AFPM ’19: INSIGHT: Petrochemicals growth could slow down sharply on circularity – Accenture

Nigel Davis

25-Mar-2019

SAN ANTONIO (ICIS)–Thinking about the petrochemicals industry in terms of demand, from emerging and developed economies, then the world seems set fair.

Advanced, industrial societies generate a certain level of petrochemicals demand as industrial and economic growth provide the backbone on which chemicals demand of all sorts is built.

Developing economies provide the greatest growth for petrochemicals as industries develop and consumers become wealthier and can, on the face of it, consume more.

The growth projections from the major petrochemical players and now, increasingly, from the crude oil majors, pivot on their interpretation of developing economic growth.

In the short term, that means the global economy over this year and next. Longer term, it relies on demographics and a take on core industrial development and economic expansion.

“On the surface, today’s chemical industry looks good,” a 2019 chemicals sector report by consultancy Accenture said.

“But delve deeper and week-by-week hidden pressures are mounting, revealing telltale signs of risk.”

Productivity improvements have been hard to come by. On the other hand, margins have been squeezed by “long, shallow” cycles.

Rapid growth cycles, driven by emerging economies, are petering out, while merger and acquisitions (M&A) have little impact on core industry fundamentals, Accenture said.

Materials replacement is becoming harder for industry players as consuming markets mature.

‘COMPRESSIVE DISRUPTION’
And there are clear threats as downstream consuming industries, much closer to the end market than chemical players can ever be – or ever want to be – react to fundamental market changes: circularity, greater volatility, shifting market demand, like with combustion-engine driven automobiles, for example.

“Our research shows that while chemical companies are not necessarily in great danger from imminent big bang disruption, the industry is exposed to the ongoing threat of growth and profit erosion,” Accenture said.

“It’s a silent but deadly slow deterioration of performance that creeps up on companies in asset-heavy industries over the years, opening the door to disruptive forces.

“We call this compressive disruption, where the business stagnates, incumbents lose control and new entrants can take the advantage.”

Every chemical company is aware of this: the threat to markets; the arrival of the new; the shifting power battles that could see their markets swamped.

When you are wedded to a significant asset base, however, it is difficult to move fast and the steps you take will necessarily be expensive, possibly disruptive, and will not be taken lightly.

Accenture warned of a false sense of security and situations in which changes in performance can be seen as normal ups and downs.

CIRCULARITY
Top of the agenda for plastics producers has to be the circular economy. Mandated levels of recycling are one thing. Another is the way in which consuming companies – the retailers and others that determine which plastics are used in which products and packaging, and where – change their usage and buying patterns.

The latest research on the topic from Accenture emphasised that while the petrochemical industry is a high-growth, basic-materials business, growing faster than energy, it faces a significant, specific challenge.

The circular economy could blow a hole in growth projections that underpin the businesses of the world’s major plastics producers and the ambitions of the crude oil majors to shift significantly more towards chemicals and away from transport fuels.

Many of those companies look to above-GDP growth rates for plastics, based on rising income levels and a growing middle class in the world’s developing economies.

Accenture’s research, however, undertaken on an energy-equivalence basis, suggests that petrochemicals growth rates could be reduced by half to less than 1.5% year out to 2024 by the impacts of the circular economy.

That would amount to the loss of 275m tonnes of lost conventional plastics production capacity.


Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.

Picture source: Westend61/REX/Shutterstock

By Nigel Davis

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