Chemical Industry Needs New Strategies in the Next Decade to Regain Profitable Growth

Deloitte Analysis Shows Industry Faces Different Scenarios between Now and 2020

In its endeavour to highlight how the global chemical industry could face a range of competitive dynamics that differ from today in nature and intensity, vis-a-vis 2020, Deloitte, one of the world’s leading professional services organisation today introduced its report, The decade ahead: Preparing for an unpredictable future in the global chemical industry in order to analyse how the Chemical Industry would face different scenarios between now and 2020.

In the report, The decade ahead: Preparing for an unpredictable future in the global chemical industry, Deloitte reviews the financial and operational performance of 231 global public chemical companies between 1998 and 2008, including speciality, commodity, and integrated players. The analysis shows that profitability has not improved in both the commodity and speciality chemicals sectors during that period. The commodity sector experienced the industry’s sharpest decline in falling margins — while the speciality chemicals sector also fell. The report suggests that the decrease in margins can be attributed to overcapacity on the commodity side and also due to speciality producers, competition, pricing pressure, uncertainty in end-markets, and portfolio challenges. Although the integrated players grew their revenue by double digits in most of the years between 1998 and 2008, they are impacted by the pressures of their commodities businesses and by the need for more high-value specialized products.

Evaluating the impact of evolving competitive dynamics, Indian manufacturing sector, Kumar Kandaswami, Senior Director, Deloitte Touche Tohmatsu India Private Limited said, “These trends would mean greater opportunities for countries like India. As it is, there are significant capacities moving to India and other Asian countries on the back of increased demand here driven by overall manufacturing growth.” Discussing investment potential in manufacturing, especially the chemicals business in India, Kumar said. “From the standpoint of attracting its share of investment, the cost of feedstock and power, the two important ingredients for the process chemical sector, would be critical determinants. Further, being heavy on structural costs, the cost of capital would also be a factor. These changes also provide the Indian process chemical sector to scale to global levels and improve competitiveness.

Given the per capita use at present with reference to many of the products, India would continue to represent a significant market opportunity for the manufacturers.”

The report states that as the industry prepares for the future, the commodity sector will focus on preserving cash, managing excess capacity, and securing access to capital. The specialities sector will not only continue to seek competitive strategies that rely on understanding customer behaviour and offering only the most profitable products and services, but also at increasing levels of sophistication. For integrated players, in addition to the challenges of being in both commodities and specialties, new acquisitions will be a prime growth objective, particularly as a means of moving further downstream into differentiated businesses.

As chemical companies are broadening their geographic scope, Western commodity chemical companies are shifting to growing opportunities with a focus on the Asia-Pacific region and other areas within the developing world. With a small but growing share, the Middle East has significant potential advantages in low-cost hydrocarbon feed stocks and therefore continues to attract significant new capacity. It is forecasted that China and the Middle East will contribute 78 percent of the new capacity by 2013. Meanwhile, the chemical industry continues to play a key role in the economies of the United States and the European Union.

A key differentiator for global chemical companies will be developing and implementing customized growth strategies that have the flexibility to be altered if unplanned obstacles or openings arise. “The success of the business model framework will depend upon more sophisticated methods for predicting market behaviour and increasing the discipline of the business, product, and customer portfolio,” said Duane Dickson, principal, Deloitte Consulting LLP. “Given the uncertainty that lies ahead, keeping a range of alternative possibilities in sight is crucial.”

According to the report, the three key scenarios depicting how the global business environment could unfold between now and 2020, along with strategic implications for chemical companies are as follows:

1. Transition. Western economies suffer inflationary spells followed by hard landings, while the developing world focuses on domestic consumption and enjoys steadier growth. Economic and energy supply issues are higher priorities than emissions control.

2. Resilience. In both developed and developing nations, growth rebounds as governments play an active role in managing their economies, directing investment, and promoting national competitiveness. Renewable energy and nanotechnology are among the top areas targeted for support.
3. Dislocation. Difficult challenges and heavy-handed government policies keep growth subdued in the West. In Asia and the Middle East, the fall-off in foreign export demand causes an economic slowdown that leads to social and political unrest.

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in 140 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte’s 165,000 professionals are committed to becoming the standard of excellence.

This press release has been given by Deloitte Touche Tohmatsu India Private Limited, a company established under the Indian Companies Act 1956 and a member firm of Deloitte Touche Tohmatsu.

Contact:
Malika Kumar
Title: Manager, Corporate Communications, Deloitte
Mobile: + 91 9899087649
Email: malkumar@deloitte.com

Rahul Gossain
Title: Account Manager, 20:20 MEDIA
Phone: +91 9873154228
Email: rahul@2020india.com

• Amazon Kindle: Buy or Not? When I first started this blog, I announced that I'd write about technology 5% of the time. Since I have written more than 700 articles at this point, I'm allow some 35 articles on technology. I think I used up a few of them with articles on my Asus EEE.......
• Top 5 IT forecasts for 2010 As 2009 draws to a close and a new decade dawns, consumers and IT markets predict various new challenges for the next year and also expect something good for market conditions. Various analysts predict that IT sector will pull out the global economy from recession. It is assumed that the......
• Why You Deserve to Be in Social Traffic Last week, I gave you a hint at what was coming down the pike. And here's another email about social media help. So I wanted to address this question which I know comes up a lot because I'm seeing it and others I work with are getting asked it too.......
• GTI Asia Taipei Gaming Expo 8 to 10 May 2008 Since 1994, GTI Asia Taipei Expo has expanded itself into an international show throughout these years. Having developed as a global attraction, the show enjoys growing number of local and overseas visitors and exhibitors. For operators in Taiwan, it's a unique doorway to the international markets to promote themselves, expanding......
• Weakon 220: Microeconomics We've talked about economics already, it's time to talk about one of the two main branches of economics, microeconomics. The other branch is macroeconomics. The prefix "micro" originates from the land of Zeus, Athena, and Hercules - Greece. Micro means small. Coupled with "economics" microeconomics is the study of how......