Demographics and demand: Are the good times over for good?

30 March 2003 12:00  [Source: ICIS news]

In the early 1980s, country singer Merle Haggard wailed the memorable words: "Are we rolling downhill like a snowball headed for hell?" He was singing about the US economy, which was then thought by many to be in terminal condition. After several verses of moaning, he concluded positively that the "good times ain’t over for good." Given the uncertainty of those days, this was a bold statement, but it turned out to be completely right. In fact, the subsequent 20-year boom made the pessimists’ case seem almost ludicrous.

So what about chemicals today? Should Merle be reprising his hit at the NPRA IPC conference this week?

According to a recent study* of ours, one could argue it both ways. On the pessimistic side, our scenarios suggest growth of 2-3% per year in global chemicals consumption in 2000-2040. This is much less in relative terms than the 8-9% seen on average from 1960-2000. But on the optimistic side, the industry’s absolute output will increase at least as much in 2000-2040 as it did in 1960-2000.

This is a tremendous expansion in the next 40 years, even if it does come off a much larger base than did the previous 40.

Rather than using conventional economic extrapolation to generate our outlook, we projected demographic trends – namely population and per capita incomes. Demographic projection is a blunt tool. It is not of much use in the short term, but in the longer term (more than 10 years away) it is less sensitive to noise and we believe more accurate.

What we found are three interesting trends. One, as we already know, consumption growth in the developed world is easing up as populations age and in Europe even decline. Two, per-capita chemical consumption on a global basis shows a remarkable correlation with average incomes. Of course we knew that chemical use rises with wealth, but a 0.99 linear correlation of the two was far higher than we expected and much stronger than for other mass products. Three, even modest gains in developing nations means the world gets a whole lot wealthier – which more than offsets the ‘chemical maturity’ of the West and Japan (see table).

So if Merle pitches up in San Antonio this year, ask him instead to sing ‘We’ve only just begun’.

 

Consumption scenarios for ethylene, 2040

2000

2040

2040

2040

Low

Medium

High

Population

6.06bn

8.61bn

8.61bn

8.61bn

GDP per capita (constant 1995 US$)

5630

5630

8224

10132

Ethylene per capita (kg/person)

14.8

14.8

26.6

35.6

Ethylene Production (kilotonnes)

89 854

176 020

229 098

306 330

Per annum growth, 2000-2040

1.7%

2.4%

3.1%

Source: SRI Consulting, World Bank, United Nations

By Eric Johnson, Atlantic Consulting

*Demography and Demand: Growth scenarios for 2040

Eric Johnson is with Atlantic Consulting near Zurich, Switzerland. He can be reached at +41 1 772 1079 or ejohnson@ecosite.co.uk

Russell Heinen is with SRI Consulting in Houston, US. He can be reached at +1 281 876-6925 or at rheinen@sric.sri.com





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