The Chemical Industry in Israel

A Macro Overview

The chemical sector in Israel comprises 400 industrial plants whose overall production is one of the largest in Israeli industry. The industry covers a variety of activities, among which are the manufacturing of basic raw materials, the use of Israel’s natural mineral resources, the manufacturing of chemical interim products for various industries including agriculture, and the manufacturing of consumer products such as pharmaceuticals, cosmetics, cleaning products and more.

Sales of the chemical industry will amount to $10.9 billion in 2004 (data by the MAI and the Ministry of Industry,Trade and Labor).

 

 

 

The Israeli chemical industry accounts for 15% of total industrial output. The sector’s exports totaled $5.5 billion in 2004. Exports constitute 50% of the sector’s production. The weight of the chemical sector in overall industrial exports is 17%, second only to the electronics sector.

Israel's Chemical Exports (in US$ Millions)

 

The basic chemical industry in Israel is engaged, among other things, in the production of minerals from the Dead Sea such as: potash, bromine, magnesia and metal magnesium. While the chemical industry imports raw materials that are necessary for its continued operation, some of the domestic production of raw materials is directed towards exports. The industry also processes a range of raw materials and manufactures interim products with high added value that are used by various industries.

 

The chemical industry in Israel took it first steps in the beginning of the 1920’s and it is considered relatively young. There are four main segments of operation:

 

1.      Oil refineries and the petrochemical industry.

2.      Fertilizers and chemicals based on minerals found in Israel.

3.      Plant-protection chemicals mainly manufactured by Makhteshim-Agan Industries.

4.      Pharmaceuticals manufactured almost exclusively by Teva.

Israel plays a key role in the global production of some of these chemicals. In the fields of pharmaceuticals and plant-protection chemicals, Israeli companies are the leading generic manufacturers in the world (Teva and MA Industries).

The domestic industry is concentrated in two main geographic areas: around the oil refineries in Haifa and in the Negev desert. This location, which is far from population centers, enables companies to meet ecological requirements. The number of people employed in the chemical industry is second only to the electronics sector.

 

The Sector’s Characteristics

Centrality

As a result of the high entry barriers the global chemical industry is characterized by centrality. The high centrality in Israel is reflected in two aspects of the industry:

The variety of the products – Although the variety of products in the sector is wide, production is concentrated in a small number of plants that manufacture basic products such as: potash, phosphates, bromine and oil distillates, and process various interim materials.

Plants and the structure of ownership – Out of 18,000 plants in industry, 400 operate in the chemical sector.

 

R&D and Investments

The government’s involvement is also reflected in its participation in capital investments via the law for the support of capital investments and the law for the support of R&D in industry, through the Office of the Chief Scientist.

The Advantages and Disadvantages of the Chemical Industry in Israel

Advantages:

·        Natural resources – potash, bromine, phosphates, and magnesium: Israel is a global leader in the extraction of these chemicals and relative advantages in their production.

·         The geographic distance of production facilities from population centers reduces ecological costs.

·         The geographic proximity to Europe and Asia is reflected in cheaper transportation costs compared to North America and North West Europe. 

·         High quality products compared to the industry in East Europe and East Asia.

·         Expert, skilled manpower that increased substantially after the immigration from former USSR countries.

·         Advanced production technologies.

·         Free trade agreements with North America, Europe and others. These agreements provide a competitive advantage in exports to target markets.

·         A government support in investments and R&D, including grants and tax benefits.

·         Economies of scale for companies that are leaders in their respective fields or markets.

·         Natural gas at the coasts of Israel – its use will reduce the prices of energy.

 

Disadvantages

·        Lack of additional natural resources.

·         High wages compared with developing countries.

·         Lack of possibility to create a critical mass in domestic demands.

·         Certain production plants are relatively small.

·         Competition with multinational companies with massive resources.

·         Companies’ rely too heavily on basic products and less on unique products.

 

Future Trends

·         The growth pace of exports will continue with an increase in production and marketing activities overseas.

·         A rise in the proportion of high added value products in every segment of activity in the chemical sector, with an emphasis on more focused, environment-friendly products.

·         The possibility of developing and manufacturing proprietary products will increase in the pharmaceutical sector.

·         Israel seems to have a relative advantage in biotechnology R&D, allowing it to  become a global leader in the sector.

·         The expansion of activity will be accompanied, in most cases, by cooperation with multinational companies that will contribute to investment, know-how and marketing.

·         The international and security situation in the region has led to a decline in foreign investments. If the peace process progresses, it will have a favorable effect on Israel’s business ties, with Arab countries as well.