The chemical industry in North America is experiencing a once-in-a-century renaissance. The growth rate of this large and diverse industry is often in line with the GDP growth rate, but in the next 5 to 10 years, the convergence of a series of factors is expected to accelerate the growth of the industry relative to the overall economy. By the end of this period, the United States—a country that accounts for more than 80% of the North American chemical market—will become a larger net exporter of chemicals than it is today.
The major rebalancing of supply and demand has promoted the good growth prospects of North American chemical production and created clear targets for investment:
On the supply side, driven by the shale gas boom, the availability of low-cost natural gas and natural gas liquids (ngl) is improving the basic economic conditions of US chemical production relative to the rest of the world. From 2010 to the beginning of 2015, the total capital investment announced in the United States for shale gas-related chemical production exceeded US$130 billion.
On the demand side, the chemical industry will benefit from the reindustrialization-encouraged energy and attractive productivity-adjusted cheap labor in the revitalization of the US manufacturing industry, and these increase domestic demand for chemicals as an input to other economic sectors, at least 100 Billion to 21 billion U.S. dollars.
All sectors of the industry will not benefit from this rebalancing. A few parts (such as commercial polymers) will enjoy benefits related to supply and demand. In other cases, the advantage will be mainly on the supply side (for example, bulk petrochemical products) or the demand side (for example, polyurethane). Some areas (such as pharmaceuticals) are unlikely to be affected.
The recent plunge in crude oil prices is unlikely to change these market dynamics, nor is it likely to eliminate the raw material advantage enjoyed by North American companies.
In the next 5 years, the revival of the industry will have a significant impact on the company's investment portfolio and industry structure. The company will reorganize its investment portfolio and conduct transactions, for example, to increase specialization, focus on core business, or expand its presence in the entire value chain.
In this era of opportunities, what is the difference between winners and other winners? In the next decade, the best performing chemical companies in North America will stand out because of their ability to anticipate challenges and prepare to capture value in the prospect of this recovery. In order to formulate the company’s agenda, executives need to consider a series of issues at the company level:
How will the surge in low-cost natural gas and liquefied natural gas supply affect our procurement economy? Do we know our medium-term requirements for raw material procurement? Have we considered the need for purposeful production of chemical building blocks and the potential advantages of developing related technologies?
What opportunities will the revival of the US manufacturing industry bring to our company? Are we ready to support the organic growth of the manufacturing industry or return to the United States? Have we evaluated the requirements for new investments in production capacity or sales and marketing capabilities?
The balance of supply and demand has the greatest impact on which of our products, and which ones have the least impact? If the high level of investment in North American production capacity leads to domestic oversupply, are we ready to enter the secondary market?
Have we determined our company’s ideal corporate portfolio structure? In the ever-changing environment, how do we restructure our portfolio to maximize the company’s valuation? When opportunities for acquisition or divestiture of business units arise, are we prepared To take bold action?
Is our innovation portfolio optimized to seize the opportunities presented by changing economic conditions? Does the product portfolio achieve the right balance of product innovation, process innovation, and alternative raw material technology?
How do our competitors adjust their strategies to respond to changing supply and demand dynamics?
What opportunities will foreign chemical companies and other investors seek in North America? How should we prepare for strategic responses?
In order to provide the background to answer these questions, this report delves into the industry's revitalization as a result of the balance of supply and demand, and its impact on corporate investment portfolios. It then turned to concrete actions that companies should be prepared to take to take a share of the industry’s strong growth.
