Europe chems industry vulnerable to outside disruption – Accenture

VIENNA (ICIS)–The European chemicals industry is at risk of losing out on control of some of the key market opportunities arising in future to players outside the sector, an executive at consultancy Accenture said on Friday.

Incumbents are ceding footholds in new high-growth markets to external players due to slow growth, low investment and a preoccupation with consolidation and cost-cutting, according to Rachael Bartels, global chemical lead at the firm.

“Most of the industry is still stuck in the old era of growth,” she said, speaking at the European chemical trade group Cefic’s annual assembly in Vienna, Austria.

“The characteristics of an industry that is at risk [of outside disruption] are slow to no growth: and the chemicals industry has not added any value since 2011. Europe is under-invested compared to other regions… and we have a massive wave of M&A [mergers and acquisitions] going on right now,” she added.

Bartels noted that, of over 500 businesses operating in the plastic additives space, just 35 are traditional chemicals companies, with the bulk of the rest being relatively new entrants specialising in 3D printing.

Much of the merger and acquisition activity in chemicals has been driven by consolidation and cost-cutting, she added.

“To me it says: do you have a clear value on what your paths to growth are?” she added.

“Where is the new growth going to come from?”

Carsten Brzeski, chief economist at banking group ING-DiBa, cited the disruption currently taking place in the financial sector in recent years, stating that these developments do not necessarily imply a moribund industry, or a lack of growth prospects.

“M&A activity is normal at the end of a cycle. Disruption is also normal right now; I am also working in an industry that is highly disrupted. It doesn’t mean there’s no growth,” Brzeski said.

The reason for chronic underinvestment in Europe by chemicals firms compared to the amounts funnelled into other regions is due to over-regulation rather than lack of innovation, according to Cefic vice-president and DowDuPont president for Europe, Heinz Haller.

“China has been developing industry for their own domestic markets, but it does not have the raw material advantage or backwards integration that the US has and the Middle East has,” Heinz said.

“Europe is a specific case, because we have an environment that is not very conducive to developing an industry… Why has the European chemical industry lost half of its market share of global market share? Not because we have bad assets, but because they regulate the hell out of us,” he concluded.