Prevailing global market conditions in 2011 are favorable for the chemical industry and in line with those of the second half of 2010, driven by strong demand in Asia, a gradual recovery in North America and Europe, and a growing demand for products related to sustainable development.

Restructuring efforts engaged by many chemical companies over the past two years, necessitated by the economic downturn, have led to stronger balance sheets across the board. As the economy is showing some signs of recovery, the industry is well positioned and is now focusing on growth through product innovation, acquisitions, and expansion in emerging markets.

The business environment in which most chemical companies operate
is characterized by:

• a return, for most markets, to conditions close to those prior to the crisis, with the exception of the construction markets in North America and Europe;
• the continued rise of the Chinese economy and growth in emerging markets;
• significant volatility in the cost of energy and raw materials;
• new opportunities related to sustainable development (alternative energy, green chemistry);
• industry consolidation and an increase in M&A activities—large transactions as well as “bolt-on” acquisitions;
• increasingly strict regulations, notably in Europe (Registration, Evaluation, Authorization and Restriction of Chemicals) and in the U.S.; and
• ongoing efforts by most companies to improve productivity and reliability.

Factors Likely To Affect Industry’s Outlook

Some factors that may influence future results include:

• general market conditions on a global and national scale;
• growing environmental regulation and legislation;
• fluctuations in raw materials and energy prices, especially the price of oil and
• oil derivatives;
• fluctuations in interest rates and in currencies, particularly the U.S. dollar;
• capacity to introduce new products and develop new technologies;
• consolidation in the industry and concentration of customers; and
• political instability in some parts of the world.

Main Trends Affecting the Chemical Industry

• ongoing expansion in emerging economies, especially in China;
• return of M&A activities, driven by portfolio restructuring and private equity firms;
• potential impact of regulatory changes, especially around the use of toxic substances and air emission
• investments in product innovation and opportunities around sustainable development
• focus on strategic sourcing including long term suppliers’ agreement and business continuity planning
• continuous improvement focusing on manufacturing performance and reliability; and
• improved risk governance practices and broad focus on enterprise risk management.

Top 10 Risk Issues

1. Emerging market risks especially in China (operational, health, safety and environment)

2. Impact of natural disasters (hurricane, earthquake, and flood)

3. Supply chain risks, including dependence on key suppliers and growing interdependencies

4. Product innovation, including nanotechnologies

5. New studies linking chemical substances to specific diseases or pathologies (i.e., cancer, autism)

6. Short and long term impact of restructuring efforts on own operations and suppliers

7. Exposure to toxic or hazardous

substances (including toxic release, occupational disease)

8. Environmental liabilities from past and discontinued operations

9. Risks related to transport of toxic and hazardous products 10. Regulatory and compliance with changing regulations

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