The chemicals industry has deep roots. It’s an old, established industry epitomised by some of the biggest companies in the world. In recent years, chemicals news has been dominated by multibillion dollar megadeals like ChemChina’s acquisition of Syngenta and creating new behemoths like DowDuPont.
But today, in 2019, the world has changed and the business landscape presented to chemicals companies is vastly different to the one that existed even 10 years ago. And, as a result, companies can no longer sleep soundly whilst being stuck in the traditional methods of doing business.
There hasn’t been much optimism surrounding the sector in recent years amidst reports of falling production, an ailing oil and gas sector and negative public attitudes to companies that are seen as less environmentally friendly.
Given the rise of alternative energy, bio-based materials and more advanced production methods, it’s likely that we are going to see a dramatic increase in innovation which the chemicals industry will need to compete with. On the contrary, innovation in Chemicals is being stifled by the rising product registration costs and regional regulations, so it's a balancing act to maintain margins.
Every other industry is in a state of flux because of technological advances, and it’s time for the chemical industry to follow suit. Chemicals companies today are starting to adopt a digital mindset -thinking of technology not just as a luxury to be added onto their current product offering, instead integrating sophisticated technology and digitization as a central part of their product offering.
It’s not just a case of automating order forms or having chatbots on websites either. Technology like quantum computing can be used in R&D, running simulations to enable companies to make breakthroughs faster than ever before, creating new and exciting developments. Also in production, advances in machining are significant.
But it’s going to be hard for companies the size of DowDuPont, for example, to simply digitize. This means that, for the time being, we might see smaller or mid-sized competitors who are more nimble start to catch up with the old guard. Those who can adopt technological solutions to R&D, production and service delivery can creep up on the competition.
Similarly, customers may well start to value specialist knowledge in niche areas as being more important than overall company size, number of offices or turnover. This could see some of the bigger players like those I’ve already mentioned start to shed some of their non-core business units, which can then be snapped up by smaller competition who are looking to strengthen.
Technological innovation and digitization could democratise the landscape, meaning that companies are going to have to rethink their strategies in order to keep winning business. In a difficult landscape, the gargantuan bureaucratic machines of the multi-billion MNCs just won’t be able to compete. As long as he’s armed with the latest slingshot technology, in the short-term David could become the favourite in one-on-one battles with Goliath whilst he waits to catch up.
Sustainability is Key
Companies are waking up to the idea that profitability is key – more so than volume – and that the way to do this may be to increase efficiency. But another thing that chemicals companies are waking up to is the way in which they produce their products and the raw materials used have to change. For example, replacing Titanium Dioxide with OBAs, Talc or other less harmful chemicals, and the switch to waterborne resins in Coatings, Adhesives and Sealants markets.
Sustainability used to just be a buzzword in every industry, but now it’s a serious proposition and 2019 is going to be the year that chemicals companies wake up to this and start putting more emphasis than ever on sustainability. Alongside this, tightened restrictions like REACH in Europe will force a move to more sustainable products. The world is becoming a circular economy and, as an industry that is so fundamentally important to virtually every other industry, the chemicals sector has a big part to play in that.
Again, we may see smaller companies who have just started with sustainability at the heart of their business gain ground on the majors as customers under pressure from those further down the value chain and forced to comply with regulation, start to demand more sustainable solutions. Sustainable solutions like bioplastics are becoming cheaper to produce all the time and as the start point for a lot of these industries, many customers want to see chemicals companies using renewable feedstocks and oleochemicals in their production processes.
An Exciting Future
It felt as though after a period of stagnation the chemical industry was - to an extent - resetting itself in 2018 and coming around from its slumber. The wool slowly slipped from its eyes and many leading consultancies believe that 2019 will be the year that the sector wakes up, leading to a more competitive landscape of specialist companies than ever, exciting technological advances and sustainable solutions to environmental problems.
Whilst they may take slightly longer to be right at the cutting edge of all things innovation, it’s a matter of time before the still-drowsy chemical giants come round and, at that point, the race is really on and we may see an unprecedented injection of technology into what is traditionally seen as an entrenched and relatively old-fashioned market.
The increased pressure for Regulatory compliance, tightening import/export rules and tariffs and the unpredictable political landscape will cause short term issues but will also drive change, innovation and a move towards a more sustainable chemicals industry.
Originally published in November 2018, we've updated this list of the most environmentally conscious companies in the chemicals space.