China's Chemical Industry to Lead Global Revenue Growth

The global chemical industry is continuing to recover, with revenue growing at a compound annual growth rate of 7.9 percent over the near term, says Deloitte Touche Tohmatsu Limited's "Compass 2011: Global Chemicals Sector Midyear Outlook." Higher prices and improving global economic conditions, leading to increased demand in the end markets for chemical products, have contributed to the revenue growth. This trend is expected to continue into the second half of 2011.

 

Contributing to the upswing was the increased global sales in the automotive industry, which is a significant market for chemicals because of the high volume of products used in the development process. Other end markets that have helped drive revenue so far in 2011 were consumer electronics and pharmaceuticals.

 

Looking ahead, China is anticipated to dominate the global chemical scene with the highest percentage revenue growth for the remainder of 2011. Markets such as India, Brazil, and Korea will follow China closely. While demand in the United States and Europe is expected to be moderate, higher prices will likely translate into stronger revenues for chemical companies in these markets this year.

 

“China is likely going to be a key market for the industry. As domestic demand increases and Chinese chemical companies shift to produce more value-added products, profit margins will likely rise,” says Tim Hanley, Global Chemicals sector leader, DTTL Global Manufacturing Industry group.

 

"There are unique challenges for the chemical industry in China, including energy inefficiencies, low industry concentration and limited capacity for innovation. Yet, positive catalyst is likely to come from the 12th Five-Year Plan from the Chinese government, as well as continuous growth in the above mentioned end markets for the chemical industry," says Rosa Yang, National Manufacturing Leader of Deloitte China.

 

The DTTL Global Manufacturing group’s outlook also anticipates oil prices to continue to trend higher. “The current 30 percent spread between oil and natural gas prices per barrel in the United States is creating market advantages for chemical companies with production facilities that are capable of feedstock flexibility,” adds Hanley. “In the long term, the sustainability of this advantage will likely be dependent on shale gas permitting, supply chain infrastructure development, and demand for natural gas in other markets.”

 

Merger and acquisition (M&A) activity is a bright spot for the global chemicals sector, with 2011 deal volumes and values likely to exceed pre-recession figures. China and other developing countries will likely be targets for M&A activity in both the chemical and plastics sectors, which will likely accelerate the rate of deals in 2011.

 

According to the report, sustainable housing and agriculture are two global megatrends in play this year for chemical companies looking to gain a competitive advantage. Chemical players that are proactively looking to capitalize on megatrends are now focusing their long-term business strategies on solutions that are critical to society. Therefore, research and development (R&D) is a significant way to bring megatrend solutions to market. More chemical producers are recognising the need for collaborative innovation with other value chain constituents that are just as critically important to the development of solutions for a growing global economy, energy, mobility, urbanization, and climate change. The global chemicals sector is well positioned for the remainder of 2011 to not only hit revenue forecasts, but also to create opportunities to enhance growth in the future, says Deloitte.

 

 

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