Of late we have been seeing different strategies of O&G Industry Majors going forward – new capacities, adapting to market changes, diversification, cost optimisation depending on the region:
- Middle East - technology development, innovations, large-scale manufacturing
- Asia - large-scale manufacturing, efficiency improvement
- Americas - Gas chemistry, product development, innovations
- Europe & CIS - small-scale manufacturing of environmental-oriented, efficiency improvement
Possibly the global polymer sector will be sizing down, taking into account the European trend towards reducing the use of plastics. Against this background, implementation of a project focused on production of specialty chemicals will solve several issues at once, starting from import substitution of products in certain regions, and aiming to gain maximum return on investment.
Industry Prospects:
- Automotive (BASF)
- Construction (INEOS, DOW)
- Food manufacturing (EVONIK, BRASKEM)
- Healthcare (SABIC, LOTTE CHEMICAL)
- Aircraft Industry (SABIC, TORAY)
Challenges
The Specialty Chemical Industry is a complex conglomerate of sophisticated manufacturers, interdependent between the various players. Like all industries, the Specialty Chemical Sector is going to be challenged severely by the impact of the Covid–19 fallout. Demand for products has been severely disrupted as have the supply chains. Stock markets have been impacted and the relative strengths of industry players have changed significantly.
There are signs that the worst effects of the outbreak are ready and waiting to repeat themselves, which would mean even more disruption.
All is not lost, however. Certain sectors such as APIs and pharmaceuticals are actually seeing large positive increments from this issue, for somewhat obvious reasons… But also Nutrition and Life Sciences are in positive territory too. The Specialty Chemical Industry has a long history of forward thinking and creativity. It is time to put the foot on the innovative accelerator. There are government grants to be had, and many projects awaiting finance and realisation.
Structure
The Specialty Chemical products or “effect chemicals” are sold generally on their “effect” on a value basis rather than the lower margin commodities - that is to say they are costed at what they deliver to the customer. Quite often they are not singular products at all but can be blends or combinations of various ingredients.
The industry is heterogeneous, in that there are at least 25 different segments when differentiated by end use and limitless segments determined by formulation. Major segments are: Agrochemicals, Flavours and Fragrances, Water Treatment, Construction, Textile Chemicals, Polymer Additives and Specialties, Pharmaceuticals, Paper & Pulp, Electronic Chemicals, Oil Field Chemicals, Surfactants, Dyes and Pigments. As evident these descriptions are either market based or functionality based. An often, largely ignored Specialty Chemical segment is the production, management and use of Catalysts and Adsorbents. More than 90% of all Chemical processes have some kind of catalytic conversion.
Geographically the Specialties Industry is split between North America, Middle East and Europe but is heavily dominated by Asia, especially China, with dominance in this area accelerating in the last 10 years.
Europe has the least recent expansions, but is historically very strong, with technologies licensed to Indian and Asian (particularly Chinese) manufacturers with a broad Specialty portfolio.
Potential Strategies
Removing Commoditisation
Over the years, companies have grown their product portfolios to fill up their process capacities with alternate chemicals – this has been done to boost revenue and reduce overheads. Unfortunately for the traditional manufacturers, newer suppliers with modern plant equipment, greater efficiency and hence lower labour costs, have begun to compete for market share in these products, thus commoditising them. The strategy now, therefore, seems to be removing these products from the company portfolio and limiting to only those products where a clear advantage exists, either in the end use or in the cost of manufacture.
Another form of this behaviour, is adding more specialised products, either by licensing in processes or by creative M&A activities. In addition, some players are offering service or specific manufacturing steps as a form of adding value to their business.
Adopting Outside Technology
Most of the larger Specialty Chemical companies have developed their own product portfolios through research and development and years of scientific application. There has generally been a reluctance to buy in new processes from outside. Working with technology provider companies can accelerate the adoption of new products or new, more efficient production methods to make existing products.
A Green Agenda
Most chemical companies have adopted zero waste strategies from conception and have continued to develop these. In truth, to stay competitive they have had to, as feedstock prices are volatile and competition has become ever more severe.
But other strategies are available such as adopting different technologies. One such strategy is using bio-feedstocks to replace classical fossil fuels.
Conclusion
In 2019 the industry was worth $US 700 billion+. By 2027 it was projected to grow to ~$US 950bn – however this was before the virus struck. It will be interesting to see how the industry evolves post Covid-19.
What we can be certain of is that despite the challenges and the further potential setbacks we will continue to have Specialty Chemicals in our lives, and as life gets back on track so will this industry.
Euro Petroleum Consultants is a technical oil and gas consultancy with offices in Dubai, London, Moscow, Sofia and Kuala Lumpur. Euro Petroleum Consultants also organises leading conferences worldwide. Euro Petroleum Consultants have recently launched the ‘EPC Expert Lab’ – a series of online (virtual) training courses for the oil and gas sector including Petrochemicals & Catalysts courses led by Rob Parry & Alan Fisher. For further details please visit europetro.com/training.
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