What is the next step in the specialty chemical products industry?
As the economy reopens, companies are turning their attention to recovery. There are many different trends in the industry, which will affect the special chemical products industry in the medium and long term. Based on recent discussions with chemical companies, we have seen the following sharp questions raised by executives: what will the long-term demand model look like? Should we invest in new capacity in certain products and markets? What will the M & a market look like?
According to the current market situation, we predict that the chemical industry will have the following development trends in the medium term (2-3 years). Overall, demand for specialty chemical products is expected to return to the historically expected GDP multiplier. However, the segment market which relies on macro trend to achieve growth is more likely to return to normal long-term growth process.
Due to geopolitical uncertainty and market risk, enterprises will start to reassess the feasibility and profitability of large-scale investment projects. Due to billions of dollars of risk and multi-party participation, we expect delays in large projects in development. Nevertheless, we still expect chemical enterprises to continue to achieve organic growth through capacity expansion. However, this expansion will become more targeted and follow more clear growth opportunities. Integration, divestiture and privatization in the field of specialty chemicals may accelerate due to disruption of value chain caused by covid-19.
The speed and severity of the global recession have had a significant impact on the supply chain of global manufacturers. In the specialty chemicals industry, prices and orders are under great pressure. In addition, many manufacturers have experienced supply and delivery disruptions between regions affected by covid-19. We expect that in the medium to long term, specialty chemicals producers will begin to seriously rethink and adjust their supply chain, which may include potential regional initiatives and consider localization in their value chain.
The current economic downturn has brought great pressure on the chemical industry, which makes it difficult to maintain profitability, cash flow and shareholder value. Only by managing and maintaining important cash flow can enterprises survive and develop in this challenging period.
In recent years, digital revolution and industry 4.0 have been widely discussed. However, it is time for companies to really face pressure and they will begin to consider investing more in information technology and digital solutions to improve efficiency.
GCC experience and lessons from specialty chemical products industry
While the region is responding to the impact of covid-19 on the broader economy, long-term diversification strategies are still in place. Visionary chemical producers are assessing their opportunities in the area of specialty chemicals. As GCC commodity producers will begin to develop a strategy for special chemicals, we need to recognize that this will start with considering raw material selection. The region will need more liquid raw materials to produce more products in the C3 and C4 value chains to promote more downstream development. This will allow GCC producers to move more gradually to specialty chemicals businesses.
In addition to expanding their production, many chemical companies underestimate the extent to which they must participate in the development of local specialty chemicals markets, especially in times of economic hardship. First, develop the right products at the right price to help drive local demand growth. By working closely with existing end users, companies can introduce new customers who previously purchased special products overseas and understand which part of the market they can first develop. Secondly, GCC can be more creative in dealing with downstream challenges because of its strong foundation in the chemical industry. In order to create more opportunities for downstream industries, some enterprises have established investment departments to support downstream investment. For example, Saudi basic industries established nusan investment company in 2017 to provide opportunities for investors in Saudi Arabia’s innovation and pioneer industries. This example shows that GCC chemical producers are moving to a more proactive downstream development strategy as an extension of product diversification. It is also an attempt to create a new growth model that transcends the boundaries of the chemical industry.
