The decade ahead
Preparing for an unpredictable future in the global chemical industry
As the global economy emerges from the Great Recession of 2007-2009, the chemical industry finds itself passing through a period of profound transformation. Profit margins have been shrinking; return on capital has been in steady decline. The recent recession has only exacerbated the problems. The commodity side of the business has been investing in large-scale advantaged capacity in developing markets and is now struggling with overcapacity. Among the fragmented speciality producers in developed markets, competition is growing more fierce, end markets are in chaos, and rationalization continues. Integrated players, wary of declining profits on the commodities side, are searching for ways to shift their portfolios to include more specialized products.
To gain deeper insights into the performance of the chemical industry, the Deloitte Touche Tohmatsu (DTT) Chemical Group analyzed the financial and operational performance of 231 global public chemical companies between 1998 and 2008, including specialty, commodity, and integrated players. This analysis shows that profitability has suffered in both the commodity and specialty sectors. Profits will continue to decline unless steps are taken to reverse the trend. In the coming decade, established strategies will be an inadequate foundation for success and may not ensure survival. New approaches are required as prerequisites for competitive viability. Naturally, the specifics of these approaches vary by sector.