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 10th globally and 4th 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.”