Full recovery in chemicals demand is years away - Deloitte

07 July 2009 17:55  [Source: ICIS news]

HOUSTON (ICIS news)--The timing of any sustained economic recovery within the global chemical market is uncertain with demand unlikely to return to pre-recession levels in the next three years, consultants with Deloitte & Touche said on Tuesday.

In the firm’s mid-year outlook for the global chemical industry, consultants said the location of demand will change. They also noted altered buying patterns and a different mix of customers.

As a result, any sustained recovery would likely be gradual, with recent economic stimulus packages likely to provide only a temporary lift.

“Part of the challenge is going to be separating real economic growth from the effects of economic stimulus packages,” said Tom Marriott, a US consultant.

“Although encouraging for the consumer, it does make it difficult to get good recovery signals from the chemical sector,” added Willem Vassen, a partner in Deloitte Netherlands.

As a result of the uncertainty, the consultants stressed geographical flexibility as a key strategy for chemical companies going forward.

“I think it is going to be a gradual recovery, with certain geographies recovering faster than others,” Marriott said. “The winners will be those with the best ‘sense and respond’ models for understanding economic activity by geography and end-user sectors.”

In the near-term, the report predicts consolidation to remain a major trend, as the chemical industry continues to suffer from a heavy reliance on the struggling automotive and construction sectors.

The companies that survive consolidation will likely do so by increasing investments in lower cost regions, such as Asia and the Middle East, the consultants said.

“The geographic footprint of the industry will no doubt broaden, providing more global balance,” said Kevin Gromley, Deloitte's global manufacturing consulting leader. “Asia’s importance to the industry will continue to increase, both from a demand and supply standpoint.

The consultants stressed that such opportunities would likely exist in the marketplace, and said companies must take advantage of them if they are to successfully pull themselves out of recession levels.

“From what I am seeing, the real winners are going to be those who are truly adaptable,” said Jim Manocchi, US consulting director. “The way companies manage during a downturn is not the way they would manage for growth.

“They cannot cost-cut their way to prosperity, and need to continue to innovate to create new products, develop new value propositions and tap into new markets.”

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By: Ben DuBose
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