INSIGHT: Expect performance to be tested in year of slower growth

03 January 2011 14:30  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--China will overtake the US as the world's largest market for chemicals in 2011, predicts the American Chemistry Council’s Kevin Swift. Against that backdrop, what do other industry figures believe the new year holds?

Some degree of business stability, says INEOS Group director, Tom Crotty, in the latest edition of ICIS Chemical Business (ICB). More merger & acquisition activity, says corporate partner at Mayer Brown, Henrietta Walker.

2010 was a year of strong growth but also one of volatility and great uncertainty. A more stable business environment would be greatly welcomed by most players, even though a growth slowdown is projected compared with the more recent, almost global bounce back.

The industry operates against the backdrop of continuing economic and financial uncertainty. The sector has emerged from the gloom better than expected but remains wary of unexpected or unintended consequences from the actions governments continue to take to fix fiscal woes.

Chemicals demand builds on industrial and consumer-driven growth and the slow US recovery, the mortgage crisis overhang and high unemployment strike at the heart of it. European chemicals growth is unlikely to be spectacular in 2011 and most players will be looking to demand from Asia, principally from China, to provide much needed plant loadings.

“Demand on raw materials and volatile pricing are unlikely to halt the dramatic growth in the Chinese market,” Bayer MaterialScience chairman and CEO, Patrick Thomas, says.”Following a year of rapid profitable recovery for many chemical producers, 2011 will likely see a continuation of profitable growth with some risks from currency exchange and higher raw material pricing,” he adds.

“Certainly 2011 will become a year of 'calming down', seeing some growth on slower basis,” predicts the global head of the chemicals/oil practice group at Roland Berger, Alexander Keller. “What's more interesting – and threatening – is 2012 and further on.”

Luca Rafellini, principal at Booz & Company, said: “As chemical executives become entirely comfortable with the fundamentals of high crude prices and China-driven demand growth, overall demand in 2011 is set to trend gently upward after the anomalies of the past two years,” He warns, however, that 2011 will not see good performance across the sector: it will be a year of divergence.

“Those companies that tool the opportunity to reshape their operations and business portfolios during the crisis will be rewarded with much higher earnings and valuations compared with those that didn't. M&A activity and emboldened [private equity] firms will arbitrage the rest.”

Arthur D Little sees the emergence of a “new agenda”, says director Theo Jan Simons, with a focus on growth through portfolio review, M&A and new business models.

Those models are likely to embed sustainability and innovation into the business matrix. Companies will put emphasis on commercial and operational functions linked to improved intelligence and insight, he suggests, and the ability to balance effectively global and local interest and address talent management.

Bookmark Paul Hodges’ Chemicals and the Economy blog
Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
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By: Nigel Davis
+44 20 8652 3214



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