The return of the chemical industry to the champion's podium
Since the beginning of 2018, chemicals have been lagging behind in global capital markets. The industry needs a new set of value drivers to win back investor interest.
Since our last report in early 2018, uncertainties in the global economic outlook, geopolitical tensions affecting trade and the end of the global economic expansion cycle have all put pressure on the performance of the chemical industry in the capital markets. But there are also worrying signs that the drivers of the industry's strong performance in capital markets have begun to work so far this century. If so, the chemical industry will face a new round of challenges to attract investors' interest.
From its first position in the value chain
The global chemical industry is no stranger to the setback in capital market performance. After the collapse of oil prices in 2014, it experienced the last wave of setbacks and turbulence in 2015-16. This has raised concerns that the narrowing of the price gap between LPG and gas-liquid may depress the profit prospects of the bulk commodity petrochemical enterprises, which are also exacerbated by concerns about weak global economic growth. But the industry as a whole - not just the petrochemical industry - has been able to put this issue behind us, and the positive drivers of industry performance have come into play again. In 2016 and 2017, the total shareholder return (TSR) performance of the chemical industry rebounded strongly, with a compound annual growth rate of 24%, reaching an absolute peak in January 2018.
However, the TSR performance of the chemical industry has declined significantly since the beginning of 2018. From December 2017 to June 2019, the compound annual growth rate of TSR performance decreased by 10%. This marks a sudden change in the mood of the investment community. In the three years before 2017, the investment community enthusiastically supported diversified industries, especially some diversified large enterprise groups are taking measures to concentrate their business.
Bulk chemical companies were also affected, with a 7% decline in CAGR from December 2017 to June 2019. This is mainly due to the fact that investors have been pricing petrochemical companies with high profits. The current income (because of the general comfortable supply and demand situation in many petrochemical products and plastics) has become more and more cautious in the future. A new wave of capacity is built on the Gulf coast of the United States, in China, in the Middle East, and even in Western Europe. These plants will be put into operation in the next two to three years, which may reduce utilization and hence profitability.
The professional field maintained a positive trend, with a 3% CAGR, but far lower than the 18% CAGR in 2016-17. Moreover, this trend is not enough to keep the chemical industry in a positive position: the industry as a whole is down 3%.
