The chemicals industry has gone through tremendous structural changes in the last 50 years. Europe, Japan and the U.S. were the largest manufacturing bases throughout the 20th century, which began witnessing change in the late 70’s. The industry underwent a gradual shift towards Asia Pacific and the Middle East. Existing capacities become stagnant in Europe and North America due to high energy and labour costs, monumental capital investments and stricter environmental regulations leading to higher compliance costs. This was the start of the tectonic shift of the chemicals and materials industry from the West to the East.
In 2017, the global chemical sales stood at US$ 5.68 trillion and the same is projected to double by 2030. Emerging economies are expected to be the major contributors to this growth with both production and demand. Growth in the Asia Pacific region is estimated to be the highest with China contributing to almost 50% of the global chemical sales by 2030.
Chemicals market is broadly segmented into five categories such as basic (bulk/commodity) chemicals, specialty chemicals, agrochemicals, consumer products, and pharmaceuticals. The basic and pharmaceuticals segment accounted for the two-third of the total sales in 2017. Specialty chemicals poised for fastest-growth owing to the huge demand from construction, electronics and transportation sectors in recent years.
COVID-19 Pandemic Followed by Oil Price Crash: A Double Whammy in 2020
World GDP has shrunk US$ 7 trillion due to ongoing COVID-19 pandemic in 2020. Asia Pacific was one of the worst hit regions and accounted for more than 30% of the cases across the globe. China’s chemical sector took a severe hit with output declining by 20% and profits by more than 60% between March 2020 and May 2020. Loss in production also witnessed in lower utilization rates for the first time since 2008 recession. The COVID-19 pandemic has gravely impacted the supply chain and is likely to impact chemical production due to shortage or unavailability of feedstock and raw materials from China. In addition, China is also expected to face stockpiling issues as manufacturing activities are still stalled across many countries.
Over and above, the oil price crash forced OPEC countries to slash oil production by 10% to halt the prolonged price war, creating another havoc in the pandemic. This is expected to impact chemicals and materials market in an unprecedented manner in 2020-2021 as the demand is likely to stagnate.
Demand for chemicals will experience a massive setback compared to historical figures, especially in the automotive, oil and gas and construction sectors. Specialty chemical such as paints and coatings and associated industries and synthetic rubber felt maximum heat of this pandemic due to downfall of construction activities and sluggish automotive production. However, a resilient growth is expected in few subsectors due to rising demand for chemicals and products in healthcare and packaging. GDP and industrial growth will be the key factors contributing to the recovery of demand in chemicals worldwide.
Housing starts and car production in the U.S. is exhibiting weakening growth through 2020. Consumer’s inclination towards ride-hailing services, e-mobility and used cars indicates lower spending on new vehicles thus affecting industry in the long term. Sino-U.S. trade dispute has also added a bit of unpredictability to the demand. The U.S. chemical sector has already been affected by rising feedstock costs imported from China. Furthermore, China has retaliatory tariffs on the exports from the U.S., affecting more than 20% decline compared to 2017. There is also a looming threat of China restructuring its supply chain to reduce its dependency on the U.S for chemical and materials imports.
Road to Recovery for Chemicals & Materials Sector Post COVID-19
Circular or sustainable economy and new product developments are expected to provide ample growth opportunities to the market players. The chemicals and materials industry is expected to benefit a lot from the circular economy.
Manufacturers are expected to develop innovative materials to make it more end-user and consumer centric. Chemical companies are likely to lead the trend of sustainable practices, especially bio based chemicals, recycling of materials and waste management. Consumers are looking for the products that have end-of-life collection. Companies in the sector can take advantage of stimulus packages for product innovation to support their sustainability targets. Development of biofuels, recycling techniques and cleaner technologies over the coming years will definitely help companies meet the changes consumer needs.