Importance of chemical industry

Because of the wide variety of products it is difficult to agree on a common definition of the chemical industry across countries. In particular, fibers, rubber and plastic processing can be either included or excluded. Countries that include fibers in Chemical Industry are: Germany, UK, Italy, Spain, Netherlands, Ireland, Portugal, Greece, Sweden, Austria, Finland, Norway and Poland.
Countries excluding fibers are France, Belgium and Denmark. Belgium also includes rubber and plastic products in the definition of chemical industry.
Chemicals are divided in two main categories from value addition point of view. Those produced in large and bulk quantities but with lower value addition are called Commodity Chemicals.
Examples are fertilisers and soda ash, etc specialty Chemicals are those produced in smaller quantities with higher value addition. Examples are dyes & pigments, pharmaceuticals and enzymes, etc.
Chemical sector plays a vital role in the economic development of any country. Pakistan has not yet utilised potential of chemical sector. Realising the importance of this sector, this study was initiated by the Experts Advisory Cell (EAC), as per directive of Minister and Secretary, Ministry of Industries and Production.
The main objective of the study was to highlight the constraints in the development of the chemical industry, suggest policy recommendations an identify potential projects based on supply and demand gap as well as possible export considerations.
Extensive discussions with experts, representatives of trade and industry and chemical engineers of repute has led to the conclusion that development of chemical industry is vitally important and a concerted effort must be made to cover the lost ground.
Chemical sector is diversified and covers a vast range of products. Following are the major end products under this sector:
-- Petrochemicals
-- Fertilisers
-- Synthetic Fibers
-- Alcohol from Molasses
-- Pesticides
-- Plastics & Resins
-- Paints & Varnishes
-- Oleo Chemicals & Soaps,
-- Detergents and Cosmetics
-- Paper & Paper board
-- Glass
-- Soda Ash & Sodium Bicarbonate
-- Caustic Soda & Chlorine
-- Sulfuric Acid & Other acids
-- Organic Chemicals
-- Dyes & Pigments
-- Textile & Tannery Chemicals
-- Water Treatment Chemicals
-- Food Chemicals
-- Essential Oils
OVERVIEW GLOBAL: The world chemical industry is one of the most important manufacturing sectors with an annual turnover of approximately US $1,500 billion.
The main players in chemical sector are from USA, Western Europe and Japan while emerging players are from China, Eastern Europe and Eastern Asia. According to the results of recent surveys, Western Europe is the world leader in chemical industry, which has a share of 36% of total chemical sales.
The leading companies of the global chemical industry are BASF (Germany), Du Pont (U. S. A.), Dow Chemical (USA), Exxon Mobil (USA), Bayer (Germany), Total Fina Elf (France), Degussa (Germany), Shell (UK/Netherlands), ICI (UK), BP (U. K.), Akzo Nobel (Nehterlands), Sumitomo Chemical (Japan), Mitsubishi Chemical (Japan) and Mitsui Chemicals (Japan).
The world chemical sales and profits of 20 leading companies are shown in Table A.
PAKISTAN: At the time of independence, chemical industry in Pakistan was practically non-existent. Over the years, some traditional sectors have developed, however the Chemical Industry in Pakistan is still at a very nascent stage.
In early 50's, PIDC was setup by the Government, for industrialisation of the country. As a result, a large chemical estate comprising Pak American Fertilisers, Maple Leaf Cement, Antibiotics (Penicillin) and Pak Dyes & Chemicals, was established at Iskanderabad (Daudkhel), district Mianwali. This estate played an important role and served as a nucleus for chemical industry in Pakistan.
In 1960's, another chemical complex was set up in private sector at Kala Saha Kaku, Lahore. Chemical factories also started emerging at Karachi due to the investment friendly policies which gave confidence to the investors.
In early 1970's, private industries were nationalised with the result that the fast growing chemical sector started to decline. The growth of chemical sector could never pickup.
The imports of chemicals are on increase in value and volume terms. This indicates the vast potential for the chemical industry in Pakistan. There were some investments in the recent years in the production of Pure Terephthalic Acid (PTA), fertilisers, polyesters and Poly Vinyl Chloride (PVC).
However investments in the petrochemical complex and other chemicals are urgently required to be self-reliant in basic organic and inorganic chemicals.
It is to be noted that huge capacities for petrochemical manufacturing are available in the neighbouring countries of Middle East, Far East and Iran. Experts opine that a petrochemical Complex should have been set-up when the tariff protection was highest.
However, ways and means need to be found, as setting up of a Petrochemical Complex would result in hundreds of downstream small and medium enterprises.
Some selected chemical sectors have developed to meet the local demand. They include fertilisers, Polyesters, PTA, PVA and some basic chemicals. Total investment in chemical industry stands at around Rs 360 billion.
CHEMICAL IMPORTS: Pakistan's total imports have exceeded US $10 billion out of which chemical imports constitute approximately US $2 billion.
The import value of chemicals remained about 17% of total imports during the last nine years and it was 15.5% in the year 2001-02. This situation calls for special attention to the development of the chemical sector that constitutes one of the major portions of Pakistan's import bill.
AVAILABILITY OF RAW MATERIAL: Pakistan is rich in agriculture, has sufficient gas reserves, reasonable oil and mineral resources including large coal reserves. The agricultural raw materials are not fully utilised in value added products while mineral raw materials are not exploited for lack of infrastructure.
Concerted efforts and consistent policies are required to develop chemical industry based on agricultural and mineral raw materials.
AGRO BASED RAW MATERIALS: The agro-based chemicals are derived from the agriculture products and livestock. They are used in the industry to produce various chemicals including alcohol's, organic acids, edible oils, inedible fats, glycerin, gelatin etc. Pakistan being an agricultural country, these raw materials are available in abundance.
The processing industry based on these raw materials has vast potential. Following agro based raw materials and by products are available for conversion to chemicals.
-- Molasses
-- Bagasse
-- Rice huskx
-- Vegetable Seeds
-- Animal fats and bones
-- Starches
-- Cotton Linters
-- Cotton Linters
-- Wood
NATURAL GAS: Pakistan has proven gas reserves of 43.37 trillion cubic ft out of which 15.78 trillion cubic ft has been consumed leaving 27.58 trillion cubic ft. of balance reserves as of year 2002. Present gas consumption based on last two years average is 900 billion cubic ft per year.
There have been more discoveries of natural gas in the recent years. Substantial quantity of gas reserves are being used for domestic consumption, commercial purposes, industrial raw material and fuel.
An appropriate percentage (ie around 10%) of local gas resources and the future gas imports from Tajikistan and Iran need to be dedicated for producing value-added chemicals.
Natural gas can be a raw material to produce Ethylene (through acetylene route), Methanol and several downstream products.
PETROLEUM: Petroleum is another major source of several petrochemicals. World wide 90 to 93% oil and gas is consumed for energy purposes and balance 7-10% is converted to petrochemicals.
A) CRUDE OIL Pakistan is deficient in crude oil resources. The left over oil reserves are only 40.27 million Ton of Oil Equivalent (TOE) (300.2 million barrels). Pakistan's present annual production rate is 3.1 million TOE (63,500 barrels per day).
Pakistan's yearly requirement is 10.4 million TOE. Only 30% of the total crude oil requirement is therefore met by local crude production.
Naphtha, an intermediate product from refinery, is important for the manufacture of petrochemicals. Pakistan produced 462,197 tons of naphtha - during 2001-02. 180,000 tons additional naphtha is available from Attock Refinery after the implementation of lead-free gasoline from July 2002. Present availability of naphtha is therefore, about 600,000 tons/year.
B) ASSOCIATED GASES Associated gases contain higher hydrocarbons like Ethane, Propane and Butane, etc which are produced from the oil fields in Punjab and Sindh. Presently, there are 0.6 trillion cubic ft (17.8 million TOE) reserves available and the production rate is 40 billion cubic ft (1,143,000 TOE) per year.
These gases can be converted to ethylene, propylene etc, but the gathering of these gases at one point require large and complex pipeline system. However, the quantity is not enough for a viable project.
MINERALS: Inorganic chemicals are mainly based on mineral resources and are used for producing intermediate and final products. The main mineral reserves available in Pakistan for chemical industry are given below:
-- Coal
-- Rock Phosphate
-- Iron
-- Soapstone (Silicates)
-- Sulfur (from Oil and Coal)
-- Magnesite (Magnesium Carbonate)
-- Chromites
-- Kaoline (China Clay)
-- Gypsum (Calcium Sulphate)
-- Limestone (Calcium Carbonate)
-- Barite (Barium Sulphate)
-- Rock salt (Sodium Chloride)
-- Copper
The development of Thar Coal Field (the largest reserves) require around 5 years time, therefore projects based on these reserves should have to be planned accordingly.
Pakistan needs to concentrate on the development of Petrochemical and Chemical industry to utilise indigenouous coal, iron ore, phosphate rock reserves and rock salt. A list of mineral resources and their production in Pakistan is given in Annexure-III. The use of various minerals in the chemical industry is given in Annexure-IV.
COAL: A total of 185,173 million tons of estimated coal reserves are available in Pakistan with minable reserves of 1,982 million tons. Thar reserves in Sindh Province are 175,506 million tons out of which 1,620 million tons are minable.
This coal having sulfur less than 3% and ash content with a range of 2.9 to 11.5% appear suitable for production of petrochemicals. Annexure I & II depict coal reserves and analysis of Pakistan coal.
Generally, the value addition in chemical industry is much more than other industrial sectors. It increases for commodity products to specialty and fine chemicals and it is normally 10 to 200 folds taking crude oil value as the base. Pakistan can exploit this situation only through vertical and horizontal integration.
Although it is late yet no more time should be lost to develop petrochemical industry in Pakistan. Local gas and coal reserves are in abundance and they are of reasonable quality. Coal gasification technology to manufacture petrochemicals is being used in USA, European countries and South Africa. Technologies are available to manufacture chemicals from coal.
Production of value-added chemicals can make the project economically feasible. A suitable technology may therefore, be acquired and used Pakistan for Thar and Lakhra coal reserves.
TABLE A: Performance of Top 20 Chemical Companies

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                                                                 US$ Million

        Company                       Sales  Operating    Capital      R & D

                                               Profits   Spending   Spending

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 1      BASF (Germany)             30,790.5    2,604.6    3,345.3      974.8

 2      Du Pont (USA)              28,406.0    3,207.0    1,925.0    1,776.0

 3      Dow Chemical (USA)         23,008.0    2,266.0    1,349.0      892.0

 4      Exxon Mobil (USA)          21,503.0    1,161.0    1,468.0         NA

 5      Bayer (Germany)            19,295.2    1,824.2    1,752.2      949.9

 6      Total Fina Elf (France)    19,203.1    1,499.0      124.5      460.7

 7      Degussa (Germany)          15,584.1      619.1    1,034.6      499.4

 8      ICI (UK)                   11,746.7      874.8      438.2      266.8

 9      BP (UK)                    11,247.0      760.0    1,585.0         NA

10      Akzo Noble (Netherlands)    9,364.3      769.3      470.8      267.2

11      Sumitomo Chemical (Japan    9,354.3      749.3      516.0         NA

12      Mitsui Chemicals (Japan)    8,720.3      505.8      570.9         NA

13      Dai-Nippon Ink & Chemicals  7,512.7      407.1      387.8         NA

       (Japan)

14      Equistar (USA)              7,495.0      334.0         NA         NA

15      DSM (Netherlands)           7,295.0      620.0      566.6      243.2

16      Henkel (Germany)            7,215.8      599.8      782.2      185.2

17      SABIC (Saudi Arabia)        7,119.8    1,620.7         NA         NA

18      Rhodia (France)             6,835.3      457.0      463.4      195.3

19      Air Liquide (France)        6,590.1    1,028.2      836.6       87.8

20      Union Carbide (USA)         6,526.0      596.0      459.0      152.0

        TOTAL                     264,812.2   22,502.9   18,075.1    6,950.3

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