Bulk chemicals, also referred to as commodity chemicals, are manufactured on a large scale to cater to the global demand for intermediates and feedstock for downstream and specialtychemicals. The bulk chemical market is characterized as a perfect competition structure. It consists of a large number of buyers and sellers,wherethe price is the primary market driver. Traditionally, the U.S. and Europe were the global hubs for the chemical industry until 2007. Since the last decade, the industry has been observinga shift from the west to Asia, with China as the primary contributor. Since then, despite several challenges, including raw materials price volatility, economic downturn, especially in the U.S. and China, and keeping up with the changing trends towards automation and big data, the industry has been performingremarkably well.
The U.S. and China trade tension has been a critical setback for the industry as both countries are among the largest producers and consumers of bulk chemicals. It threatens the demand for the U.S. chemical market as China is one of the key markets for U.S. chemicals, even though the country itself is a large marketplacewith substantial domestic capacity. The trade war has deteriorated economic growth not only in the U.S. and China butalso in Europe, which hasled to the modification of existing supply chains, uncertainty, and disruptionin the supply-demand ratio.
Apart from the trade tensions between the U.S. and China, the industry is undergoing margin pressures primarily due to oversupply. Since the last decade, the industry has been observing immense growth,leading to increasing investments and production capacity expansion, which ultimately engendered oversupply and margin pressures. Large chemical companies were facing exhaustive competition from local players and expected to lose market share to them. Primarily, India, China, and emerging economies house a significant percentage of these small players.
Growth of the chemical industry is tied to the demand from end-use markets, among which construction and automotive account for the highest shares. While the construction sector is growing, the automotive industry is exhibiting signs of a downturn. Moreover, the shift to electric mobility and the rising popularity of used vehicles and ride-sharing is also hampering the demand for bulk chemicals from the automotive industry. To offset the effect, bulk chemical manufacturers seek new growth avenues to extract more from their current assets and resources. In line with this, they are not only investing in R&D but also new business models. Several companies are also focusing on niche markets for growth opportunities.
Southeast Asia has emerged as abeneficiary of the U.S.-China trade tensions. More than 60 multinational companies are assessing the relocation of their manufacturing facilities to the emerging economies in Southeast Asia. Vietnam, Thailand, Indonesia, and Malaysia are attracting foreign investments like never before. Apart from Southeast Aisa, India is another preferred choice for companies due to the country's favorable policy frameworks that promote FDI. Reputed brands in automotive, electronics, and chemical industries have already initiated the process of relocating to Southeast Asia.
Our clientele from the bulk chemical industry is a mix of investors and leading players, with research areas spanningorganic intermediates, inorganic bulk chemicals, industrial gases, fertilizers, and bulk petrochemicals. As part of our solutions, we haveidentified and analyzedtrends such as the shale gas boom and the availability of low-cost natural gas liquids and natural gas to educate our clients about the supply, demand, and trends that could affect their businesses.
One of our clients, a leading player in the bulk chemicals sector, sought to evaluate the effects of the changing dynamics of regulatory policies worldwide on the petroleum liquid feedstock market. Our solution covered a detailed analysis of the relevant regulatory frameworks and their geopolitical impacts on the petroleum liquid feedstock market, which helped the company adopt a suitable future growth strategy.
As an example, one of our clients sought to identify opportunities in the skutterudite market. Or research analysts estimated the market based on the technical details available. They provided a detailed patent analysis, through which the company was able to plan its research activities and forge partnerships with research institutes.
The COVID-19 pandemic has hit the bulk chemical industry in all respects, and reduced production, disrupted supply chains in critical regions, decliningdemand due to uncertainty in the end-user markets, unavailability of labor due to the risk of infection, and lowerinvestments, are some of the challenges the industry is confronting.
The bulk chemical industry is particularly helpless, given that the significant production workforce is stuck in lockdowns, and on-site jobs cannot be performed remotely. Also, the industry is highly labor-intensive; as a result, organizations may need to consider how to follow social distancing effectively in working environments.
On the other hand, numerous supply chain partners are experiencing uniquechallenges andfinding it difficult to fulfill orders as per the scheduled timelines. Manufacturers also need to be prepared for disruption in raw material supply during the crisis.They are also observing a decline in the demand from end-use industries, including plastics, automotive, and composites;however, those dealing with the manufacturers of personal health and household products are experiencing an upsurge in demand.
In response to COVID-19, several end consumers, such as automotive, aerospace,and defense,have restricted their operations, which has negatively impacted the bulk chemical market. Additionally, product and inventory transportation has been affected as logistics services are constrained. On the other hand, the demand for hand sanitizers and liquid hand soap is increasing, fueling the demand for bulk chemicals.Some chemical companies have shut their operations to follow mandates imposed by local governments. However, national chemical associations around the globe have urged the respective governments to exempt chemicals essential to combat the COVID-19 outbreak, which includes some of the bulk chemicals.Some of the bulk chemical companies mentioned below have restricted their business activities to the COVID-19 outbreak.
Bulk chemicals are essential to manufacture and develop an array of products, ranging from fertilizers and plastics to packaging and medicines. Demand obliteration had pushed the bulk chemical industry into a state of oversupply much before the COVID-19 outbreak, which led to price wars, adversely affecting the overall margins. Prominent companies, including BASF, suffered losses due to theoversupply scenario, and the year 2020 was pegged to see recovery from the losses of 2018 and 2019. In April 2020, crude oil prices witnessed a historical drop; hence, the bulk chemical industry has a chance to cash in onthe lower chemical feedstock prices.
Among all, automobile, transportation, and consumer goods are among the most affected end-markets for bulk chemicals, with the demand falling by up to 33%. In light of the rising demand for medical, food and beverage, and disinfectant products, companies catering to these end-markets are experiencing a soaring demand for bulk chemicals. In April 2020, industry associations in India urged the government to put some chemicals under the 'essential' category,or else India mighthave to face shortages of essential compounds.
China, the U.S., Italy, and Germany are among the largest producers and consumers of bulk chemicals in the world and also among the most severely affected regions inthe COVID-19 outbreak. End-markets, such as automotive, paints and coating, fertilizers, plastics and composites, and personal care and cosmetics, in these countries, are facing partial closure or complete closure,which is ultimately affecting the countries’ economic setting.
As per the National Bureau of Statistics of China, China’s industrial output declined by 14% in the first two months of 2020 compared to 2019.The same source also states that the chemical industry is the most affected country, with output declining by 21% andprofit by 66%. Large and state-owned bulk chemical companies in China are likely to sustain and outperform during the recovery period. In contrast, smaller firms are more likely to facedifficultiesacquiring raw materials and establishing logistics services.
Source: The European Chemical Industry Council or Cefic
Impact on Producers
Europe's chemical industry is struggling to maintain its operational efficiency, reflecting its revenue figures. Italy and Germany, severely affected by COVID-19, are the largest markets for bulk chemicals in Europe. Europe was the leading chemical manufacturer and exporter for over 100 years until Asia-Pacific's exponential growth challenged its positionalmost two decades ago. Europe has been the leading technology integrator globally and is continuously engaged in developing smarter operations along the entire value chain. However, after COVID-19, European bulk chemicalmanufacturers are likely to curtail investments on upgrading technologies.
Apart from China and Europe, the U.S. is also one of the significant producers and consumers of bulk chemicals. The U.S. chemical industry, worth USD 99 billion, ranked second in the top chemical R & D spenders in 2017. The region’s bulk chemical industry consisted of more than 3,500 large and small firms in 2018 with thousands of products. A strong raw materials base, access to low-cost natural gas, availability of highly skilled workforce, advanced R&D centers, and supportive regulatory systems are some of the factors behind the success of the U.S. chemical industry. However, the global pandemic is expected to hamper the U.S. bulk chemical market growth in the upcoming months. Nonetheless, the U.S. is likely to witness a relatively higher growth trendpost-pandemicthan Europe and China.
Southeast Asia is home to several emerging economies globally, including Vietnam, Thailand, Indonesia, and Malaysia. Singapore has also cropped up as one of the growing chemical marketsand is home to some of the world's largest chemical plants. Moreover, the country is emerging as the global destination for R & D centers and a logistics hub for Asia-Pacific. Despite political instability,Malaysia is another emerging chemical hub in Southeast Asia.A growing economy, abundant natural resources, and a rising number of companies are driving the Malaysian bulk chemical industry.
Overdependence on China, supply chain disruption due to the U.S.-China trade war, and the impact of COVID-19 on China are some of the factors that compel companies to move out of China. Southeast Asia provides attractive business schemes with cheap labor, and the regional infrastructure is improving too. The region has beenexperiencing remarkable growth, especially in the manufacturing sector, due to the expanding labor force and its inclination to shift from agricultural to manufacturing.
Source: World Bank
Tax benefits on exports, skilled labor, political stability, and transportation facilities are some of the other factors supporting the growth of Southeast Asia. However, Southeast Asian countries lack knowledge about the management of waste chemicals. Companies in the region are investing in developing solutions about the safe disposal of chemical waste, and governments are also fuelling the efforts through regulations.