Univar sees steady chemicals demand but durables, industrials still sluggish – CEO

NEW YORK (ICIS)–Chemicals distributor Univar Solutions is seeing relatively steady demand this year with greater strength on the specialties side versus industrials. Meanwhile, the North America reshoring trend is set to drive demand in later years as new manufacturing plants are built, its CEO said.

“We had a good Q1. We saw modest growth in our industrial business and better growth in our ingredients and specialties business. Our results on [the latter] side would have stood out very favorably against our public peers in that space,” said David Jukes, CEO of Univar Solutions, in an interview with ICIS.

Looking ahead, while a number of chemical producers expect a stronger demand pick-up in H2, there is little evidence to point to that at the moment, he pointed out.

“Whether there will be a [meaningful] recovery in H2, I don’t see what that’s based on, other than hope. Hope is not a strategy and so we’re managing our business very carefully,” said Jukes.

“We have grounds for optimism that we’re going to see some growth, irrespective of what the market does. Whether the market will have a H2 recovery, I have absolutely no idea. I think that’s based on, ‘It’s got to get better some day’. If it does, that’s great but I’m not banking on that. We think our future is very much in our own hands,” he added.

Univar has improved its reliable delivery performance and customer NPS (net promoter scores) to record levels, with its digital channels helping to keep customer business “stickier”, as well as attract new customers, the CEO said.

Demand for durables continues to lag, and there is no surge of restocking yet.

“Consumers don’t think the economy is going very well… That’s [US President Joe] Biden’s problem right now. No matter how much you say it, consumers aren’t seeing it. Airline tickets and hotel rooms may be expensive, but refrigerators and cars are still on discount,” said Jukes.

“We’re through all the destocking of last year but you’re not seeing wholesale restocking. You’re seeing people buying for what they need today and what they need for tomorrow [rather than longer term],” he added.

Univar’s fast and reliable service model can help customers stock up when they need it, but one consequence is that it does not have solid medium-term visibility since customers are not ordering for six months from now, he pointed out.

“We’re seeing steady demand. People are not expecting prices to fall and not expecting them to rise, and are buying things as they need them. If something fundamental changes in demand patterns, it would be nice, but we don’t bank on that,” said Jukes.

HEIGHTENED COMPETITION LEADS TO INNOVATION
A more competitive market in chemicals is leading to greater demand for innovation when it comes to formulations, the CEO said.

“When markets get highly competitive as they are now, the specialty players look for ways to differentiate their products. Our formulation labs and kitchens, and our applications development people are really busy being innovative,” said Jukes.

“People will want to change a formulation, and create something different as a way of getting competitive advantage, particularly as you think about having more sustainable products in those portfolios. We’re seeing a lot of activity and growth in this area,” he added, pointing to more innovation taking place in the specialties and ingredients area.

RESHORING/NEARSHORING
Meanwhile, the reshoring/nearshoring trend is pointed to boost demand for chemicals in North America in the coming years, with some impact already kicking in, he said.

“This is happening, and macroeconomics and global events are feeding into that, whether it’s Red Sea disruptions, worsening relations with China or [turmoil] in the Middle East. We’re having them all at once at the moment, so there is a heightened trend to that reshoring and nearshoring,” said Jukes.

“Some of that we won’t see the full impact of, for a couple of years because it takes time to build the infrastructure. But certainly for our North America business, we are seeing good signs, and that will only pick up over the coming years,” he added.

DOMESTIC SOURCING AND TARIFFS
For many years, Univar has deliberately sourced the vast majority of its products domestically. Thus, even being a global distributor, the rising trend of protectionism through tariffs is not a major concern.

“It’s been a deliberate strategy for us for a number of years… What it does create are some opportunities for us to move domestically sourced product for people who are being impacted by it. That tends to be some of the smaller companies,” said Jukes.

“We source domestically and sometimes that means you perhaps find yourself on the wrong side of a very competitive product that’s coming in, but we’re not running this business for this month. You’ve got to take a longer view on this – you can’t live from transaction to transaction,” he added, noting that Univar is celebrating its 100th year anniversary this year.

“We’ve taken a much more longer-term strategic view, and it’s served us well,” said Jukes.

North America accounts for 75-80% of Univar’s sales, with Europe at 20-25%. The distributor also has a very small presence in China.

Interview article by Joseph Chang