The global chemical industry exceeded $5.68 trillion in 2017, making the chemical industry the second largest manufacturing industry in the world. The global chemical industry's production capacity nearly doubled between 2000 and 2017, increasing from 1.2 to 2.3 billion tonnes. In 2017, emerging economies experienced rapid growth in both demand and production lines. Chemical production growth has slowed or stopped in key manufacturing countries since 2018. According to BASF SE, Global chemical production has expanded by 2.7% in 2019 with slightly slower growth in the emerging markets. Furthermore, Chemical activity was declined in both Europe and North America in 2019, owing to the global economic downturn and trade tensions. According to the European Chemical Industry Council, in 2019, chemical production in the European Union declined by 1% compared to 2018. Due to the downturn, chemical and commodity exchange, as well as global supply chains have become increasingly complicated. According to S&P Global, global demand for chemicals has remained weak in 2020 due to downturn in demand in 2019 as well as impact of COVID-19 on chemical and its related industries. Moreover, escalating trade disputes between the U.S. and China and the U.S. and Europe are among the variables adding to an environment of uncertainty.
Chemical Industry 2020 Outlook:
The chemical industry has a major effect on a country's economic growth, impacting industries like agriculture, pharmaceuticals, polymer additives, and others. The uncertainty of the year 2019 in chemical industry has continued in 2020 with growing price volatility of oil and gas, which impacts on the costs of transportation, manufacturing, and operational costs of firms. Moreover the outbreak of COVID-19 further impacted the growth of the chemical sector. In the year 2020, global chemical supply chains were put to the test. The chemical supply chain experienced a sharp drop in outputs globally, due to shortage of several raw materials and finished goods. At the same time, the chemical industry was facing oversupply as demand for chemicals dropped by up to 30% in the fastest growing end markets, such as automotive, transportation, and consumer goods. Covid-19 has forced the chemical industry to reconsider its global supply chain model in order to mitigate potential impacts in future.
In September 2020, the European Commission outlined an action plan to reduce Europe's dependence on vital raw materials from third world countries. According to American Chemistry Council, In the U.S, total chemical production volume fell by 3.6 percent in 2020, but is expected to rise by 3.9 percent in 2021 and 2.7 percent in 2022. Production of basic chemicals fell by 1.3 percent in 2020, expected to increase by 5.0 percent in 2021 and 3.2 percent in 2022. Further, American Chemistry Council states that U.S. chemicals trade remained lower in 2020. As per the estimates of American Chemistry Council In 2020, total chemicals trade dropped by 7% to $220.8 billion, before rebounding to $240 billion in 2021 in the U.S. In 2020, exports dropped by 9% to $124.0 billion, before rising to $134.5 billion in 2021. Imports dropped 5% to 96.8 billion dollars in 2020, then is expected to rebound to $105.5 billion dollars in 2021.
COVID-19 Impact on Chemical Industry:
The COVID-19 pandemic has had a huge impact on the chemical industry, and economic hardship for consumers, businesses and communities across the globe. The chemical industry has seen a major decrease in demand in the last eight months. The crisis began to raise a number of unique challenges. Before 2020, the industry was struggling with cyclical problems like overcapacity, market pressures, and trade instability, but many post-pandemic adjustments were systemic or disruptive. Modified economic, social, ecological, and political standards are set to perform an even bigger part in shaping the sector's future as it heads into 2021. Companies must consider introducing a series of focused, organizational strategy across major product categories such as R&D and technology to thrive in the changing chemical market landscape. The chemical sector's output in 2020 was mixed. Because of its position in COVID-related solutions, plastic resins was the only segment to develop. Other basic chemical segments, especially synthetic rubber, a key component in tyre manufacturing, declined. Demand for specialty chemicals has slowed in virtually all practical and consumer segments. The American Chemistry Council anticipates a major rebound post COVID-19. Rising consumer demand, stable export markets, and a competitive advantage linked to domestic production of shale gas and natural gas liquids (NGLs) are just a few of the factors pointing to continued growth in the chemical industry.
Chemical Industry 2021 Outlook:
Companies should adopt strategic strategies in areas such as R&D and technology, including both short- and long-term targeted efforts, to succeed despite ongoing challenges in the chemical industry. As compared to other industries, such as automotive, the effect of the economic recession on the state of the chemical industry will likely be mild in 2021 due to end-market diversity and exposure to more resilient sectors. As a result, in addition to cost reduction and capital discipline, industry players will likely respond to changing demand by concentrating on increasing end markets, such as healthcare and electronics. Chemical companies are now witnessing major improvements in how they work and how they service consumers, unlike previous downturns that were largely cyclical in nature. Companies are making improvements to how they function remotely, market goods, and communicate with consumers. Customers in the chemical industry expect a simple ordering process, particularly in a contactless environment. In 2021, chemicals for electronic applications, specialty polymers, catalysts, and nutraceutical ingredients are projected to rise faster than normal, compared to segments that have already seen increased demand as a result of the healthcare crisis.
In the first half of 2021, the recovery has also been inconsistent geographically, with a quick recovery in China, a slower recovery in Europe, and a middle-of-the-road recovery in the United States. In 2021, the sustainability of China's recovery will decide the rate of recovery this year, and will determine global growth and industry profitability. China is the world's largest chemicals sector, accounting for approximately 40% of global chemical activity today and projected to hit 50% by 2030. Automobiles, aerospace, and automotive aftermarkets, as well as fuels and wider consumer markets, fuels, and broader industrial markets and personal care and cosmetics are best positioned for a strong recovery versus 2020. The recovery of global automotive demand, in particular is crucial for the chemical sector's recovery. It will play an important role for various specialty chemical supplier sectors, such as paints and paints and coatings, specialty polymers, plastic additives, adhesives and sealants, and lubricants, and will disproportionately support their development. Furthermore, growth in chemical industry is fuelled by global megatrends, posing risks as well as opportunities to advance sustainable consumption, development, and product innovation.
Chemical Industry Outlook in Developed and Developing Economies:
The chemical industry in the United States will suffer a sharp decline in 2020 as a result of the coronavirus pandemic. According to the American Chemistry Council (ACC), many industrial sectors in the United States are showing signs of recovery following the sharpest decline. The ACC expects a 10.5 percent decrease in industrial output in 2020, followed by a 3.1 percent rise in 2021. Softness is expected in the chemical end-use industry, especially in major markets such as automotive and building & construction. Vehicle sales will decrease to 13.1 million in 2020 from 16.9 million in 2019, according to the ACC, before rising to 14.9 million in 2021. Furthermore, housing starts are forecast to decrease from 1.3 million in 2019 to 1.19 million in 2020, before rising to 1.24 million in 2021. In addition, the ACC trade group saw sharp drop in US chemical exports in year 2020, as import demand from partner economies has plummeted as a result of the pandemic. Chemical exports from the United States are forecast to decrease 14.5 percent in 2020. Although exports are projected to rise by 10.9 percent in 2021, a complete recovery to pre-pandemic levels is unlikely until 2022.
Basic chemicals production is expected to decrease 8.9% in 2020 before rising 14.2% in 2021, according to industry segments. On the back of poor end-use industry demand, the ACC expects a 13.6 percent decrease in specialty chemical production in 2020. Volumes of specialty chemicals are forecast to rebound to a 10.6% rise in 2021. Meanwhile, production of agricultural chemicals is projected to fall 9.3% this year. According to the ACC, consumer product production will decline at a relatively moderate rate of 6.8% in 2020, helped by demand for cleaning and disinfecting items. Demand slowdown in some major end-use industries, as well as supply chain disruptions caused by the pandemic, have hindered U.S. chemical manufacturers. Shutdowns and restrictions triggered by the Coronavirus have paralysed global industrial and economic development. On the plus hand, chemical producers in the United States are benefiting from increased demand for chemicals and products in sectors such as healthcare and packaging. Chemical companies are also concentrating on self-help initiatives, such as cost-cutting and productivity improvements, expansion into high-growth markets, operating performance improvements, and steps to reinforce the balance sheet and raise cash flows, amid the competitive climate.
The impact of weak demand caused by a slowdown in industrial activities, especially in Asia and Europe, as a result of trade issues was clearly visible in the third-quarter performance of US chemical companies. Celanese Corporation CE, Eastman Chemical Company EMN, and PPG Industries, Inc. are all leading chemical firms in the United States. In the third quarter, PPG's sales volumes and revenues were hurt by a drop in demand across Asia (particularly in China) and Europe. The challenging environment is expected to persist into the December quarter, owing to the global slowdown and lingering trade concerns. Chemical capital investment in the United States is projected to fall 17.6% in 2020, to USD29.0 billion, but rise 15.7 percent in 2021, to USD33.5 billion. As businesses continue to save cash, it will be 2022 or later before they return to prior peak levels of capital spending.
India’s chemical industry is extremely diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers and fertilisers. India produces 16 percent of all dyestuffs and dye intermediates in the world. With a global market share of 15%, the Indian colorants industry has emerged as a major player. The Indian chemicals industry was estimated at US$ 178 billion in 2019 and is projected to rise at a 9.3% CAGR to US$ 304 billion by 2025. By 2025, chemical demand is projected to rise at a rate of 9% per year according to Indian Brand Equity Foundation (IBEF). Main chemical production was 8,36,435 MT in September 2020, while petrochemical production was 17,26,502 MT. In India, specialty chemicals account for 22% of the overall chemicals and petrochemicals market. In 2019-22, demand for specialty chemicals is projected to expand at a 12% compound annual growth rate (CAGR).
There has been few recent developments/investments registered in the Indian Chemical Sector which as follows:
- Hindustan Insecticides Limited and the Department of Chemicals and Petro Chemicals signed a memorandum of understanding on November 6, 2020, to achieve a revenue goal of INR 451 crore ($60.86 million).
- In November 2020, Pidilite Industries purchased Huntsman Group's Indian subsidiary for INR 2,100 crore ($283.38 million), in order to improve the company's adhesives and sealants business, which will complement the company's retail portfolio.
- Grasim Industries and Lubrizol Advanced Materials signed a definitive agreement in October 2020 to produce and supply chlorinated polyvinyl chloride (CPVC) resin in Gujarat. The first batch of goods is scheduled to be available by the end of 2022.
The Indian government sees the chemical industry as a main growth engine, with the chemical sector projected to account for 25% of the manufacturing sector's GDP by 2025. The government has developed a 2034 vision for the chemicals and petrochemicals sector to look at ways to increase domestic production, reduce imports, and attract investments. The government intends to introduce a production-link incentive system for the agrochemical sector, with 10-20% performance incentives; and to establish an end-to-end manufacturing ecosystem through the expansion of clusters. Despite the current pandemic situation, the chemical industry in India has numerous opportunities, particularly given the disruption of China's supply chain and the trade war between the United States, Europe, and China. In certain places, China's anti-pollution initiatives would provide opportunities for the Indian chemical industry. Moreover, the closure of plants in China and the European Union will continue to help Indian chemical companies. Indian businesses, considering their limited scale, are planning to grow their production and boost the quality of their goods.
Although chemicals will continue to be a global industry with China as its largest single market, China's future decoupling could pose challenges for global companies. Over the last two decades, China's chemical development has been characterised by rapid investment, intense rivalry, and fragmentation across a wide range of segments. This has been especially true in cases where manufacturing equipment is widely available and raw materials and financing are readily available. This combination has resulted in widespread overcapacity in many industries. Over the last two decades, China's chemical market has contributed half of the global chemical market's growth. Since mid-2018, rising economic turbulence linked to China's economic slowdown and US–China trade relations has added new uncertainties to the short-term outlook. While the rate of growth in the chemical market is expected to slow as the country's economy matures which exhibits that the growth rate will remain significantly positive. Currently, the volume of demand generated by China or East Asia has become more significant. Chemical production in emerging markets is expected to outpace in developed markets. Following the slowdown in GDP growth, the Chinese chemicals industry has entered a phase of lower but still solid growth. GDP growth is expected to be 6.3 percent in 2019 and 6.0 percent in 2020. Both Chinese GDP and chemical demand continue to grow faster than the global average. Infrastructure projects in other countries as part of the "Belt and Road Initiative" benefit the industry as well. China's chemical exports account for only about 10% of the sector's output. Because chemical deliveries to the US are low in value and volume, the direct impact of US import tariffs on the industry is limited. Increasing the use of advanced technology to produce higher-quality products. The issue of overcapacity in the agrochemical sector has been successfully addressed by government measures to adjust the market and improve environmental protection.
Following the COVID19 outbreak in Europe, chemical production in the EU decreased by 3.4 percent in 2020 relative to the same period the previous year 2019. In the best-case scenario, production will begin to rise modestly in 2021, unless the EU is struck by a second pandemic. In the latter case, production is projected to decline again in 2021. While overall output has decreased, some sectors of the chemical industry that provided critical supply chains during the COVID19 outbreak have remained stable or even increased in the first half of 2020, especially those producing disinfectants, diagnostic tests, ventilators, protective masks, gloves, and gowns, as well as Intensive Care Unit medicines. As compared to the same time in 2019, EU manufacturing production dropped by 10.9 percent in the first four months of 2020. The production was 3.4 percent lower than the previous year, but the overall effect of COVID19 on the industry is yet to be calculated. According to country data from European Chemical Industry Council, Italy and France have been hit the hardest by the crisis compared to the rest of Europe: their levels were at least 10% lower than the previous year (Jan-April 2019), followed by Belgium with a drop of more than 8%. During the same time period, the Netherlands and Spain both saw a 5% drop in their populations. Germany, on the other hand, remained relatively unchanged from the previous year (-0.6 percent). Similar changes were reported in the United Kingdom (-5.3 percent). In the first quarter of 2019, EU producer prices were 3.1 percent lower than in the previous quarter. For the first three months of 2020, total sales (domestic and exports) in the EU chemical industry totalled €129.6 billion, down 2.1 percent from the same period last year (Q1-2019). The outlook is still bleak, as demand for chemicals will be largely determined by the pandemic's future course, government restrictions, and the speed with which downstream industries, which are major users of chemicals, recover. On the plus side, the construction industry, which is another major purchaser of chemicals, has maintained a steady growth rate of 2.5 percent. Chemical demand is expected to rise as the chemical industry provides many solutions and technologies for infrastructure and energy efficient building.
The Covid-19 pandemic dealt the GCC economy a historic blow, causing it to contract by 6% in 2020. Measures associated with the pandemic, national lockdowns, and the collapse in crude oil prices, which turned negative for the first time in history in April 2020, all contributed to the economic downturn. The chemical industry in the region is inextricably linked to economic activity, demand and supply headwinds, feedstock price fluctuations, and growth in end-user industries, so it was only natural that the coronavirus pandemic and the overall economic situation had negative consequences for the regional sector. In addition to the indirect and direct impact it has on other sectors of the economy, the GCC chemical industry is one of the most important contributors to manufacturing sector. After a 6 percent contraction in 2020, the GCC countries will see a modest economic recovery from 2021 to 2023, with real GDP growth of 2.5 percent. The hydrocarbon (oil and gas production) and non-hydrocarbon sectors experienced similar economic contractions. The recovery will be felt in both the hydrocarbon and non-hydrocarbon sectors in 2021-2022. Higher oil prices and a rebound in demand in end-user industries are expected to boost the chemical industry's revenue in 2021. Commodity chemicals experienced the steepest revenue decline in 2020, but are expected to rebound strongly the following year. Chemical trade in the GCC is expected to grow by up to 10% this year, reversing a 20% decline in 2020, in line with the global trade rebound. According to the World Trade Organization (WTO), global merchandise trade is expected to rebound in 2021, growing by 7.2 percent, reversing a 9.2 percent decline last year, but still falling short of pre-crisis levels.
The chemical industry post COVID-19 are on recovery path. Companies can deal with the uncertainty by revisiting their product portfolio and conducting thorough scenario planning that takes into account the unknowns. This is the forecast for the chemical industry. The industry's focus is shifting to new value streams and applications that can help it recover and grow in the future. As compared to other industries, such as automotive, the effect of the economic recession on the state of the chemical industry will likely be mild in 2021 due to end-market diversity and exposure to more resilient sectors. Proposed policies in the areas of regulation, commerce, and sustainability could have a positive impact. The US Biden administration has vowed to review industry tariffs and call for an end to the current trade war with China. This could increase chemical exports from the United States and improve industry profitability by reviving prices. Chemical companies may need to accelerate their decarbonization technologies, reexamine their current properties, and diversify away from hydrocarbons where possible as customers place a higher value on sustainability and choose goods based on circularity and carbon footprint.
Chemical goods companies should keep an eye on these broader developments affecting customer preferences and the end-market climate in the coming year in order to concentrate on potential growth opportunities and gain more value from existing capital and assets. Because of the growing need for efficient and augmented chemical processing, as well as the need to resolve the risk associated with industrial activities, the demand for the Internet of Things (IoT) in the chemical industry is rapidly increasing. APAC is the most important IoT in the chemical industry, and it is expected to continue to dominate this market. In this chapter, the Internet of Things assists in the development of a platform for machine learning. Furthermore, Chemical industry and nanotechnology are inextricably related, as many aspects of nanotechnology depend on the fundamental chemicals that underpin their mechanisms and phenomena. Even if the material is not made of it, many polymers produced in the chemical industry are still under the influence of this technology, particularly when they are tweaked at the nanoscale. Rapid modelling in the chemical industry is one of the best solutions for the problems that have emerged as a result of the COVID-19 pandemic's spread. In a world where the exceptional has become commonplace, the global chemical industry has switched to premium AI-driven predictive and machine learning tools to forecast formulation efficiency and actions based on customer data and meet pandemic-generated demands quickly. Global chemical companies are now ensuring sustainability, with less energy and resource consumption. This can shape the future of chemical industry in the upward direction.
The chemicals industry is a knowledge intensive as well as capital intensive industry. According to a 2019 study from the International Council of Chemical Associations, the chemicals sector is one of the world's largest sectors, contributing $5.7 trillion to global GDP. By 2030, the global chemical industry is expected to double in size, from $3,470 billion to $6,500–7,000 billion. China is expected to control half of the market. Previously, specialty chemical companies marketed their goods based on their perceived value. Just a small portion of the cost structure of their customers' goods was covered by their products. Transparency and consumer understanding have improved as a result of advances in supply-chain management, strategic procurement, and e-commerce. As a result, the specialty chemicals industry is becoming commodity-like in some places, with companies selling goods based on price rather than performance. To compensate for higher R&D, electricity, and raw material prices, the specialty chemicals industry is now attempting to boost margins by introducing price increases. The current per capita consumption of chemical products across globe will augment due to demand, rising population, and increasing disposable income.
Mr. Venkat Reddy
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