Market Report Top 5 Trends in the U.S. Chemical Industry

An analysis of Deloitte

The recent report titled ‘2022 Chemical Industry Outlook’ by Deloitte highlights 5 key trends in the U.S. chemical industry. Right from adopting digital technologies to undertaking sustainability measures such as the implementation of e-crackers, advanced chemical recycling, green hydrogen, carbon capture and storage, the report elaborates on the current trends that are set to transform the industry like never before.

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2022 should see more industry players create goals and plans around abatement of emissions and monetization of waste.
2022 should see more industry players create goals and plans around abatement of emissions and monetization of waste.
(Source: ©Kalyakan - stock.adobe.com)

The US chemical industry has witnessed a strong recovery since the beginning of 2021, with demand increasing from the major end markets such as construction and health and safety. This was driven partly by a rebound in US GDP, which will likely grow between 6.0 % and 6.5 % during 2021 after declining by 3.5 % in 2020. During the first half of 2021, the industry experienced supply chain disruption caused by extreme weather events when significant chemical capacity along the US Gulf Coast went idle. With supply chain challenges easing, idled capacity should come back online and support inventory buildup. In fact, some commodity chemicals have already achieved pre-pandemic sales levels in Q3 2021 on a year-over-year basis.

One of the critical areas of focus for most US chemical companies in 2022 will likely be sustainability and decarbonization. Many chemical companies are expected to increase investment in research and development (R&D) capabilities and leverage advances in decarbonization and recycling technologies to lower their and their customers’ carbon footprint, as well as reduce plastic waste.

End-market growth

The US chemical industry is poised for a strong recovery in 2022 as economies reopen and restrictions are lifted, which should drive up plant utilization rates that were hit hard by the pandemic. US chemical volumes are expected to grow around 1.5 % in 2021 and 3.0 % in 2022, while shipments will likely increase by 8.0 % in 2021 and 2022, following a 13.5 % decline in 2020.

The report also suggests that three core end markets should be watched out for including construction, automotive, and health and safety. US chemical exports are also expected to grow significantly as major economies reopen and import demand in partner economies improves.

But one of the risks for this strong recovery is inflation. For example, Brent crude oil spot prices rebounded strongly and remained at an average of 74 dollars per barrel in September 2021. Those inflation figures provide further evidence that the supply of raw materials and labor is struggling to keep up with resurgent demand. Central banks in the United States and Europe expect supply bottlenecks and inflation to ease in 2022 once the global recovery finds firmer footing and government support programs are unwound.

Shifting demand

Chemical companies are entering 2022 after overcoming challenging market conditions in 2020 and 2021, with COVID-19 adding volatility to an already volatile decade. The pandemic led to divergent demand for plastics and specialty materials, testing the resilience of companies’ asset portfolios. The shifts in chemical spending partially reflect commodity price volatility, but are more driven by longer-term trends, including petrochemical expansion in the US Gulf Coast. 2022 will likely see similar price and demand volatility, and the chemical sector will need to adapt, particularly as the energy transition accelerates.

Chemical companies are likely to focus on repositioning their asset portfolios and balancing trade-offs between different strategic options with critical considerations, such as scale, the scope of products, and growth opportunities. Over the past two years, the industry’s financial performance had flat-to-declining return on capital. To overcome potential headwinds, companies should identify how they can strengthen their portfolios through mergers and acquisitions (M&A) and organic investment by balancing the trade-offs between scale, scope, and growth. As companies transform their asset portfolios, they should strengthen their existing products and services while expanding into new areas, whether that means new regions, end markets, or technologies. Companies that better leverage their existing competitive positioning, as well as opportunities to innovate, could grow sustainably through 2022 despite volatility and uncertainty.

Sustainability

In 2022, the chemical industry will likely have a sharper focus on decarbonization strategies due to increased attention from stakeholders, regulatory change, and technology innovation. The chemical industry is responding with its commitments to decarbonization, recycling, and resource recovery. Specifically, industry players may show a heightened focus on new and innovative technologies such as carbon capture and utilization (CCU), for which pending government proposals could allocate additional funding and focus. In addition, companies continue to advance work on steam cracker electrification, advanced and chemical recycling, green hydrogen, and carbon capture and storage (CCS).

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In a recent Deloitte survey, 90 % of chemical industry respondents said they will focus on improving resource and energy efficiency in the production of chemicals and materials to drive decarbonization and sustainability in 2022. These developments will likely help grow renewables, improve energy efficiency, reduce emissions, and create new markets for carbon and other byproducts as part of an increasingly circular economy. While many chemical companies have publicly declared their intention to become carbon-neutral by 2050, the challenge lies in the immediate future. Often, companies may need more clarity on the material impacts that their stated goals will have on their operations, markets, and business valuation.

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