Two years ago, we observed a change in investor sentiment toward the chemical industry and speculated about the potential reasons. Now, we revisit those observations to confirm the underlying assumptions and trends. The relative share performance of the chemical industry has continued to deteriorate as these challenges continue to be in effect. We now see an ongoing decline in the growth rate of the demand for chemical products. Major trends such as the accelerating de-globalization and potential regulation to curb climate change will not make it any easier. In this article, we describe how the strategic context of the chemical industry is changing and discuss how COVID-19 might influence these considerations.
Against this backdrop, we see three additional trends significantly affecting the future of the chemical industry: sustainability, demographics, and technology.
All three scenarios are challenges for the chemical industry. As the enabler of the physical world, it may need to deal with a relevant reduction in demand. The current debate about plastics recycling makes this clear: the best way to reuse material is nonuse in the first place. Any serious application of the circular economy will likely negatively affect overall demand growth for chemicals, depending on the exposure of each company’s product portfolio. In addition, global electrification may inflate the price of energy (at least in some geographies), making the production of physical objects more expensive—thus reducing demand
To plan for the future, chemical companies will need to develop answers for what these scenarios mean for their products’ value chains—from the availability and prices of raw materials, to the price positions of production routes, to the changes in customer demand. Regardless of scenario, regulation will likely play an intensifying, crucial role as we see the planet continue to warm and the number of catastrophic events increase. Part of this regulation will likely vary by jurisdiction. Industry associations may very well see their role as the conduit for chemical companies to articulate themselves to governments expands. And as the chemical industry is a significant direct emitter of CO2, leading management teams have started to incorporate carbon and broader environmental targets into their agendas. This is only the start—pressure will deepen from various stakeholder groups.
In the context of the diverse and fragmented nature of the chemical market, this development may spell an opportunity for those who make the right strategic moves. Different portfolios will vary in their exposure to the upcoming regulation and upcoming trends. For example, the bodies of self-driving cars might be made of plastic because the radically reduced number of accidents no longer requires them to be made of steel and aluminum. Other examples may include insulation materials (for buildings and to protect power infrastructure from increasing wildfire risks), materials enabling energy storage, construction chemicals to protect shores, or bio-based or recyclable materials.
To tap these opportunities, chemical companies will need to consider strategies under a level of uncertainty—and they may still be forced to make risky bets. For an industry that has been historically accustomed to a relatively predictable demand growth, this will be a new experience.
How We Help Clients?
Helping petrochemical companies navigate a changing industry landscape and build their businesses for the future.
The competitive dynamics of the global petrochemical industry—the chemical industry's largest subsector—are changing. To make the right strategic decisions, companies must understand the industry's shifting dynamics, as well as overall trends in demand growth and sources of cost advantage.
In the last ten years alone, we have helped petrochemical companies and integrated oil companies on more than 300 strategic and tactical projects around the world. Working closely with Kanban infosystem Oil & Gas practice and experts in our organization's functional practices, the Petrochemicals group advises clients on a variety of challenges in five key areas: strategy, organization, operations, capital productivity, and marketing and sales.
2. Specialty Chemicals
Helping specialty chemical companies build strategies based on their core strengths and translates industry-specific trends into actionable opportunities for growth.
As Western players face increasing pressure from rival producers and local players try to capture a larger share of the global market, specialty chemical companies around the world must find new ways to grow and compete. We help clients achieve functional excellence and create profitable, sustainable, long-term growth in the context of a shifting market landscape. By combining our extensive industry knowledge and experience with our distinctive methodologies and tools, we help specialty chemical companies develop strategies that capitalize on external trends—as well as their own capabilities and strengths. We support clients on corporate and business unit strategies, mergers and acquisitions, growth, R&D and innovation, operations, and marketing and sales.