06 November 2013 16:13 [Source: ICIS news]
By Will Beacham and Nigel Davis
LONDON (ICIS)--A difficult third quarter and poor prospects for the final three months of 2013 highlight the importance of getting it right when choosing which businesses and regional markets to back.
Few companies today have their own economist and market research tends to be conducted at the business rather than the corporate level. An understanding of just what might drive growth for the company generally in the mid to long term is not always easily come by.
And growth is the big issue currently as the world’s economies struggle to come to terms with the aftermath of the financial crisis and policymakers try to understand what the consequences of the Great Recession really are.
It may run much deeper even than that, of course. Demographics are working against growth in the major economies in the West and demographics are expected to rein in China’s spectacular economic expansion as her population ages.
Companies are challenged to better understand market dynamics at a macro level as well as at the product and business unit level where the flow of current and near future market information is that much greater and can be more easily assimilated, processed and analysed.
Does a wealth of information make analysis of future trends more or less difficult?
Current operations should be more efficient in a world of big data; products and processes more closely aligned with end-market demand.
But on a larger scale, the great trends that are (seemingly) shaping the world present old dilemmas. Which trend do you pick? Whose analysis do you believe?
Two seemingly very different assessments of the potential for chemicals demand growth over the longer term were published in ICIS Chemical Business (ICB) in October. And ICB deputy, Will Beacham, is hoping that they will provide stimulus for active debate.
Last month, the International Monetary Fund cut its global GDP growth for 2013 to 2.9% 2013, from the 3.0% it estimated in July. Global GDP growth in 2012 was 3.2%
The IMF warned that downside risks have increased, with continuing weakness in Europe, US fiscal uncertainties hitting recovery there and China stalling.
There is a bigger debate about growth going on and this was highlighted in ICB. It published two very contrasting views on the long-term prospects for the global economy and for chemicals entitled “This is the end of constant growth” and “Speedy growth for chemicals by 2050”.
The first article, written by International eChem’s Paul Hodges, argues that demographics will be the determining factor in driving future economic performance. With fewer babies being born and increased longevity in mature and emerging economies, demand will cease growing quickly.
The chemical industry will have to get used to a “New Normal” of sustained low or flat GDP growth and look for opportunities within that framework.
Hodges says that the arrival of the post-war “baby boomers” created a 25-year supercycle from 1983. Demand grew exponentially as young, dual-income families spent money on household goods and cars. Now that generation is entering old age and pensioners spend less and in different patterns.
Hodges believes the global economy will be governed by three groups of people: “rich but old” – the 1bn older people in western countries with GDP/capita of $45,000 who are asset-rich but cash-poor; “poor but young” – 4.8bn people in emerging economies with GDP/capita of $4,000; and the “poor and ageing” – 1.5bn people in China and Russia with GDP/capita of $7,000.
The other account comes from Styron’s Rafael Cayuela, who gives his personal view based around the opportunities presented by bullish projections of a quadrupling of global GDP from 2010-2050 to $280,000bn.
“The world will have the potential to host one of the largest, wealthiest and healthiest societies in human history,” Cayuela says. He sees the chemicals output growing from $3,100bn to $14,900bn with global per capita consumption of chemicals growing from $456 in 2010 to $1,631 by 2050.
Multinational companies will grow to exceed the size of economies of many national economies with producers such as BASF or Dow achieving sales of $150bn-$250bn.
In fact, Cayuela suggests, growth could be even steeper if the industry grasps the opportunities presented by helping to solve the challenges of resource and energy scarcity, carbon dioxide emissions and climate change.
If the industry goes back to its roots of innovation and technology it can play a major role in the “Third Industrial Revolution”, he argues.
He also says that the democratising power of social media such as Twitter and Facebook could have a dramatic effect, with the public examining the industry’s performance and pushing it to “called to action” mode.
“By 2030, there will be 1.1bn more people in the world than today and 97% of them will be in emerging and developing countries. One billion people will be 65 years or older. These demographics - and their inter-generational costs - will dramatically affect education, healthcare, savings, pensions and public spending,” said Christine Lagarde, managing director of the IMF, in October.
The authors of the ICB articles are keen to stir debate within the industry. They have both written books on the subject of growth. We will all benefit if the chemical sector is prepared for a variety of scenarios.
Paul Hodges is co-author of an e-book, Boom, gloom and the New Normal: How the western babyboomers are changing demand patterns, again. It can be downloaded from new-normal.com.
Rafael Cayeula is author of The future of the chemical industry by 2050, published by WILEY-VCH.
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