Collapse of boomer-era market drivers calls for new approach – report

LONDON (ICIS)–The petrochemicals industry orthodoxy of investing in new capacity ahead of anticipated demand is being challenged by demographic shifts that fly in the face of assumptions of a supply-driven business model, according to a joint report between ICIS Analytics and Consulting and International eChem.

The industry model has held true since the 1980s, the report says, as the post-war western generation known as the Baby Boomers moved into a phase of wealth creation, leading to several decades of exponential income and spending growth.

The trend has faltered as that generation has moved into a new phase – referred to in the report as the New Old 55+ generation – where incomes decline on the approach to retirement, and spending is reduced.

This has been exacerbated by vastly reduced western fertility rates since the 1970s, meaning the new wealth-creating generation is relatively smaller than the generation that preceded it, at a point where the older generation is likely to live longer into its retirement.

“The New Old already own most of what they need, and their incomes decline as they move into retirement. This reversal is accentuated by the collapse in western fertility rates since 1970, which has led to a relative reduction in today’s Wealth Creator generation,” the report says.

The implications of this demographic shift have been obscured by stimulus measures implemented by numerous governments and central banks in recent years.

“Stimulus does provide a one-off boost to demand. But stimulus also increases a debt burden for the future and thus reduces future demand as both the debt and associated interest have to be repaid.

“Policymakers’ stimulus programmes have effectively been a misguided attempt to overcome the “demographic cliff” created by the ageing of the boomers. They have proved to be at best irrelevant, and at worst created great danger for the global economy,” the report adds.

This shift means that petrochemical producers need to re-examine their business models and consider a shift back to the demand-driven strategies that characterised the industry in the 1960s, as opposed to forecast growth prospects from IMF GDP projections, the report says.

The report advocates a more pro-active approach, employing experienced personnel with technological and commercial skills on the ground in key target markets and supporting them with research and development teams that can translate needs they uncover into new products and services.

“Our industry has reached a fork in the road. Stimulus has failed to deliver the promised return to growth seen during the [boomer-driven] SuperCycle, and China’s demand is unlikely to continue to be the saviour of the industry.

“Instead, we suggest that these developments are helping create a paradigm shift whereby revenue and profits will increasingly be generated not from the value of things, but from the value provided by things,” the report adds.

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 here.