Five challenges facing the global chemicals industry

21 January 2020 Consultancy.in

The growing global reach of the chemicals industry is making its value chain increasingly susceptible to sways in the international business environment, according to an analysis by Intueri Consulting. The $214 billion industry is facing challenges from trade tensions as well as sluggish economic growth, among other factors.

Intueri’s report examines the complex value chain in chemicals, which stretches across various chemicals and elements and extends across borders. Individual components in the chemicals sector include inorganics, oil & gas, petrochemicals, polymers and specialty chemicals, each of which has its own unique value chain.

While these individual chains are navigating distinct challenges, a number of factors are impacting the global chemicals sector as a whole. Intueri identifies five key challenges being faced by the chemicals sector, which, according to the firm “result from the global nature” of the industry’s value chain.

The five key challenges are: ‘Increasing commoditisation of chemical products’; disruption in feedstock supply leading to rising trade tensions’; ‘volatility in prices resulting in crude price volatility’; volatility in foreign exchange leading to rising trade tensions’; and ‘risk of global economic slowdown.’

Five challenges facing the global chemicals industry

The researchers further point at increasingly stringent environmental regulations as a growing challenge. Some of the largest economies in the chemical supply chain, namely the US and China, are not only struggling with slow economic growth and poor trade relations amongst themselves, but are also under international pressure to abide by modern environmental standards. 

“Currently, the industry is going through a consolidation phase, especially in China, due to the government’s increasing focus on environmental regulation and closure of plants that are following environmentally unsustainable practices. Due to the global nature of the value chain, many downstream companies have seen irregular supply from their Chinese suppliers or increasing costs,” stated the report.

This is particularly concerning for the sector, in light of the fact that China is responsible for the bulk of global supply delivery and production. China currently holds the largest market share in the world in chemicals, at 40%. In comparison, India’s $163 billion chemical industry represents a 3% share.

In a bid to navigate the five trends, Intueri's authors put forward a number of recommendations, including a shift towards less capital-intensive production, through avenues such as specialty chemical production. Developing winning strategies (a competitive advantage and unique value propositions) and a focus on sustainability are two other topics that should be high on the CxO agenda.


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