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Manufacture of Chemicals and Chemical Products

August 2007

Photograph of a chemist and chemical apparatus

Introduction

The Chemicals and Chemical Products industry is a large, highly interdependent and capital intensive sector. It consists of many large, diversified and vertically integrated companies as well as many smaller and highly specialised firms. Nationally, comprising some 3,770 separate enterprises it has annual turnover of about £50bn per annum, generating £17bn in gross value added and employs around 215,000 people, making it one of the UK's largest manufacturing sectors. Using raw materials from the petroleum, mining and extraction industries such as oil, minerals, metals and certain agricultural commodities, the industry produces tens of thousands of products. These range from basic organic and inorganic commodities such as ethylene and chlorine, through a huge range of plastic materials and synthetic resins, dyes and pigments used as intermediate products in further manufacture, to finished chemical products for final consumption (e.g. pharmaceutical and medical products, cosmetics, soaps, paints, etc.) or to be used as supplies in other industries - such as fertilisers, pesticides, printing ink and explosives.

A sizable share of the chemical industry, mainly within the pharmaceuticals sector is contained within the emerging biotechnology industry producing a wide variety of therapeutic pharmaceuticals, vaccines, diagnostic products, agricultural and veterinary products and environmental products. Biotechnology is not separately identified within the Standard Industrial Classification (SIC, 2003) used for official government statistics.

Employment

Chemicals is a long-established industry in Lancashire which today has a local employee workforce of over 7,000. This represents 6.9% of all local manufacturing employees - a share slightly higher than the 6.4% nationally though well below the 10.8% share that the industry has across the wider North West. More than two-thirds of the local industry's employees are men and most jobs (93%) remain full-time (Table 1).

Bar chart showing the number of employee jobs in the chemicals and chemical products industry in each of Lancashire's local authorities in 2005 - see text for details Source ONS - Annual Business Inquiry, 2005

The local industry today exhibits a much lesser degree of geographical concentration than it once did when there was a greater bias towards large plant bulk commodity chemicals. With more than a fifth of the industry's employee workforce, Blackburn remains the largest single centre of the industry but elsewhere district employment numbers lie, for the most part in as narrow band of between 400-600 employee jobs (Figure 1).

Close to 150 separate establishments constitute the chemicals industry in Lancashire with an average size of 46 employees. There are many small firms with those employing less than 25 people constituting about two-thirds of businesses, though these account for less than 10% of the industry workforce (Table 2). More typically 71% of the employee workforce are within larger firms employing 100 or more people. As well as a base of indigenous companies supplying intermediate and final products, several multi-nationals also have a presence in the County. Major employers within the sub-region include (External) Akzo Nobel Decorative Coatings , manufacturers of decorative paints ("Crown Paints"); (External) Lucite International , manufacturers of acrylic sheets and composites ("Perspex"); (External) Robert McBride , contract manufacturers of laundry, household and personal care products; (External) Ashi Glass Fluoropolymers.com producers of flurochemicals and materials; (External) William Blythe , manufacturers of organic chemicals; (External) Turtle Wax , car care products; Constance Carroll, manufacturer of perfumes, cosmetics and toiletry preparations; (External) Universal Products Manufacturing , contract pharmaceutical and personal car products manufacture; (External) Baxenden Chemicals , manufacture of speciality polyurethane prepolymers; and (External) Victrex , manufacturers of high performance plastics materials.

Map showing the approximate location of Lancashire's chemicals and chemical products establishments - see text for details Source ONS - Annual Business Inquiry, 2005

Employment Trends

Chemicals has long been a major employer in Lancashire with its early roots based on the presence of local raw materials and links with the textile industry. ICI had a major presence through its Hillhouse complex in Thornton Cleveleys that played a key role in the post-war development of the UK plastics industry. Chemicals remained a significant activity in the County throughout post-war years with job numbers hovering between 18-20,000 (Figure 3). Employment levels began to drop off slightly from the mid-1970s but these losses accelerated dramatically over the early 1980s recession. Many sectors of the industry suffered some degree of employment downsizing over this period but it was particularly associated with the demise of large plant man-made fibres production which at its peak a few years earlier had employed nearly 7,000 people.

Graph showing how the number of employee jobs in Lancashire's chemicals and chemical products industry has changed from 1950 to 2005 - see text for details Source Ministry of Labour/ONS - ERII Employment Records

Over the past decade or so employment levels have continued to drift downwards as a result of on-going restructuring within the industry aimed at reducing costs and improving productivity and efficiency in order to maintain international competitiveness. The largest falls have been in basic chemicals, particularly in organic basic chemicals, in part attributable to the final withdrawal of ICI after divesting non-core activities, from its Thornton Hillhouse site in Wyre. Other notable job reductions have occurred in pharmaceutical preparations (mainly non-medicaments such as bandages and surgical dressings, etc) and in paints. On the other hand, certain niche product markets have held up well and there has been quite substantial expansion in the two related sectors of soaps and detergents and perfumes and toiletries. Geographically Blackburn and Wyre have witnessed the largest losses of chemical industry jobs though some districts - notably Fylde and Pendle have made modest job gains.

General Characteristics

The chemical industry is one of the UK's largest manufacturing industries exporting nearly half of its total production and contributing a substantial trade surplus of close to £5bn per annum. Few goods are manufactured without some input from the chemicals industry and it supplies virtually all sectors of the economy. Key drivers include the health of these end-use markets as well as growth in the overall economy and trends in foreign trade/currency fluctuations. The industry is the largest single purchaser of its own output with about a third of its production of basic chemicals used further in the production process in the form of raw or intermediate materials.

Graph showing how turnover, purchases, gross value added and net capital expenditure in Lancashire's chemicals and chemical products industry have changed from 1994 to 2004 - see text for details Source ONS - Annual Business Inquiry

Chemicals has traditionally been seen as a highly cyclical industry though this characteristic has been less pronounced over recent years, presumably partly because of a lesser dependency on bulk commodity products. Turnover in the Lancashire industry for the latest year available (2004) stood at over £980m, equivalent to 7.4% of the sub-region's manufacturing turnover, or about 2% of the UK industry total. This was down by £135m (-12%) from its last peak in 1995, though much of the drop was probably as much to do with currency fluctuations and the decline (since reversed) in real prices of commodity products over the 1990s as with the performance of the industry itself. Turnover has been on a steady upward trend since 2000 (Figure 4).

Despite the long-term fall in employment numbers, production overall, as measured by gross value added, has been on a general upward trend over recent years, reaching £330m in 2004, not far short of an all-time high. Both productivity and investment in the local industry are high in absolute terms and well above the Lancashire manufacturing average. However, comparatively they are also significantly below levels in the national industry, reflecting in large part the lower value added or upstream nature of many of the local industry's products. Average annual net capital expenditure per head in Lancashire over recent years of about £5,000 has been around 50% higher than the local "all-industry" average, emphasising the capital intensive nature of the sector, but this has still been less than half that being achieved by the industry in the UK. GVA per head (productivity) at £48,800 in 2004 was at a similar discount to the national industry and growing at a slightly slower rate. The industry's payments of wages and salaries to its workforce likewise is some way above the local manufacturing average and second highest behind the aerospace industry but given its structural productivity and investment characteristics, it is not surprising that earnings are a quarter lower than paid nationally.

Photograph of Baxenden Chemicals Ltd in Baxenden near Accrington Source (External) www.baxchem.co.uk

The Lancashire chemicals industry may be seen as being an integral part of a much larger regional cluster of chemical manufacture. The North West cluster encompasses some 430 core manufacturing sites directly employing about 43,000 people together with a further 350 support companies providing sales and specialist service support and in turn providing further employment for about 120,000 people. With annual turnover in excess of £10bn, of which 50% is exported, the North West Region is reckoned to provide for about a quarter of the UK's total chemical output (for further information see (External) Chemicals Northwest ).

Generally, chemicals remain an innovative, capital and knowledge intensive and high skills/high wage sector characterised by significant expenditure on research and development. Over the past couple of decades the industry has undergone a strong shift away from high volume but low margin and cyclical bulk commodity products facing severe cost pressures from low cost producers from the Middle East and Asia. Multinational companies have divested significant parts of their operations and large plant sites have been broken up into smaller units, often with separate operations and owners existing within the former site boundary. The focus has shifted towards higher value added more specialised and higher margin chemicals and products, often tailored to particular customers' needs. This process has been accompanied by wholesale restructuring and consolidation at the corporate level, simultaneously creating larger companies as well as companies focused on specific products and product groups. Such changes have further encouraged the development of more closely integrated supply chains creating opportunities for the exploitation of niche markets by smaller companies in an industry that has traditionally had very high entry barriers. In particular there has been a significant increase by larger companies in outsourcing or contracting out of the production of intermediates and a corresponding growth in the number of facilities and plants specialising in the production of chemicals on a contract basis.

Key issues still to be fully addressed by the industry include increasing pressures for environmental and safety regulation together with public fears about the effects of many chemical compounds on human health and well-being.

This page was compiled by Peter Kivell .

All enquiries from the media should be sent to Corporate.Communications@lancashire.gov.uk .

Any other questions about the content of this page may be sent to EconInfo@lancashire.gov.uk .

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