Location has been the key to success in petrochemicals: playing in emerging markets and accessing cheap feedstock. As the industry shifts, companies will have to work harder on core capabilities and strategy, a study published by McKinsey reveals.
New York/USA — Over the past few years petrochemical companies have been reporting record profits. Nevertheless, the industry is in a period of profound transition. McKinsey reports that until the fall in oil prices, success in the industry had been based on stark regional asymmetries. Companies in fast-growing emerging markets such as China have thrived. So have companies in regions — in particular the Middle East and North America — with advantaged gas feedstock that they have made into petrochemicals and plastics and then exported to China and other growth markets.
The study is taking a look ahead to 2030, when slower demand growth in emerging economies and less abundant advantaged feedstocks are likely to undermine these value-creation strategies. Companies will likely have to take a more disciplined approach to capacity additions, returns may be more modest, and all petrochemical players will need to work much harder on core capabilities and strategy.
Future strategies will include using digital and advanced analytics to reach a new level of productivity, and attaining higher capital productivity on the industry’s large-scale projects. Companies must also work on reinventing the interface with oil refining as the gas-driven era winds down. At the same time, they will need to manage the transition from an essentially linear economy, where plastics-based products get used once before disposal, to a circular economy.
Read the full study: Petreochemicals 2030