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``The industry may finally be approaching a tipping point of more profitability`` - Pwc Strategy& published the chemical industry trends 2018-19 study

Posted on 25-01-2019  by GBC 

Source: Pwc Strategy&

Strategy&’s annual collection of industry perspectives addresses the major trends and challenges to help companies assess the risks and opportunities. Industry trends for the chemical industry in 2018-19 published on the company website suggests that “the industry may finally be approaching a tipping point of more profitability”.

When one examines this shift in the chemicals industry landscape and how chemicals companies can best profit from it, three interconnected strategic imperatives stand out.

Realize value from M&A

For the past few years, mergers and acquisitions have been a hallmark of chemicals companies’ growth strategies. Garnering the most publicity are megadeals in which tens of billions of dollars exchange hands among brand-name companies such as Linde–Praxair, Dow–DuPont, Syngenta–ChemChina, and Monsanto–Bayer. These major transactions — some of which have not yet closed — may represent the last of the big M&A opportunities in the chemicals industry. With these deals completed or well under way, companies have been compelled to undertake smaller acquisitions and divestments that target specific portfolio shortcomings and deliver tangible results in the short- and mid-term. We expect the next wave of M&A in the chemicals industry will involve midsized companies buying some of the non-core assets of the new megacompanies.

Almost by definition, smaller deals need to be more strategic and focused, because the chances for substantive savings — generally from staff, overhead, R&D, and product development — are less pronounced. That means that companies must justify their M&A activities and, importantly, the premiums they pay through flawless integration management to ensure top- and bottom-line synergy, which includes paring product portfolios to serve only profitable markets for which the combined companies are best suited. If there are efficiencies to be gained (and operating costs to be saved from them), they will emerge from the reductions in the product line and shared resources earmarked for products that deliver the more consistent returns on investment.

Solve the digital dilemma

This is a critical shift for chemicals companies, a way to stem what feels like congenital profit declines in once-promising product areas that are commoditizing quickly. In our analysis of a hypothetical chemicals company whose revenue from existing products is falling sharply — more than 50 percent — a digitization strategy would not only make up for lost revenue but also drive more than 10 percent sales growth.

Confront the challenge of “deglobalization”

Choices will have to be made about the markets in which to participate. Smart companies will find that new geographic footprints may offer unexpected opportunities, especially as developing countries begin to take control of industrial growth within their borders, singling out certain sectors and companies for most-favored status. For instance, Saudi Arabia’s well-known economic growth program, called Vision 2030, includes among its many goals expanding the revitalization of the country’s chemicals sector. Emphasized in this effort are downstream applications such as water management, which covers desalination, filtering, and water treatment. With an abundance of petrochemical feedstock and significant financing streams available through the industrial investment agency Dussur, Saudi Arabia could be a lucrative market for chemicals companies that have the capabilities to provide added value in a local, decentralized framework.

In considering opportunities like these, chemicals companies will likely need to beef up regional R&D centers because they will be pivotal in future chemicals design and development. Putting resources aside to invest in these facilities is essential, as is a strategy for staffing these more autonomous R&D centers, especially if global movement of labor is impeded.

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