Deloitte outlook for global chemicals industry is positive, with revenue growth over the complete year

Uncertainty on the outcome and evolution of the world economy might however impact the positive outlook for 2011 and beyond
3 November 2011

Brussels, 3 November 2011— "The chemical industry is continuing to recover during 2011, with revenue growing at a compound annual growth rate of 7.9 percent over the near term. Higher prices and improving global economic conditions, leading to increased demand in the end markets for chemical products, have contributed to the revenue growth". These were the main conclusions of the Deloitte Global Manufacturing Industry group Report, "Compass 2011: Global chemicals sector midyear outlook" , published mid-2011. A same trend has now been registered by Essenscia in Belgium. Revenues increased with an impressive 16,7%. As an export oriented industry, total export peaked at 57,1 billion euro, or an increase of 7,7% as compared to last year. However, uncertainty on the outcome and evolution of the world economy might impact the positive outlook, Deloitte now says. For 2012, Deloitte expects the uncertainty will remain to be a key factor.

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 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. 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.

A same trend has been registered by Essenscia in Belgium. Revenues increased with an impressive 16,7%. As an export oriented industry, total export peaked at 57,1 billion euro, or an increase of 7,7% as compared to last year. "However, uncertainty on the outcome and evolution of the world economy might impact the positive outlook", Tom Van Cauwenberge, Deloitte Belgium Chemical Group Leader, points out. "European companies, which lean more on oil-based naphtha, are facing oil price changes linked to the political uncertainty in a.o. Libya and others in the Middle East."

M&A as bright spot

Mergers 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. Tom Van Cauwenberge: "Therefore, research and development (R&D) is a significant way to bring megatrend solutions to market. More chemical producers are recognizing 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. Also with the current uncertain economic future, these R&D investments will be crucial".