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The UK chemicals industry is in good shape. It is a key part of the British economy, as the British Government itself acknowledges. According to the UK’s Ministry of Trade and Investment, the industry, “…provides direct employment for 214,000 people and supports several hundred thousand additional jobs throughout the economy. The industry spends in excess of £2 billion per year on new capital investment.”

The UK’s Chemicals Industry Association (the CIA) agrees, claiming the industry to be very healthy, stating, “There is much to be positive about the UK’s chemical and pharmaceutical sectors; the UK ranks 10^th globally and 4^th in Europe as a producer of chemicals and pharmaceuticals, and the industry can present a set of impressive figures, including an annual turnover of nearly £60bn.”

And yet there are problems.

Energy

The first of which is the price and supply of energy. Indeed, the UK is currently heading towards the possibility of closing factories down this winter, as energy supply might outstrip demand.

The problems have been caused by an aging generation of nuclear power stations that at present are limping on until a new breed is built. The even older generation of coal fired power stations are being hurriedly decommissioned as the UK attempts to meet its carbon emissions reduction targets, whilst gas fired power stations are turned on (assuming that Russia does start to bulldoze the pipeline from Siberia, like so much European cheese!).

As any Adam Smith knows, problems with supply and demand affect price. So it is in the UK, where the government’s Department for Energy and Climate Change, notes the high price of UK electricity in comparison to other nations in the International Energy Agency as follows; “In 2014, average UK industrial electricity prices including taxes were the fifth highest in the IEA, fourth highest in the G7, and were 28 per cent above the IEA median.”

To make matters worse, the comparison is made among nations that already have higher than world average electricity prices. The International Energy Agency being made up of 29 member states from generally free market, democratic states (Turkey, the U.S., New Zealand, Slovakia, South Korea etc), but does not include regions where energy is not a problem, such as the Middle East (with its oil) or China (with its state funded hydro-electric and cheap coal).

A recent CIA report noted that savings will be needed in future if it is to remain competitive, as “Even though the chemical sector has made 35% energy efficiency savings over the past 15-20 years, many of the ‘low-hanging fruit’ have now been picked and further savings will be more costly and disruptive to implement.”

That said, the energy crisis is beginning to see the light at the end of the tunnel, with Scott Phillips, vice president and senior analyst at Moody’s ratings agency claiming, “”We believe that widely expected [energy] tightness will be short-lived as energy efficiency gains, the roll out of offshore wind power [begins] and the return of mothballed gas plants will keep prices in check. Our view is that power prices will stay around current levels, or £48-53 per megawatt hour, through the end of the decade.”

Supply

So maybe energy will not be a major problem for the UK’s chemicals industry, but maybe supply of chemicals will. As a conference held at The University of Nottingham in 2013 observed, “A strong and robust chemical industry is reliant on its supply chain, in particular the ability to use local sources of chemicals.  Transporting and importing chemicals, particularly on large scales, is expensive and runs into regulatory difficulties.” As the post conference report goes on to note, “[there are] Already certain key chemicals, e.g. chlorine, [that] have only one supplier in the UK, whereas others such as ethylene oxide are absent entirely. ‘Onshoring’ the supply chain by reinstating the gaps and strengthening the weaker blocks in the chemical ‘building set’ should be a priority for the industry.”

This is a curious point, and one that sees how success breeds success. Having a profitable mining industry can help support a profitable chemicals raw supply industry, which funds industrial infrastructure, thus enabling a profitable chemical processing industry, encouraging R&D and a chemicals educated population, and so on. Whether ‘reinstating the gaps’ means greater UK investment or making closer ties with supplies in Europe remains to be seen. Especially as the UK has an uncertain position in the EU, whilst the government is focusing instead on easing trade restrictions, lowering taxes and is taking its part in the TTIP trade talks with North America.

Regulation

The UK often prides itself on having a robust yet fair approach to regulation, although inspections are on the increase as the public become more uncertain of the safety of some processes and products.

It is hoped by some that REACH, Europe’s standardising of chemicals regulation and policy, will help to alleviate some of the burden and double control of production and storage, but others are far more sceptical about the effectiveness of European bureaucracy.

That said, at present  the UK is ranked top within Europe and sixth globally for ‘ease of doing business’ according to a recent World Bank report, and certainly the government is keen to be seen as welcoming to business and investment. It frequently attempts to structure a very business friendly tax regime, as Callum Fuller, finanical reporter at Incisive Media says, “George Osborne [the Finance Minister] cut corporation tax by a further percentage point to 20% and introduced a variety of reliefs for small and medium sized business and the creative industries in March’s Budget. Significant progress has also been made with the introduction of revised controlled foreign company rules, tax breaks for R&D investments, and the patent box, which allows companies to pay a 10% rate on profits made from patented products.”

All this because the government knows the importance of the chemicals industry to the British economy. This especially true, as the manufacturing sector has been in decline since for generations and currently has an £81 billion trade deficit (against the chemicals industry’s £6 billion trade surplus).

The UK’s chemical sector adds £20 billion in value to the economy, a figure which the CIA hopes will double by 2030. A plausible target given that the Ministry of Trade and Investment states that, “It [the chemicals industry] has been growing rapidly at 5 per cent per annum over recent years.”

This is focused on the speciality chemicals sector which makes up 60% of trade, compared to 44% in the U.S. and 40% in Germany.

Attitude

Perhaps the best course of action for an improved chemicals industry in the UK is positivity, and a sense of focusing on how a chemicals industry can help the economy as a whole. To this end the industry is keen on self-promotion and support, for example starting a campaign called ‘Chemistry: We Mean Business’ which was formed “… to highlight why continued support for and investment in the chemistry sector is both necessary and beneficial for the UK economy.”

This positivity is a theme brought up at a recent meeting of the Chemicals Industries Association, which noted that government ministers did not want to hear a long list of ‘I wants’ and a lot of complaining about what government should or shouldn’t be doing to help business in this sector. Instead, it decided to focus on what the industry does provide and show how further support is a positive investment in the economy as whole, benefiting state coffers as well as local populations, at the same time as providing strategic resources.

It is hoped that such an approach will show not an industry that needs support, but one where the arguments and benefits of support are self-evident as a win-win situation. Given that the benefits are clear and the profits made in a stable economy real, then the future looks positive.

As the CIA makes clear, “The next few years may be rocky, but there are plenty of reasons to be optimistic about the future of chemistry in the UK.”

An increasingly discussed topic in mainstream media, the twittersphere and facebookdom is the presence of additives in food. In fact it has become such a staple part of the conversation on eating that it is pure irony that the phrase ‘food preservative’ is permanently preserved in the fodder of our vocabulary.

Unfortunately, some parts of the debate turn aggressive and cruel. With anti-GMO protesters sometimes unwilling to hear scientific debate, or where big-agro spin doctors twist statistics to suit an argument. It has become a war of words, which as the Greek dramatist, Aeschylus said, “In war, the first casualty is truth.”

Of course, when he said this, he might have been questioning the use of sodium in his salt fish or the high oil content in his jar of olives, as even 2,500 years ago food preservatives existed. They are still required today, from the moment many foods are prepared; a fact that may need explaining to many members of the public.

Without additives, processed foods would not be able to be transported far, or would make a lot of people sick.

As it is, there are strict laws in place, to control all aspects of food production from farm gate to plate. But, as in any business, 100% guarantees are not possible. Unscrupulous businessmen bend and break rules, whilst changes in technology can produce cheaper substitutes, sometimes ahead of the law. And it is of course, these cases that make newspaper headlines.

Of these headlines, potassium carbonate has been in the news of late. It belongs to the group of additives, with the code E501 and is used in the manufacture of chocolate, cocoa powder and gingerbread.

Potassium carbonate is used as its alkalinity controls acid flavours. It also stabilizes food colours (such as fish fillets), reduces bitter aftertastes and regulates fat.

However, the campaign against ‘E numbers’ recently led one US manufacturer of chocolate ice cream to court, where they were required to pay compensation for using potassium carbonate to enhance the use of cocoa. Thus, it was claimed ‘devaluing the quality of the product’.

Given that potassium carbonate has been used as a food ingriedent for more than 100 years, during which time no adverse effects were noted (despite detailed and frequent testing), it was decided that the legal action would be dismissed.

However, only a short time later, another law suit was filed, this time against the food giant Unilever, for exactly the same product (chocolate icecream).

As long as cases like this remain, the law will hold a sense of ridiculousness given the natural sourcing of potassium carbonate. And given that it is mined in the US under strict controls, it is a wonder that salt has not also been banned or labelled as ‘toxic’. Where will this all end?

1. Get together the right team. You will need a good mix of capable salesmen, technical support for chemicals and someone with know-how or the ability to learn how the paperwork on exports and imports operates.

2. Do you your homework. You can’t just jump in and start trading, as most buyers already have set contracts to purchase (so it’s not just a case of offering the lowest price for a product). Other buyers will have agreed a fixed supply chain with a large multi-national, which can make your chances of cutting in to the business much harder, so choose your market wisely.

With this in mind, many start up traders focus on base chemicals as they have a wider usage, giving you more potential customers.

You can start out in speciality chemicals, but they do require a better understanding of the market and product, they also might need special licensing and paperwork that can be difficult and time consuming to navigate if you are new to the industry.

3. Know your chemicals trading jargon. As Low Jia Wee of Trade Asia International Ltd makes clear, “Be familiar of terminologies like incoterms, payment terms, port of loading and port of discharge. Incoterms include FOB (Freight on Board), CIF (Cost Insurance Freight), and CFR (Cost and Freight). Payment terms include DP (Direct Payment) and TT (Telegraphic Transfer).”

4. Work out your numbers. Profit margins can be small (typically as low as 5%). This makes it important to understand your logistics trail. Effective packing and trade routes are vital to success. That is why as a chemicals trader it is important to constantly consider, TLC (total landed cost).

5. Find the best suppliers. This will involve one (or more) of the following methods;

• Online networking. Take part in one of the numerous trade discussion groups, such as those found on LinkedIn to make contacts and gain an insight into the industry.
• Traditional networking. Attend one of the many conferences that are held by groups such as ICIS (the Independent Chemical Information Service), the Royal Society of Chemistry (RSC) and the American Chemistry Society (ACS). There are also many trade directories with listings of the thousands of potential customers, business partners and competitors to leaf through.
• The lazy/easy way is to use an online chemical marketplace or matching service, that way you can simply browse through the available offers, much like using E-bay. Alternatively, some sites allow you to post a request to buy a certain amount of a product and wait for the sellers to find you. Businesses like these are still relatively new to the chemical trade, but can save you a lot of time and effort, allowing you to search for specific products any time of day from your office or home. The services offered do vary slightly, but some popular sites include panjiva.com, kemcore.com, spotchemi.eu (who sponsor this blog) and of course, Alibaba.

6. Think East. The last decade or two, has seen a seismic shift in where chemicals are sourced and traded, as the traditionally strong European and North American markets have experienced stagnation in recent years.

Increasingly, today’s industry chemicals industry is centred on the Asia-pacific region. You will likely need contacts there if you are to succeed. As Calisto Radithipa, who has more than a decade of experience in trading chemicals and is now co-founder of the chemicals trading business, Kemcore, states, “Consider importing chemicals from China. China is now among the top 3 producers of base chemicals, with production of some chemicals now exclusive to China.”

7. Consider sourcing from multiple producers. By doing this you may be able to mix and blend certain chemicals to create a new product. With a broader product base, it may be possible to branch out into speciality chemicals, but be aware that customers in this sector may require more technical support. So improved product knowledge and understanding of the necessary documentation will be important, if taking this route.

8. Be flexible with your business plan. It can also be useful to have an understanding of risk management techniques, as chemical prices can fluctuate quite wildly. Are you prepared for a drop in a commodity’s price at any time? How will you react if it happens?

Of course, this list is inexhaustible, and you must add to it many basic business strategies. For example, it is important to ensure that your product arrives on time and in place, especially as many contracts impose penalties for failure to provide. Product quality is also an imperative as, like in many other industries, it is a core part of establishing long-term business partnerships.

But when all is said and done, there are a great many reasons to start a business trading in chemicals. In fact, there has probably never been a better time, with some regions (Asia Pacific, the Middle East and South America) on the verge of experiencing incredible growth rates.

On the other hand, it can be an unpredictable business, with large price fluctuations, large amounts of paperwork and small margins. Huge multi-nationals control large sections and the logistics can be a nightmare.

These tips may help you start out on the path to successful trading, but perhaps the final ingredient to a profitable chemicals trading company is a healthy dose of common sense, because without that, no business venture is likely to go far.