By Nigel Davis
LONDON (ICIS)--Preparing a list of the leading chemical companies by sales always highlights some trends worthy of note. Perhaps this year, the annual ICIS Top 100 Chemical Companies listing emphasises the struggle for growth and the ways in which companies have used mergers and acquisitions (M&A) to achieve their goals, the pressure on organic growth being widely apparent globally.
The listing goes back to the late 1970s and a wealth of data has been collected in the intervening years and decades. M&A played a critical role in re-shaping the industry from the 1980s onwards. The oil shocks of the 1970s essentially laid the ground for companies to become more critical of their portfolios and, generally, to seek more focused growth profiles.
The draw of specialisation continues, although it has to be defined at the individual company level rather than across segments of the industry that really have become too broad to categorise effectively. Exactly what is a speciality chemical, for instance? ICI used to call the specialties it sought ‘effect chemicals’.
There is a still a trend towards specialties for most players but commodity players, quite comfortable in their skin, pursue a certain degree of specialisation within their portfolios. They can play the commodity game and push certain aspects of specialisation and customer service hard, while managing the commoditisation of product lines and, sometimes, complete businesses.
It is more widely understood today that in a highly competitive operating environment you play to your strengths, continually questioning what it is you do that brings value to customers and shareholders.The Top 100 Chemical Companies, published this week in ICIS Chemical Business (ICB) and available as a download here, is the first in a series of three special publications. The second looks more loosely at the regional leaders – the biggest chemical producers by sales in the major regions of the world. The third will look at the analysis of the key financial metrics that helps ICIS decide which company receives its annual Company of the Year Award. The analysis, and the award, are based on financial performance in the most recent full financial year.
The chemicals sales data shown reflect this to a great extent. They also reflect the swings in the oil price between the relevant full year financial periods.
Oil price volatility has had a major impact on the fortunes of chemical producers. The drop in the oil prices running into 2016 pushed petrochemical process lower – a problem for some but a boon for others. End market sentiment, however, was not necessarily strong enough to stop the cost falls being passed on in lower chemical prices across the board.
That situation changed in the fourth quarter of 2016 or somewhat earlier. A tick up in the price of oil immediately helped push petrochemical prices higher. Companies benefitted as a result.
The sales data, represented in a few different ways on the graphic, illustrate the fact that major sales growth is only really achieved by acquisition or by significant spending on fixed assets.
The major movements in the latest rankings include the climb by INEOS as it acquired full control of joint ventures. Germany’s Merck moved up the rankings aided by its acquisition of Sigma Aldrich. Strong sales growth for the petrochemical busi8ness on India’s reliance Industries was made largely on the back of new capacities.
Reliance brought on-stream new paraxylene capacity and what it called the world’s largest and most complex ethane project in fiscal 2017.
Chemical companies upgrade facilities or add new production capacities to gain market share and to grow. The reasons for spending more have to be compelling and are not always convincing to some.
However, the capital spending data ICIS has collected reflects the significant impact on chemicals of the shale gas revolution in the US, market growth in India and the attraction of the Middle East (including Iran) and Russia as production locations.