Positioning for a strong rebound in key end markets amid rising costs

The US chemical industry is poised for a strong recovery in 2022 as economies reopen and restrictions are lifted, which should drive up plant utilisation rates that were hit hard by the pandemic. US chemical volumes are expected to grow around 1.5% in 2021 and 3.0% in 2022, while shipments will likely increase by 8.0% in 2021 and 2022, following a 13.5% decline in 2020. US chemical exports are also expected to grow significantly as major economies reopen and import demand in partner economies improves.

But one of the risks for this strong recovery is inflation. For example, Brent crude oil spot prices rebounded strongly and remained at an average of $74 per barrel in September 2021. Those inflation figures provide further evidence that the supply of raw materials and labour is struggling to keep up with resurgent demand. Central banks in the United States and Europe expect supply bottlenecks and inflation to ease in 2022 once the global recovery finds firmer footing and government support programmes are unwound.

Transforming asset portfolios to help weather volatility

Chemical companies are entering 2022 after overcoming challenging market conditions in 2020 and 2021, with COVID-19 adding volatility to an already volatile decade. The pandemic led to divergent demand for plastics and specialty materials, testing the resilience of companies’ asset portfolios. The shifts in chemical spending partially reflect commodity price volatility, but are more driven by longer-term trends, including petrochemical expansion in the US Gulf Coast. 2022 will likely see similar price and demand volatility, and the chemical sector will need to adapt, particularly as the energy transition accelerates.

Chemical companies are likely to focus on repositioning their asset portfolios and balancing trade-offs between different strategic options with critical considerations, such as scale, the scope of products, and growth opportunities.

Climate change driving sustainability efforts

In 2022, the chemical industry will likely be pushed to decarbonise by regulatory and scientific pressures as the impacts of climate change grow more apparent. Moreover, the industry may come under further scrutiny as the public becomes increasingly sensitive to plastic waste and the improper disposal of end products.

While carbon emissions are hard to abate in the chemical industry due to reliance on process heat, advances in decarbonising chemical production could have a profound impact globally. The benefits of decarbonising chemical companies could spread beyond the industry itself, since chemistry provides the building blocks for many value chains.

Accelerating business transformation through digital technologies

There remains immense, but relatively unexplored, potential for advanced data analytics and digital technologies to transform the chemical industry. Today, digital tools and technologies present an economically feasible solution for extracting more efficiencies from incumbent processes and designing novel products and processes. Due to the convergence of accelerating improvements, such as advances in sensors, cognitive computing, and analytics, significant progress can be expected in three areas in 2022: data availability, data processing, and engineering and materials research.

In the past, chemical businesses have typically implemented advanced data analytics and digital initiatives in silos, resulting in slower processes, higher costs, and uncertain benefits. However, chemical firms are now increasingly realising that digital transformation is about implementing more and better technologies and involves aligning culture, people, structure and tasks.

Embedding customer-centricity to create differentiation in the marketplace

Customer expectations and behaviours have changed dramatically over the past decade, and more so in the wake of COVID-19. Chemical businesses today are expected to meet customers’ needs and expectations at every interaction in return for customer loyalty. The ability to deliver this could depend on the extent to which customer-centricity is embedded within every link in the value chain in the chemical business.

Especially in light of the convergence of many industries that are rebranding and repositioning themselves, customer-centricity should play an instrumental role in staying a step ahead of the competition. Chemical companies are likely to leverage digital technologies to enable automated trend sensing and social media scanning to identify broader market trends and customer requirements. This customer-centric innovation, which solicits real-time feedback through customer engagement tools, could help improve the scope, scale, and returns of R&D efforts.