The Chemicals Industry: The Ten Key Challenges

Business, China, Company Strategy

 

Supercycle1

 

By John Richardson

AS delegates gather for this year’s Asia Petrochemical Industry Conference (APIC) in Singapore, there are ten challenges that they need to address during their discussions over the next three days:

  1. AN Economic Supercycle, which made life very easy for the global petrochemicals business, is over for good because of the retirement of the Babyboomers.
  2. The end of the Supercycle has already reduced demand growth for all the products that we make.
  3. But future demand growth will be made even weaker as a result of the $57 trillion of largely wasted economic stimulus pumped into the global economy since 2008.  Growth will be further depressed because of the need to settle all this debt.
  4. China matters like no other country and region for the global petrochemicals business. China’s current consumption levels dwarf all other emerging markets. Any reasonable estimates of future growth point to this remaining the same for the next ten years at least – probably much longer. So understanding Chinas’ role in the Supercycle and what happens next in China are of critical importance.
  5. China’s economic reforms are another key element of the end of the Supercycle. These reforms explain why oil prices collapsed, and so explain today’s chaos in petrochemical feedstock and petrochemical product markets.
  6. More than 50% of global economic stimulus between 2009 and 2013 came from China. This has left behind oversupply in many of China’s petrochemicals value chains.
  7. China’s reforms do not inevitably mean that there will be less petrochemicals capacity built in China in the future. Instead, it is highly likely that a lot more capacity will be built, as raising self-sufficiency is a key part of economic reforms. The reasons why China is building capacity today are different from the 2009-2014 economic stimulus period. Capacity will also be built across a broader range of products. The end result for the petrochemicals industry will, however, be more of the same: A further erosion in export markets.
  8. Meanwhile, China’s economic reforms might not work. There are no guarantees that China can create a new growth model to entirely replace all the lost growth from the old, now failed growth model.
  9. What you MUST NOT do in the future is this: Build a plant anywhere at any time – and any scale as long as it is big – because you think demand will always quickly catch up with supply.
  10. What you MUST INSTEAD DO is this: Go “Back to the Future”, to the 1060s before the Economic Supercycle. You once again need to much more actively manage your own demand.
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