OUTLOOK '11: Chemical players upbeat about prospects in 2011

03 January 2011 09:33  [Source: ICIS news]

By Andy Brice

Petrochemical plantLONDON (ICIS)--The chemical industry can expect growth and increased merger and acquisition (M&A) activity in 2011 but must also be prepared for potential instability, according to leading producers, distributors and consultants.

Appearing in the latest issue of ICIS Chemical Business magazine, published on Monday, players said that the year ahead would be punctuated with uncertainty but still show signs of improvement after a tough two years.

The consensus suggested that many would continue to be cautious following their experiences with the global recession, feedstock price volatility, fluctuating exchange rates and the introduction of Europe’s new chemical legislation, Reach. However, expansion into emerging markets looked certain to continue, and emphasis on sustainability and innovation would remain at the forefront of companies’ plans.

“2011 is probably one of the most difficult years to forecast for some time, particularly following the marked recovery in the industry's fortunes in 2010,” said Tom Crotty, group director at Swiss-headquartered major INEOS.

“Concerns remain about the so-called tsunami of low cost Middle Eastern product into Europe, which has so far,failed to materialise. This is due to a combination of lower than forecast supply thanks to the global recession and higher than forecast demand, particularly in China,” he added.

“While both of these factors could change in 2011, the indications at this stage are that supply/demand in 2011 should remain in reasonable balance and thus create a degree of business stability,” Crotty said.

Kevin Swift, chief economist at the American Chemistry Council, said that China also remained a key focus for the chemical industry with its continued growth and plentiful business opportunities. The country is set to overtake the US as the largest market for chemistry in 2011, he added.

Swift has also predicted that US chemical exports would climb by around 10% next year, boosted by favourable dollar exchange rates, growth in emerging markets and the increased focus on high volumes of shale gas supply.

M&A activity was also likely to headline 2011, as players looked to optimise their portfolios. Chris Stirling, European head of chemicals and pharmaceuticals at UK professional services provider KPMG, said that while European, US and Japanese chemical majors were keen to rationalise, Middle Eastern, Indian and Chinese buyers were looking for mature chemical assets and had the funds at their disposal.

“We're also seeing increased interest in the chemicals sector from those in the private equity community…We saw a number of private equity players complete deals in the sector during 2010, and we expect the volume of deals, certainly at the smaller end of the spectrum, to pick up the pace into the new year,” added Stirling.

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By: Andy Brice
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