals accounted for 60.4% of total EU chemical sales in 2018. The inorganic basic chemicals subsector includes the production of chemical elements, inorganic acids such as sulfuric acid, bases such as caustic soda, alkalis and other inorganic compounds such as chlorine.

The petrochemical subsector encompasses chemical production using basic processes such as thermal cracking and distillation. Polymers in their basic forms are often integrated into petrochemical facilities. Plastics in their basic forms include the production of resins, plastic materials and elastomers. Specialty chemicals encompass areas such as paints and inks, crop protection products, dyes and pigments and industrial auxiliary substances (adhesives, essential oils and gelatine and other chemicals). Specialty chemicals are produced in small quantities but nevertheless accounted for 27.2% of total EU chemical sales in 2018. Consumer chemicals, such as soaps and detergents as well as perfumes and cosmetics, are sold directly to end consumers. In 2018, they accounted for 12.4% of total EU chemical sales. Petrochemicals and specialty chemicals, in that year, accounted for the majority (52.6%) of EU chemical sales. More than 60% of EU chemical sales were generated in four EU Member States. Figure 7: EU chemical sales breakdown by country (2018) Germany and France are Europe's two largest chemical producers, followed by Italy and the Netherlands. These four countries achieved EUR 357.7 billion in sales in 2018, representing 63.3% of EU chemical sales. Adding Spain, Belgium and the United Kingdom, this share rises to 83.6%, or EUR 472.1 billion. The remaining EU Member States, with Poland and Austria as the largest shareholders, accounted for 16.4% of EU chemical sales in 2018. United Kingdom chemical sales averaged EUR 38.6 billion (2010–2018); EU27 chemical exports to the United Kingdom reached EUR 23.4 billion while imports from the United Kingdom reached EUR 20.3 billion.

The United Kingdom accounted for 7.2% of EU28 chemical sales, and more than half (52.5%) of UK chemical production is exported to the EU27 region. The United Kingdom's decision to withdraw from the EU has created a political and economic challenge creating significant uncertainty for companies and workers.

Total sales in 2018 are at their highest level since 2008. The EU chemical sector's total sales fall into three categories: domestic sales, intra-EU sales and extra-EU sales (or exports). Figure 7 shows the dramatic decline in EU chemical total sales levels during the 2009 economic downturn. The chemical sector has been gradually rising since 2010. Domestic sales have lost approximately 60% of their starting values over the decade. Domestic sales refer to chemical revenues obtained by EU chemical companies from sales to their own country markets (for example, French companies selling chemical products in France). From 2008 to 2018, EU domestic sales declined by an average of 8.6% annually; domestic sales fell from EUR 178 billion in 2008 to EUR 73 billion in 2018. Intra-EU sales expanded by 36% of their value over the decade. Intra-EU sales comprise revenues obtained by EU chemical companies from sales in the single EU market, not just their domestic market—for example, French companies selling chemical products in Belgium or Germany. The removal of both trade and non-trade barriers within the European Union through the single market has helped increase growth and competitiveness in the EU chemical industry and increased the number of chemical transportation operations outside EU borders. Intra-EU sales (marked as "intra-EU exports" in the graph) rose from EUR 243 billion in 2008 to EUR 331 billion in 2018. Extra-EU sales increased by approximately half their value over the decade. The European chemical industry is an industry that exports 29% of its production outside the EU. During the period 2008 to 2018, EU chemical exports outside the single EU market increased by an average of 4.1% annually. In 2018, extra-EU sales (exports) recovered approximately half of their starting values recorded in 2008. The chemical industry must remain globally competitive to maintain its current capacity and grow in line with global demand. Figure 8: EU chemical trade flows with main partners* (2018)

EU extra-chemical trade flows calculated as total exports plus imports

In 2018, it was valued at approximately EUR 278.3 billion. The top 10 EU partners accounted for approximately 70% of extra-EU chemical trade in the same year. The US was the EU's largest chemical trade partner in 2018. With EUR 31.8 billion in EU exports and EUR 24.4 billion in EU imports, it accounted for 20.2% of total EU chemical trade in 2018. Transatlantic trade flows are expected to change significantly over the next five years as the US shale gas boom has triggered a large increase in new chemical production capacity. Today, China is the EU's second largest chemical trade partner, accounting for 11% of EU chemical trade. China has become the most important growth market and an important investment destination for global chemical companies. While Chinese chemical companies increasingly focus their attention on specialty chemicals, the country will continue to be an important importer of commodity chemicals for some time to come. China's expansion does not mean Europe has lost; rather, both sides benefit and China presents many opportunities. Figure 9: EU chemical trade flows with major geographic blocs Looking at the 2018 EU chemical trade balance with key countries and regions, we see the following: Outside China and Japan, the European Union has trade surpluses with all major trading blocs—NAFTA, Asia, Latin America, Africa and non-EU Europe. In 2018, the two largest geographic blocs trading with the European Union remained North America and the rest of Europe. The European Union achieved its largest chemical trade surplus with the rest of Europe, which includes Turkey, Switzerland, Russia, Norway and Ukraine.

The EU surplus with the rest of Europe stood at EUR 12 billion in 2018, with specialty chemicals and consumer chemicals contributing significantly. The EU had a EUR 7.5 billion chemical trade surplus with the United States.

Petrochemicals accounted for three-quarters of the total EU chemical trade surplus with the US. This sector is sensitive to US shale gas developments. The US is the world's largest bioethanol producer, producing approximately 54% of world production in 2013. The EU has a chemical trade deficit with India, primarily reflecting the deficit in petrochemicals (EUR 1.7 billion). India is the world's second largest emerging market, and the EU plays a key role in this transformation as India's largest source of foreign direct investment. The EU has a chemical trade deficit with Japan, primarily due to the deficit in polymers (EUR 1.1 billion) and specialty chemicals (EUR 0.9 billion). The EU also has a chemical trade deficit with South Korea due to the deficit in polymers (EUR 2.5 billion). The EU is the world's largest chemical export region. Figure 10: Global main chemical export flows network (2017, billion €) The EU is the world's largest chemical export region: EU chemical exports to the rest of the world (excluding intra-EU trade) reached EUR 158.3 billion in 2017.

The EU region accounts for 23% of global chemical exports. China is the fourth largest destination for EU chemical exports, followed by Japan, the rest of Europe, the Middle East and Latin America.

The world's four largest chemical export regions are the EU, the rest of Asia*, the US and China. The EU is the world's third largest chemical import region: EU chemical imports from the rest of the world, excluding intra-EU imports, were valued at EUR 93.7 billion in 2017. The EU region accounted for 13.6% of world chemical imports. The EU region's four main import sources are the US, the rest of Europe, the rest of Asia* and China. The EU region is the largest destination market for US chemical exports. Figure 11: Global main chemical export flows network (2017, top 5, %) The EU region is the largest destination market for US exports: approximately 18% of US chemical exports are sold in the EU chemical market. The rest of Asia (excluding Japan, China and the Middle East) and Latin America are the second and third largest export markets for the US chemical sector, respectively.

China is the fourth largest destination for US chemical exports, accounting for approximately 10% of the total.

The US accounts for approximately 18% of global chemical exports. The EU region is the second largest destination market for Chinese exports: trade between China and its neighbours is very important. As expected, the rest of Asia* market is by far the largest (46%) destination for Chinese chemical exports. The EU market region is the second largest destination market for Chinese chemical exports. 13% of Chinese chemical exports are sold in the EU region; that is, the EU chemical market is the most important market for China after the Asian market. The US is the third main destination for Chinese chemical exports, accounting for approximately 11% of China's total exports. China accounts for 15% of global chemical exports. The EU has the world's largest chemical trade surplus. Figure 12: Global matrix: chemical trade balance 2017 The EU region has by far the world's largest chemical trade surplus: the European Union is the only region that runs a trade surplus with all trading blocs. The EU's top five largest chemical trade surpluses are generated through trade with the rest of Asia, the rest of Europe, the US, Africa and Latin America. 12.1% was obtained through trade with the Middle East and Oceania. Trade with China generates a small trade surplus for the EU region. The EU region has by far the world's largest chemical trade surplus, followed by the US.

The US chemical sector achieves the world's second largest trade surplus: Four regions have performed well (export value higher than import value).

Comparing and analyzing the total chemical trade balance for all regions, the analysis shows that only four regions had a chemical trade surplus with the world in 2017: the EU, the US, Japan and the Middle East. These regions performed well by generating net export value. "The rest of Asia" has by far the world's largest chemical trade deficit: The analysis reveals that six regions have trade deficits (export value lower than import value): The rest of Asia, China, Latin America, Africa, Oceania and the rest of Europe. The largest trade deficits occur in the rest of Asia. China and Oceania experienced trade deficits of EUR 19 billion and EUR 7.9 billion, respectively. Figure 13: Chemical exports by country of origin (2007 and 2017 comparison) Global exports increased by 67% from EUR 463.5 billion a decade ago to EUR 772.5 billion in 2017. Europe is not the only region losing export share; similar effects are seen in other industrial regions. US export market share declined from 18.4% in 2007 to 15.6% in 2017, while Japan's export market share fell from 9.5% to 7.7% in the same comparison period. Developing countries such as China and India have benefited more than industrialised countries. Export values increased significantly in China (2.8 times higher in 2017 than a decade earlier) and India (2.2 times higher in the same period). China's export market share nearly tripled over 10 years, from 8% in 2007 to 13.4% in 2017. The European chemical industry faces significant uncertainty continuing to dominate the economic and business environment. The near-term outlook is unfavourable and leading indicators do not point to improvement in the coming months. Overall, EU chemical production was somewhat negative in the first half of 2019.

Total sales (domestic sales and exports) were at the previous year's level. Exports outside the EU region were slightly above the same period of the previous year. Export demand from countries outside the chemical industry in Europe is weaker than the previous year and does not compensate for lower domestic demand.

Imports were well above the first half of 2018. Total production volumes in Europe are slowing, particularly in the automotive industry and durable consumer goods such as electrical appliances. Domestic demand for non-durable consumer goods such as food and beverages is generally growing to reflect rising household incomes in the European economy. The construction industry, benefiting from low interest rates, strong demand for new housing and the need to renovate existing building stocks, is also expanding, though dynamics here are also losing some steam. The global chemical industry provided employment to a total of 120 million people (directly and through "multiplier effect channels", 2017). This figure is equivalent to Mexico's total population. Worldwide, the contribution of chemicals to the economy (USD 5.7 trillion) equals the combined annual gross national income of India, Brazil and Mexico. Global foreign trade in 2017 was valued at USD 35.4 trillion. The chemical sector's foreign trade accounts for 13.5% of this total trade, at USD 4.8 trillion. Table 1. Share of global chemical exports in total exports Source: TRADEMAP, 2018 (calculated using HS 2012-PRODTR 2010 conversion) Examining global export figures, 10.34% of total exports is in the chemical sector, which represents USD 1.9 trillion. Germany, America, China, Belgium and Japan are the top five countries carrying out chemical exports in the world. Looking at the leading countries in the chemical sector, these countries are also seen to be ahead in economic development. Figure 14. Top 15 Countries with Largest Chemical Exports Worldwide in 2019 Source: Trade Map Looking at global chemical imports, the United States, China, Germany, Belgium and France are at the forefront. Total global chemical imports in 2018 reached USD 2.7 trillion. Turkey carried out USD 32 billion in imports in 2019. Turkey's ranking in global imports is 16th. Figure 15. Top 15 Countries with Largest Chemical Imports Worldwide in 2019 Source: Trade Map *This report was prepared by the Republic of Turkey Ministry of Industry and Technology – General Directorate of Industry.

REFERENCES

Republic of Turkey Ministry of Industry and Technology

State Planning Organization Ninth Development Plan Chemical Industry Special Commission Report

CEFIC European Chemical Industry Report (2020)

Turkish Statistical Institute

Trade Map