# The chemical industry: what it makes and how it is organised: How the industry's structure and geography changed after 1973

Source page: https://www.materialinsights.org/learn/chemicals/chem-industry-map/p4/

[Understanding Chemicals](https://www.materialinsights.org/learn/chemicals/) / [Module 1: The chemical industry: what it makes and how it is organised](https://www.materialinsights.org/learn/chemicals/chem-industry-map/) Part 4 of 5

## How the industry's structure and geography changed after 1973

Fifty years ago the industry was dominated by European, American and Japanese groups that made almost everything themselves. Oil shocks, overcapacity, shareholder pressure, cheap gas in the Gulf and later in the United States, and finally Asian demand redrew the map. This part follows that story from Kent's history chapter to the latest Cefic and IEA data.

### 4.1 1973 to the mid-1980s: oil shocks exposed an overbuilt, maturing industry

Aftalion's history in Kent begins with the first oil shock at the end of 1973. The post-war boom had rested on a burst of innovation between 1935 and 1955, on cheap oil replacing coal, and on interest rates below inflation. Fearing loss of market share, leaders kept investing, and overcapacity was appearing before 1973 in petrochemicals, fibres, plastics and fertilisers. Then OPEC raised crude oil from $3 to $12 a barrel, and the 1979 Iranian revolution pushed it to $40. Economic growth fell from over 10% a year to 2-3%, yet some companies kept building.

Cutting capacity proved hard for technical reasons. A steam cracker cannot run below about 60% of its capacity. Its products come out in almost fixed proportions, so you cannot cut ethylene without cutting propylene. And slowing a polymer unit slows the monomer unit feeding it. Japan's trade ministry, MITI, organised a cartel to close plants. In Western Europe, 25 ethylene and 8 polyethylene units were scrapped between 1980 and 1984. Governments also moved deeper into fertilisers: between 1967 and 1986, state-controlled companies' share of world production rose from 30% to 64% for ammonia and from 10% to 46% for phosphoric acid.

Wittcoff describes the same shift as maturity. The US industry grew 8.5-9% a year between 1954 and 1974, Japan's 11.7% a year in 1964-1974 and Western Europe's 9.7%. Between 1987 and 2001, in constant dollars, US sales grew only 1.8% a year and Europe's and Japan's were flat. Maturity brought what the industry calls the old paradigm: building too much, at the wrong time, so that capacity arrives when demand is weak. Wittcoff puts the typical cycle at 4-5 years.
 Case

#### US ethylene in the 1980s

Wittcoff traces one full cycle. US ethylene capacity was about 40 billion pounds in 1981 and was cut by about 10%, to about 36 billion, by 1986, while demand grew with polyethylene and with customers stocking up against feared shortages. 1987 and 1988 were probably the most profitable years the US industry has had, with real shipments up 8.6% over 1987-1989. Producers then debottlenecked and built, and by 1991 there was overcapacity again. Commodity margins depend more on the industry's collective investment timing than on any single plant.

- Kent (2012), Ch 1 Recent History of the Chemical Industry 1973 to the Millennium (Aftalion) · pdf pp. 16-17, 19
- Wittcoff (2004), Ch 1 The Chemical Industry · pdf pp. 47-51

### 4.2 From the 1980s, Western groups chased specialties and then broke themselves up

The first remedy for overcapacity was to move away from commodities. Kent explains why specialties looked attractive: they needed little capital compared with commodity plants, and new products could be developed more quickly and cheaply than new large-volume processes or new drugs. Large groups bought family-owned specialty firms, often at 15 to 20 times profits, and many such purchases failed. Kent estimates world specialty turnover at about $200 billion by around 2000.

The 1990s added globalisation and pressure from shareholders. Western managers decided to lead in a few chosen fields and to grow by acquisition rather than invention. Kent puts the value of chemical mergers and acquisitions in the United States and Europe since 1994 at about $200 billion. Life sciences were split from chemicals: ICI demerged Zeneca in 1993, Ciba-Geigy and Sandoz combined their drug and crop businesses into Novartis, and Hoechst and Rhone-Poulenc formed Aventis. The leftover chemical businesses were spun off as new companies, among them Eastman Chemical, Cytec, Ciba Specialty Chemicals, Clariant, Solutia and Rhodia. Oil companies retreated to base commodities made next to their refineries.

Commodity plants that the giants no longer wanted found new owners. In the 1980s entrepreneurs such as Jon Huntsman bought units, often at about a quarter of replacement value, and later private equity firms and Ineos did the same. A few contrarians, notably BASF with its Verbund concept of linking products from raw material to finished derivative on one large site, and Dow, kept faith with integration. Pharmaceutical outsourcing created a separate business for custom manufacturers of fine chemicals. Wittcoff's verdict is blunt: little of this restructuring raised shareholder value or profitability.
 Case

#### ICI reinvents itself

Imperial Chemical Industries was once the model integrated chemical company, with what Wittcoff calls an ideal site at Wilton and Billingham. In 1993 it demerged its pharmaceutical, agrochemical and specialty businesses as Zeneca. In 1997 it bought National Starch, Quest and Unichema from Unilever and then sold its bulk chemicals: polyester to Du Pont, fertilisers to Terra, polyurethanes, aromatics and titanium dioxide to Huntsman, and chlor-alkali and acrylics to Ineos. By 2000 it was a specialties and paints company. In 1986 it had ranked fifth by turnover in the UK; in 2000 it ranked 108th.

- Kent (2012), Ch 1 Recent History of the Chemical Industry 1973 to the Millennium (Aftalion) · pdf pp. 23, 30, 46-49, 53-60
- Wittcoff (2004), Ch 1 The Chemical Industry · pdf pp. 52-54

### 4.3 Cheap gas moved the commodity trunk to the Gulf, and shale gas brought part of it back to the United States

Kent describes how Gulf states set out to turn their oil revenues into downstream industry. Saudi Arabia had abundant ethane and methane in gas that was being flared, and the ethane separation capacity of its refineries alone could support about 3.5 million tonnes a year of ethylene. SABIC took Mobil, Exxon, Shell and Mitsubishi as partners, partly to place its output abroad without provoking a backlash. In Aftalion's account of the 1980s, the Gulf states already made 10% of the world's methanol, 5% of its ethylene and 4% of its polyethylene.

Associated gas, the gas produced alongside oil, had no other use in Saudi Arabia, so its value at the wellhead was zero. In 2001 the Saudis extracted ethane for $0.50-0.75 per million British thermal units, while US gas reached $10 that January. By 2002 the Middle East made 10 million tonnes of ethylene, two-thirds in Saudi Arabia, and imports of Saudi ethanol cut US petrochemical ethanol output from 1,023 million pounds in 1982 to 180 million in 2001. Wittcoff expected that, if US gas stayed expensive, the United States would become only an opportunistic exporter.

Shale gas reversed that forecast. The IEA reports that US output of natural gas liquids doubled to nearly 4 million barrels a day in five years, that ethane and LPG now supply 55% and 34% of US cracker feed, and that the United States holds about 40% of the world's ethane-based petrochemical capacity. The Middle East remains the lowest-cost region, but the cost gap between Gulf and US ethane cracking shrank more than threefold between 2010 and 2017.

Data Share of world production capacity for primary chemicals by region, 2017

| Region | High-value chemicals | Ammonia | Methanol | Main feedstock |
|---|---|---|---|---|
| China | 20% | 33% | 55% | Naphtha for HVCs; coal for ammonia and methanol |
| United States | 16% | 7% | 5% | Ethane and LPG |
| Europe | 15% | 12% | 3% | Naphtha |
| Middle East | 12% | 9% | 15% | Ethane and LPG |

India held about 4% of global capacity for primary chemicals. Asia Pacific as a whole produces about half of world primary chemicals.
 Source: IEA (2018), The Future of Petrochemicals, pdf pp. 12, 33-34

- Kent (2012), Ch 1 Recent History of the Chemical Industry 1973 to the Millennium (Aftalion) · pdf p. 22
- Wittcoff (2004), Ch 1 The Chemical Industry · pdf pp. 56-57
- IEA (2018), The Future of Petrochemicals · pdf pp. 11-12, 33-34
- Cefic (2025), Facts and Figures data file · sheets 'Sales', 'Trade balance', 'Capital Spending'

### 4.4 Asia now holds the centre of gravity, led by China

The IEA reported in 2018 that Asia Pacific made about half of the world's primary chemicals, 326 million tonnes a year, and that China alone held 20% of world capacity for high-value chemicals, 33% for ammonia and 55% for methanol. China has little ethane, so more than 90% of its HVC feedstock is naphtha, and Asia as a whole uses about 60% of the world's naphtha feedstock. China also built a coal-based chemical industry, including methanol-to-olefins capacity expected to nearly double between 2017 and 2025. The IEA notes low utilisation rates there, a sign of overcapacity.

The move east began at the high-value end as well as the bulk end. Kent records that stricter Western regulation pushed some production to places where rules were less strictly enforced, so that India and China became world leaders in some fine chemical intermediates and dyestuffs. In 1992 Europe still had six major dye makers; low-overhead Indian and Chinese firms then undercut them, first in intermediates and then in finished dyes. Pollak finds that between 2002 and 2009 Western fine chemical companies' sales were largely flat while Far Eastern companies grew strongly, and that most small fine chemical firms are now in Asia. Wittcoff warns that some small operators cut costs by ignoring health and safety.

China's share of world sales rose from 10% in 2004 to 46% in 2024, and it made 47% of the world's chemical capital investment in 2024. Europe's output, meanwhile, fell: its production index was 83.5 in 2024 against 100 in 2021.

- IEA (2018), The Future of Petrochemicals · pdf pp. 11-12, 33-34, 37-38
- Kent (2012), Ch 1 Recent History of the Chemical Industry 1973 to the Millennium (Aftalion) · pdf pp. 45, 49-50, 59-60
- Pollak (2011), Ch 2 The Fine Chemical Industry · pdf pp. 34-35
- Wittcoff (2004), Ch 1 The Chemical Industry · pdf pp. 55, 58
- Cefic (2025), Facts and Figures data file · sheets 'Sales', 'Capital Spending', 'Production', 'R&D Spending'

### See it in the table
[Oil Crude oil](https://www.materialinsights.org/energy/crude_oil/)[Gas Natural gas](https://www.materialinsights.org/energy/natural_gas/)[Ti Titanium](https://www.materialinsights.org/commodities/titanium/)[H3PO4 Phosphoric acid](https://www.materialinsights.org/chemicals/phosphoric_acid/)[TiO2 Titanium dioxide](https://www.materialinsights.org/chemicals/titanium_dioxide/)[NH3 Ammonia](https://www.materialinsights.org/chemicals/ammonia/)[C2H4 Ethylene](https://www.materialinsights.org/chemicals/ethylene/)[C3H6 Propylene](https://www.materialinsights.org/chemicals/propylene/)[MeOH Methanol](https://www.materialinsights.org/chemicals/methanol/)[Dye Dyes](https://www.materialinsights.org/chemicals/dyes/)

### Check your understanding

According to Kent, why was it especially hard to cut petrochemical capacity after 1973?
 Kent lists these rigidities, plus the fact that slowing a polymer unit slows its monomer supplier. Wittcoff adds that ethylene itself cannot be stockpiled.

What made the United States a low-cost ethylene producer again after about 2010?
 The IEA reports NGL output doubling to nearly 4 mb/d in five years, with ethane and LPG supplying 89% of US cracker feed.

Which statement about the 1990s restructuring is supported by the sources?
 Kent and Wittcoff both describe the Zeneca demerger. Wittcoff concludes that little of the restructuring raised shareholder value, and oil companies retreated to base commodities.

[← Part 3: A handful of raw materials and building blocks](https://www.materialinsights.org/learn/chemicals/chem-industry-map/p3/)[Mark read · Part 5: A map of the course →](https://www.materialinsights.org/learn/chemicals/chem-industry-map/p5/)

## Other sections

- [Module overview](https://www.materialinsights.org/learn/chemicals/chem-industry-map/index.md)
- [What the chemical industry is and how big it is](https://www.materialinsights.org/learn/chemicals/chem-industry-map/p1/index.md)
- [The sectors and why their economics differ](https://www.materialinsights.org/learn/chemicals/chem-industry-map/p2/index.md)
- [A handful of raw materials and building blocks](https://www.materialinsights.org/learn/chemicals/chem-industry-map/p3/index.md)
- [A map of the course](https://www.materialinsights.org/learn/chemicals/chem-industry-map/p5/index.md)
- [Key terms, quiz and sources](https://www.materialinsights.org/learn/chemicals/chem-industry-map/review/index.md)