Winners and losers of the end of the supercycle – infographic

LONDON (ICIS)–The end of the economic “SuperCycle” will result in winners and losers depending on how companies act, a new joint study from ICIS and International eChem states.

The major driver for the collapse of the ‘SuperCycle” is a shift in demographics and the end of the baby-boomer era.

Those that adapt to the new conditions with new strategies, and provide sustainable solutions that meet real needs will see growth, while those that expect stimulus measures, China demand growth and a crude oil rebound to drive increased consumption will decline.

The study outlines the approach winners will take and losers will take in the new economic cycle and the key dates in the SuperCycle’s expansion and collapse, as shown in the below infographic:

In an interview with ICIS at the beginning of March, the co-authors – Paul Hodges, chairman of consultants International E-Chem, and John Richardson, a consultant at ICIS Analytics and Consulting – argued the aging of the baby boomer generation meant the idea that demand will always catch-up with investment is no longer valid.

“The critical thing [for petrochemical companies] is that what you did for the last twenty years doesn’t work anymore,” said Hodges.

Hodges explained that, in the past few decades, demand was based on extrapolations from IMF-style growth forecasts to determine the number of plants to be built.

“We said ‘Look there’s an IMF GDP report out… so if you take today’s volume, the market in five years is going to be x, so we need to build x plants, and now we get to the important bit of where do we put the plants,’ you didn’t need to think about demand because of the baby-boomers” Hodges said.

The model worked, Hodges said because the population increase caused by the baby-boomers meant that any gap in demand would always be filled.

“Demand will always catch up, that is where it’s been for the last 20 years,” Hodges said.

Nevertheless, with a slowdown in population expansion and an increasingly ageing population that typically spends less, this model is already showing signs of collapse.

The pair pointed out that the new approach would require petrochemical companies to actively pursue new business routes, citing the example of London reservoirs as a possible industry that petrochemical companies could move into.

“We lose 40% of our water in London through reservoirs… Why are you not using PVC (polyvinyl chloride) or HDPE (high density polyethylene) pipes to stop that leakage? The answer is that nobody in the petrochemical industry has gone to the water companies and said ‘what do you need, what are the problems? We can create a product.’ That is because we’ve been so focused on the volume side that [companies] have not been sending people,” Hodges said.

The demand challenge requires an immediate shift in perspective and investment if firms want to get ahead, according to the duo, and some opportunities for growth in the millions of tonnes have already been lost, such as in the automotive industry.

“There’s a great example of how not to do it, which is the drive towards fuel efficiency in cars. In 2009, Obama said you’re going to move towards the fuel efficiency standards, but you’re seeing fewer sales of plastics because the plastics companies didn’t go in and instead the steel companies did, and you’ve seen a resurgence in lightweight steels,” Hodges said.

The new scenario study by ICIS and the independent UK chemicals consultancy, International eChem, is the culmination of five years of ground-breaking forecasting work. It has been developed by a team of experts who have many decades of industry experience in all the main product areas and geographies, and is under-pinned by data from the ICIS global Supply & Demand data analytics platform. It enables you to examine the data and analysis underlying key trends and to see how our experts predict three very different potential scenarios will play out for petrochemicals markets.

Guidance is also provided on how to correctly prepare, plan and pivot for different crude oil price scenarios, and to identify major new revenue and profit growth opportunities in the petrochemical value chain. To view “Demand – The New Direction for Profit,” click: http://bit.ly/1RfDCds