The key challenges and opportunities for the US specialist chemicals sector

The research briefing regarding the client’s question: What are the key challenges and opportunities for the US specialist chemicals sector?

INSIGHTS

-There are serious challenges ahead for the US specialty chemicals sector such as the decline in fracking industry, increasing importance of emerging markets players and decline in availability of qualified workforce.

-Rising car sales, packaging industry needs and digital transformation are all areas with plenty of opportunities for growth for the US specialty chemicals sector.

-The growth of chemicals industry in the developing markets will be in range from 6 to 10 percent, while in the developed economies, growth is likely to be in the range of 2 to 3 percent.

FINDINGS

Hello! Thanks for your question on what are the key challenges and opportunities for the US specialty chemicals sector.

OVERVIEW

The short version is that there are serious challenges ahead such as the decline in the fracking industry, increasing importance of emerging markets players and decline in availability of qualified workforce. On the other hand, rising car sales, packaging industry needs and digital transformation are all areas with plenty of opportunities for growth. Below you will find a deep dive of my research / findings along with all the details for how I came to this answer.  

CHALLENGES

The fracking industry in the USA is in decline due to the falling oil prices. The effect of this trend on the US specialty chemicals sector is obvious since fracking requires chemicals to "extract hydrocarbons from underground wells". Experts such as Colin Frayne from the advisory company Aquassurance noted that there has been a significant decrease in "demand for fracking water treatment chemicals". Although the price of oil has been rising in recent weeks, fracking companies' break even point starts at prices between USD 60 and USD 100 "depending on site structure". Having in mind the volatility of oil prices and the geopolitical events currently at play, it is impossible to predict movements of oil prices and with that in mind, the level of demand for specialty chemicals from the fracking industry remains uncertain. 

On a global scale, analysts from IHS market research agency claim that "the specialty chemicals business is in transition".  The period of domination by companies from the USA, Western Europe and Japan is ending and the global chemical industry is increasingly positioning itself closer to the Middle East and Asia. The reason for this is clear. Low oil prices and related petrochemical products are available in abundance and combined with trade liberalization, fall of economic barriers and spread of technology, North American, European and Japanese "specialty chemical producers look to developing regions for growth". Increased competition and maturing markets therefore make an innovation the strongest source of competitive advantage, IHS's analysts concluded. 

PwC's report claims that the growth of the chemicals industry in the developing markets will be in range from 6 to 10 percent, while in developed economies, growth is likely to be in the range of 2 to 3 percent. 

KPMG reported that chemical companies will face a challenge in sourcing qualified employees with "science, technology, engineering and mathematics (STEM) degrees". Limited talent supply will be a serious challenge for research and development projects and in combination with aging workforce will require an urgent attention and solution by chemical companies.

OPPORTUNITIES

When it comes to opportunities for the US specialty chemicals sector, the American Chemistry Council is confident and expects production to rise 3.9% globally in 2016 after a 3.8% increase in 2015. One of the key factors behind this forecast is the effect of low oil prices. Car sales are booming and as a result, there is a greater demand for specialty chemicals, points out Ray K. Will, a director at market research firm IHS Chemical. This also implies the growing demand for mobile air-conditioning refrigerants, plastic additives, and specialty lubricants, Will claims.

Phil Phillips, president of Chemark Consulting, added that demand for "high-performance structural adhesives is growing by some 5.5% annually". Specialty products such as urethanes, silicones and cyanoacrylates will also be in high demand because of improving housing and electronic markets, he says. 

Al Beninati, president of Grace Catalysts Technologies added that polyolefin catalyst will also experience surge in demand in the US because of low feedstock prices, and that the most significant driver in demand will be "need for packaging materials in emerging markets". 

In addition to this, the chemical companies will need to embrace the developments in digital technology. Serious investments are needed in automation and information technology, and PwC's report noted that additional value can be created by "realizing the metamorphic potential of the digital revolution that has only just begun". 

SUMMARY

The US specialty chemicals sector is linked with events and trends of a global nature. There are challenges ahead such as decline in the fracking industry, the rise of emerging economies and need to find qualified employees. But overall, the industry will experience growth and if technological changes are properly utilized and the opportunities in emerging markets used, the US specialty chemicals companies should be on the path to continued growth. 

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The research brief was originally published in 2017 on the Wonder’s website.