4 Formidable Threats that Loom Over the Chemical Industry

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After an extended period of sluggishness, the chemical industry finally seems to gain some traction across several end-use verticals. However, the industry has to contend with major hurdles before it could reach a certain position.  Chemical makers have been encouraged by the recent surge in demand for chemicals in the construction and automotive industry.  Moreover, a number of chemical makers are also looking to ramp up investments in capacity expansion and take strategic growth measures.

There are few factors that cannot be ignored as they can make a precarious impact on the chemical industry.

Eurozone Unlikely to Recover Anytime Soon: Despite the recent resurgence of the European economy, the region is struggling to create any major scope of business for the chemical sector. By 2016-end, the Eurozone GDP rose to around 0.4%. But, uncertainties over new trade policies between Europe and the US under Donald Trump, Brexit’s implication on the region’s political and economic demography and repercussions of upcoming elections in some of the major European countries including France and Germany will test Europe’s credentials in forthcoming term. Moreover, a chronic financial crunch in several of the important economies is expected to pose challenges for the chemical industry in the region. Subsequently, dropping prices and weak investments remain as impends on the region’s chemical industry.

Fluctuation in Chinese Market: The second largest economy is the world — China, is also a key market for chemicals. Factors such as sluggish private investment, industrial overcapacity, growing corporate debt burden and stagnancy in export sector are currently plaguing the chemical industry in China. Last year, the country recorded nearly 6.7% GDP expansion, falling shy of matching up with previous annual GDP figures for the first time in 26 years. It is most likely that growth in China will continue to remain moderate over the next couple years. Besides, geopolitical uncertainties, rapid credit expansion, capital outflow pressures, and extreme dependency on stimulus measures are amongst additional risks that might hound the Chinese economy.

Price Barriers in Agrichemical & Fertilizer Space:  The agricultural and fertiliser companies still find themselves in a tough pricing environment. As such that potash prices are expected to drop further owing to augmented supply. Hence, the global potash market will continue to deteriorate due to overcapacity, which is compelling suppliers to weigh on prices. A similar trend has been observed in nitrogen pricing environment. Excessive supply of nitrogen attributed to the emergence of new production units is anticipated to influence bottom line pricing. In North America, there has been a significant rise in nitrogen capacity, which will further add to the pricing situation by 2018.

Energy Sector Remains an Unattractive Space: Dropping prices of crude oil is restricting any robust investment in the energy sector. This, in turn, is hampering the demand for various oil processing chemicals from this important end-use segment. In fact, chemical prices have been shrinking, since crude oil prices were reduced worldwide as both the sectors are essentially linked. Further, increasing fracking activities in the US, renewed concerns over crude oil production and a possible extension of crude oil production cut led by OPEC are factors that will play a key role in shaping the energy sector in near future.

About the Author

Nikhil Kaitwade

With over 8 years of experience in market research and consulting industry, Nikhil has worked on more than 250 research assignments pertaining to chemicals, materials and energy sector. He has worked directly with about 35 reputed companies as lead consultant for plant expansion, product positioning, capacity factor analysis, new market/segment exploration, export market opportunity evaluation and sourcing strategies.

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