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360 Degree CEO Global and Economic Perspective of the Chemicals & Materials Industry
 

360 Degree CEO Global and Economic Perspective of the Chemicals & Materials Industry

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A presentation conveying the current perspective of the Chemicals & Materials Industry, both globally and economically.

A presentation conveying the current perspective of the Chemicals & Materials Industry, both globally and economically.

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    360 Degree CEO Global and Economic Perspective of the Chemicals & Materials Industry 360 Degree CEO Global and Economic Perspective of the Chemicals & Materials Industry Presentation Transcript

    • 360 Degree CEO Global and Economic Perspective Of The Chemicals & Materials Industry © 2009 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan 1
    • Chemicals Market - Key End User Industries Automotive & Transportation Energy & Aerospace Power & Defense Market Growth Information Chemicals Communication Customer Needs Environment & & Technology Building Controls Competitive Landscape Industrial Automation Healthcare & Electronics Market interdependencies will determine the developments in the Global Chemicals Market 2
    • Effect of Downturn on the Global Chemicals & Materials Market Decline in consumer demand resulted in Hungary and Czech republic were hit hard by the Russia is affected by the Decline in consumer demand resulted in Hungary and Czech republic were hit hard by the Russia is affected by the scaling-down of production and redundancies economic stagnation economic downturn but its scaling-down of production and redundancies economic stagnation economic downturn but its across all industries. Poland is still experiencing growth fuelled by the strong position in oil and gas across all industries. Poland is still experiencing growth fuelled by the strong position in oil and gas Construction. automotive and real estate increasing adoption of western-type lifestyle and reserves suggest a quick Construction. automotive and real estate increasing adoption of western-type lifestyle and reserves suggest a quick industries and the finance and banking consumption of relevant products comeback industries and the finance and banking consumption of relevant products comeback sectors have already been hit, affecting the Some badly hit: Uralkali reduced sectors have already been hit, affecting the Some badly hit: Uralkali reduced chemicals and materials markets its production by 6.4 per cent in chemicals and materials markets its production by 6.4 per cent in 2008, with a massive short-term 2008, with a massive short-term fall in December fall in December Housing market collapse affected a wide Housing market collapse affected a wide range of chemicals and materials markets range of chemicals and materials markets Significant job losses in the industry and plant Automotive giants are hit Significant job losses in the industry and plant Automotive giants are hit closures (Dow, BASF, Rohm & Haas and Drastic drop in exports of textiles, leather and hard by economic closures (Dow, BASF, Rohm & Haas and Drastic drop in exports of textiles, leather and hard by economic other) other finished goods due to major recession recession and resulting other) other finished goods due to major recession recession and resulting in western economies significantly impact the drop in global demand; Decline in consumer demand affects end- in western economies significantly impact the drop in global demand; Decline in consumer demand affects end- chemical markets. this directly affects all market pricing, which in turn led to volume chemical markets. this directly affects all market pricing, which in turn led to volume dependent chemicals and reduction dependent chemicals and reduction materials markets materials markets Chemicals & Materials 3
    • Global response: Massive Government Stimulus USA UK: £250bn bailout Russia • $700bn bailout rapid Germany: $700bn relief package • Support for Russian interest rate cuts Belgium and Switzerland: Capital infusion ruble • $23bn support for top ECB: Interest rate cuts • $20bn stimulus package three auto companies; France: $50bn stimulus package • plan to create 2.5 million jobs by 2011 Japan: China • Interest rate cuts • Interest rate cuts • 447bn yen stimulus • $586bn stimulus (infrastructure, rural) package India • Interest rate cuts South Korea: • $4bn stimulus package (infrastructure, • Interest rate cuts and exports, textiles) efforts to keep Brazil • Support to Brazilian real currency stable • Infrastructure development under PDP • $11bn stimulus (more than $64bn into country’s financial package system) Global Response • Governments infusing capital into financial institutions • Globally coordinated interest rate cuts • IMF (International Monetary Fund) offers bridge loan to meet foreign exchange requirements • Discussions, coordinated efforts (G20 summit) Chemicals & Materials 4
    • Mega Drivers for Rebound Positive economic news around the world; unprecedented focus worldwide on addressing the economic situation Fastest government response in history, primarily driven by massive government fiscal stimulus package New U.S. Government/Obama’s economic growth plan focuses on creating employment through investments in infrastructure, renewable energy, broadband, and medical technology; infrastructure alone will create 2 million jobs Decline in commodity and oil prices leading to a tax break stimulus in U.S. Easing of inflationary and liquidity pressures Strong demand from emerging nations will be a factor in reviving the global economy Smart money is coming back to the market, with stock exchanges at historic low PE ratios “Fear fatigue” and rebound in confidence <N5AA-F1> 5
    • Growth Imperative in a Weak Economy Growth investment optimization is paramount during tough economic times Need to invest wisely is more critical now than ever before 100% focus on cut backs and retrenchments increases risk of failure Relative growth is as important as absolute growth Need for more metrics, with greater frequency and accuracy Risk of inaction greater than risk of action Revitalizing your growth initiatives at this time makes sense strategically – be well positioned for growth when the economy turns around competitively – be opportunistic while your competition is busy retrenching <N5AA-F1> 6
    • Opportunity Universe Determination The Product- Market Matrix (PMM) New Adjacent “Blue Sky” Focus on Product Development Focus on Innovation and R&D and Line Extension Products Core Adjacent Focus on Competitive Strategies Focus on New Applications, to Increase Share Current Verticals and Regions Current Markets New <N5AA-F1> 7
    • Identifying Growth Opportunities Even during times of decline, certain areas offer avenues for growth Medical devices are expected to be a stable growth market for Winners plastics, despite a general economic slowdown Strong trend towards greener building materials, despite the •Water treatment and utilities slowdown in construction •Personal care Growth in composites for aerospace; even if the aircraft •Safety and security construction industry sees a major downturn in the short term, •Healthcare the usage of composites is set to boom due to the very high •Food industry penetration that has now been achieved by composites in this area In other areas such as automotive, plastics have strong underlying reasons for long- term growth. However, in the short Losers term, plastics usage will be adversely affected by the slowdown. •Building & Construction All the above markets are characterised by their own unique •Steel Industry drivers, which hold true even in adverse economic climates. •Automotive Identifying and targeting these opportunities are key to •Electrical & Electronics emerging successful from the downturn. <N5AA-F1> 8
    • Growth Opportunity Universe Case Study: Advanced/Specialty Metals Motor Vehicles & Motor Vehicles & Medical Medical Energy/Power Energy/Power Engines Engines • Connecting Rods • Dental Implants • Steam Turbines • Valve Springs • Crutches • Power Plan Heat Exchangers • Intake valves • Wheelchair Frames • Superconducting Power • Turbocharge impellers • Optical Devices • Down Hole Oil/Gas Drilling • Turbo Exhaust Systems • Orthopedic Prosthetics Loggers • Gas turbine cooler compressor Sporting & Recreational Sporting & Recreational Chemical Process Chemical Process Consumer Goods Consumer Goods Goods Goods Industries Industries • Tennis Racquet Frames • Reactor Vessels • Wristwatches • Bicycle Frames • Process Vessels • Jewellery • Fishing Goods • Piping • Body Piercings • Firearms • Heat Exchangers • Mobile Cases • Tanks • Earrings • Golf Club Heads <N5AA-F1> 9
    • Opportunities in the Chemicals Industry Fiscal Challenges Is the right time for growth Credit Crunch opportunities within the chemicals Contraction sector? Amidst fiscal challenges, credit crunch and contraction of consumer markets, growth opportunities exist for the chemicals industry and are based on global trends Green Chemicals Logistics and Supply Chain Acquisitions Renewable Sourcing & Feedstock Food & Beverage Geographic Regions – Russia, CEE Growth in Profits <N5AA-F1> 10
    • Supply chain management Vertical integration is a key theme • This includes both backwards integration and How can we manage gaining greater downstream visibility our sourcing? • Examples of downstream visibility include: • additive suppliers taking a direct interest in the end-markets which use the formulated coatings or compounded plastics that contain their additives • BASF promoting the importance of its products through TV and newspaper adverts Strategic sourcing is another key aspect of supply chain management. • Frost & Sullivan has identified this as a key emerging theme across many industries How can we manage • Companies are taking a more strategic view of the way in which our products are used sourcing, for example by analysing other end- downstream? markets that use the same raw materials to gauge future availability <N5AA-F1> 11
    • Examples of Strategic Sourcing in the Chemical Industry DSM DSM Bayer Bayer Global sourcing department positioned to Global sourcing changes them from aagood Global sourcing changes them from good Global sourcing department positioned to fully leverage spend, resources, customer to aatop account for suppliers, customer to top account for suppliers, fully leverage spend, resources, capabilities and best practices leading to better service (deliveries are on leading to better service (deliveries are on capabilities and best practices time, problems resolved quickly) which in time, problems resolved quickly) which in Regional representation in Europe, Regional representation in Europe, turn leads to better service for Bayer’s turn leads to better service for Bayer’s America and Asia-Pacific, allowing DSM to America and Asia-Pacific, allowing DSM to customers customers utilize local knowledge to source effectively utilize local knowledge to source effectively Global procurement network allows Bayer Global procurement network allows Bayer DSM’s strategy is to ensure creation of DSM’s strategy is to ensure creation of to leverage spend and ideas, and to to leverage spend and ideas, and to maximum value as an integral part of the maximum value as an integral part of the identify new suppliers identify new suppliers business strategy business strategy Co-ordination of procurement efforts is Co-ordination of procurement efforts is vital to leverage larger volumes and vital to leverage larger volumes and improve logistics improve logistics Companies have pursued integration with strategic sourcing partners through mergers, acquisitions and joint ventures 12
    • Mergers and Acquisitions –The definite trend in the chemicals industry At the current challenging economic and financial environment low share prices of chemical companies can instigate hostile takeovers by competitors with available cash Private Equity firms are also involved in fund raising and strategic acquisition of chemical companies on a global basis Less risky approach to mergers and acquisitions is the bolt-on acquisitions that assist chemical companies to build product portfolios and expand their geographic reach Improvement of Market Position Chemical Company Merger Bolt-on Acquisition Large Scale Acquisition 13
    • M&A Deals by Segment In d u s tria l / S p e cia lty G a se s G as C o n stru ctio n M a te ria ls CM E la sto m e rs E la s F o o d s & B e ve ra g e s F&B O ilfie ld & M in in g C h e m ic a ls O&MC P a in t a n d C o a tin g A d d itive s P&CA T e xtile A d d itive s TA E n g in e e rin g P o lym e rs EP C ro p P ro te ctio n C h e m ica ls CPC P e rs o n a l C a re C h e m ica ls a n d H ou s e h o ld C h e m ic a ls PCC&HC W a te r tre a tm e n t C h e m ic a ls W TC A d h e sive s & S e a la n ts A&S P u lp & P a p e r P&P A g ricu ltu ra l C h e m ic a ls & F e rtilizers AC&F P la stic A d d itive s PA A P Is & In te rm e d ia te s API P a ck a g in g P a ck P a in ts & C o a tin g s P&C In k s & C o lo rs (E xce p tin g F o o d ) I& C C o m m o d ity P o lym e rs CP P ro te ctio n E q u ip m e n t M a te ria ls PFE P h a rm a ce u tic a l E xcip ie n ts PE F u e l A d d itive s FA H ig h P e rfo rm a n ce P o lym e rs HPP 300 2 8 3 28 8 C o n stru ctio n C h e m ica ls CC E le c tro n ic C h e m ica ls EC 253 B io fu e ls B io 2 40 250 C a ta lyst C at 218 R u b b e r C h e m ica ls RC 208 E le c trica l & E le ctro n ic M a te ria ls E&E 1 92 1 9 7 200 L u b rica n ts & G re a s e s L&G 172 173 176 151 156 Deals (x) 142 150 126 109 114 100 79 83 71 71 77 61 64 65 67 60 51 50 34 27 8 0 I&C PCC&HC O&MC API TA WTC CC EC RC CPC AC&F Bio L&G P&CA CM HPP E&E P&P Elas Pack PFE PE FA PA F&B EP A&S Cat Gas P&C CP S e g m e n ts <N5AA-F1> 14
    • Deals by Time period- Yearly Classification 600 35.2 40.0 564 550 30.0 500 489 20.0 469 468 Growth (%) 8.1 Deals (x) 450 10.0 399 4.3 400 0.0 (4.3) 349 (8.0) 347 346 350 (10.0) 321 (12.5) 300 (20.0) (26.1) 260 250 (29.3) (30.0) 2000 2001 2002 2003 2004 2005 2006 2007 2008 May 2009 Quarters Deals by Year Year over Year Growth <N5AA-F1> 15
    • Sustainable production This will remain a major theme for Materials companies • Most now provide detailed CSR reports, within which Sustainability is becoming increasingly important • Two key, and very different, aspects of sustainability: Thermoplastics Biopolymers Renewable raw materials Coating/adhesive resins Natural fibres Sustainable Production Energy efficiency Sustainable processes Cleaner & less hazardous processes Waste reduction / re-use of by-products Renewable raw materials... Sustainable processes... • Whereas thermoplastics with a renewable component are heavily • Some companies consider another marketed as such, renewable coating resins are seen as a very aspect of sustainable production to be traditional option (such as linseed oil) and are therefore not marketed in the theme of worker safety the same way. Should they be? • Safety as a global trend is considered • Further consideration should also be given to differentiate between as a distinct theme in this analysis renewable plastics that (a) offer new and unique chemistry e.g. lactic acid or PDO, and (b) replicate oil-based products e.g. "bio" PE and PP <N5AA-F1> 16
    • Green Chemicals - Biobased Sourcing is Alternative to Naphtha Stream Starch based polymers Polyhydroxyalkanoates CO2 1,3 Propanediol Wheat Ethanol ethylene Vinyl chloride 1,2 Propanediol maize C5 and Starch potato C6 Lactic Acid Acrylic acid Sugars Chiral compounds 3 HP Acrylic acid Sugar Poly lactic acid beet, PBS sugarcane Succinic THF acid 1,4 Butanediol Polyether polyols Sorbitol Glycols C5 Isoprene Polyisopropene Isosorbide polymer and Cellulose/ C6 Ethanol Ascorbic acid LignoCellulose Sugars Levullinic acid MeMbl Cellulose ethers, Cellulose esters and Viscose Fibres Acrolein Rapseed, Bio Diesel Current bulk productions Soyseed Vegetable Oil Allyl alcohol Glycerol Production on pilot scale 1,3 Propanediol Natural oil Polyols Research Scale (NOP) Epoxy resins Epichlorohydrin 1,2 propanediol Polyurethanes Source: Frost & Sullivan <N5AA-F1> 17
    • Focus on Emerging Markets Central and Eastern Europe China Growing acceptance of “Western” type lifestyle Manufacturing hub Increasing private healthcare expenditure Increasing competency in R&D and high- Russia, Poland, Czech Republic and Hungary present healthy value added products R&D opportunities Problems with quality control and corrupt officials Improved IP laws – attractive climate for chemicals companies Western Europe Mature market and USA increasing consolidation in Increasing consolidation in the chemicals industry the chemicals industry REACh legislative Japan More active involvement of framework divides the industry Innovative capability the federal agencies in the and well developed regulation of chemicals industry Middle East More active Geopolitical challenges involvement in the Western financial Vast supply of feedstock institutions Growing participation in Brazil the Western financial institutions and companies India Latin American hub for bioethanol and exports to neighboring nations Highly skilled labor and low costs – attractive market for partnerships Increasing focus in oil and gas exploration – restructure in the state petrochemicals Agrochemicals companies with global company presence Africa Growing affluent middle-class with Recognized potential for industrial growth Growing construction spending power Expansion of multinational companies industry Weak IP protection – a concern Agrochemicals companies with global presence <N5AA-F1> 18
    • Best Practices in the Uncertain Times Merquinsa Situation Merquinsa is a producer of thermoplastic polyurethanes and operates in a heavily competitive market dominated by BASF and Bayer. Action To differentiate itself in such a concentrated market, Merquinsa has focused on R&D and has developed the first-ever TPU from renewable resources to compete against conventional TPUs based on petroleum feedstock. Result This will help the company carve out its own niche in the market, and will also position itself firmly for future growth, as environmentally friendly products are the need of the hour in the materials industry. This will also enable to company to faster than the industry average growth rates. <N5AA-F1> 19
    • Best Practices in the Uncertain Times LyondellBasell Situation LyondellBasell is an example of a company facing the brunt of the current economic downturn, facing slackening demand for its polymers in many of its key end user segments Action The company is now restructuring its businesses, and filed for voluntary bankruptcy protection in the US in January, 2009 Nevertheless, LyondellBasell is also making changes to its operations in key end user segments. For example, it is now expanding its footprint worldwide in in the medical devices area, setting up a global team catering to this segment. This will enable it to supply its customers with local production units and also spread its regulatory know-how and resources across a wider geographic area. Through this globalisation, LyondellBasell is also generating synergies from the merger of Lyondell and Basell, merging the upstream capabilities of the latter with the immense industry experience of the latter. Result Through the effective integration of Lyondell and Basell, and the globalisation of its healthcare operations, LyondellBasell has created a strong value proposition for itself in the healthcare arena. Through these measures the company has ensured that it will emerge stronger out of the recession, when demand for its products picks up again. <N5AA-F1> 20
    • What Will Catalyze the Turnaround? Food & Beverage Ingredients • Growing interest and push towards Health & Wellness by consumers. Increased usage is indicative of many consumers becoming more health and wellness conscious: nearly 40% of US consumers feel consumption of functional foods and beverages is very important to maintaining a healthy lifestyle. • New product introductions. The number of new organic beverages free from chemical additives, preservatives and pesticides nearly tripled in the last couple of years. To meet this growing need, functional beverage manufacturers are adding new products on a regular basis. This is likely to continue in 2009. • Greater awareness of functional benefits of food ingredients on cognitive/brain, bone, cardiac, digestive health, and weight management. • Promotion of nutrients that are difficult to incorporate into a diet. Omega 3 fatty acids have received a great deal of attention due to their importance in brain development and heart health. More dietary supplements will be formulated with ingredients such as glucosamine and chondroitin for healthy joints targeted towards the aging population. <N5AA-F1> 21
    • What Will Catalyze the Turnaround? Food & Beverage Ingredients • Demand for alternative delivery formats of dietary supplements like fruit juices, yogurts, cereal bars and chewing gum among young and mid-age adults will further boost health & wellness sector growth. • Functional foods sales are forecast to increase by more than 40% from 2007-2012 driven by an increase in product availability and consumer usage. Cardiovascular health is the most popular functional food claim, yet products for the brain/nervous system and for the immune system are also emerging. • Functional beverage sales are forecast to rise approximately 30-35% during 2007-2012 as consumers seek additional nutrition sources to compensate for the lack of foods that address health-specific problems. <N5AA-F1> 22
    • PESTLE factors impact the Chemicals market environment regionally and globally 2007 2010 2020 Political Enlargement of EU stimulates Governmental and State interference improves the product quality in emerging markets pan-European trade Political coalitions among states and new political demands for trade liberalization could affect the chemicals supply chain Economical R&D investments in developing countries change the hot spots of chemicals innovation globally Slow-down and feared recession in US financial markets Reduction in subsidies for biofuels affects create a short-term domino effect to global markets the prices across the supply chain Social An increasingly aging European Changes in population regional synthesis impact on chemicals sales strategies population creates opportunities and challenges for the chemicals industry Emerge of the customer-supporter of chemicals companies based on their environmental performance and “green” product offering Technological Investment in research and development of Emerging markets increasingly become “green”-focused innovative recycling techniques Increasing replacement of traditional synthetic chemistry building blocks and products with organic and renewable alternatives Legal The REACH legislative framework increase its impact in the regulation of markets on a global basis Growing effort on global harmonisation Improvement on global protection of IP with the support of developing countries of legislation and standards Environmental EU targets on car emissions create opportunities for catalysts and novel lubricants Global carbon trading increasingly affect Standardisation of 2nd generation biofuels the business planning and operations of assists their market uptake chemicals companies globally 23
    • Chemical Trends Impact Major 2010 2015 2020 Trend Power Customers increasingly gain Support of companies which use 1 Customer-centric product development Customer access to chemicals information sustainable resources, recycle 2 Biorenewables Crops companies get involved more in the chemicals industry Self-sustained industry Reduction in subsidies Logistics Increases in oil and raw materials Chemical companies leverage Glocalisation – Global companies 3 Excellence prices drive massive logistics costs and share distribution expertise resource locally R&D of new and better recycling techniques 4 Recycling Quality problems arise Recycling an economic, not moral, decision Super-Chem Rise of Mega chemical companies 10 Super-giant chemical 5 Increased consolidation companies globally Companies in China, ME & Russia 6 Environmental Voluntary publishing of carbon footprints Sustainability audit of companies REACh Legislation for products and companies and trail accounting of products 7 F/B Chemical companies pursue One-stop shop for entire Agro companies become forward integrated Integration backwards integration supply chain 8 White Increasing investment and R&D First commercial plants successful Replacement of traditional synthetic Biotechnology into white biotechnology chemistry with organic alternatives 9 Internet Increased use of auction sites Companies in developing countries use it Auctions for commodity chemicals as an easy market entry point Chemicals “e-bay” 10 By-products Research into potential uses Increased utilisation of by-products Elimination of waste by 70% Management for waste and by-products as feedstock 24