What crucial trends are driving the industry?
The market for chemicals depends on the economic wellbeing of their customers. Since the crash of 2008 the mature markets of developed nations have been in recession and they have reduced spending. This has in turn hit the economies of Developing Countries who have seen their incomes fall. Even China and India are having to adjust to this new situation, while at the same time satisfying the aspirations of their people.
Human factors such as political uncertainties, armed conflicts, serious corruption and gross inequalities add to the uncertainties, making it difficult to predict how economies will develop in the future.
Demographics also affects purchasing habits. The global population is increasing but is expected to tail off within a few decades. The populations of the Developed Countries are static and aging, although recent levels of migration could reverse this trend. Populations in the Developing World are characterized by growing populations who, although are currently poor, are becoming wealthier. Their populations have a high proportion of youngsters requiring training and jobs. Another trend is urbanization as people move from the countryside into towns and cities. Chemicals have to meet the needs of these people.
The economic decline has resulted in a significant decrease in raw material prices. The halving of the cost of crude oil, also caused by the availability of fracked gas and oil from tar sands in North America, is radically altering the economics and location of petrochemical plants.
The influence the large number of humans and their technology have on our environment is becoming significant. Our pollution of the environment must be controlled and reduced. We must learn to live more sustainably to better use the resources we have been given and protect them for future generations.
What market segments will experience the most growth and why?
Materials and chemicals are vital if we are to maintain living our standards but much of the chemical industry operates in mature markets where the technology is well established. Profitability depends on being able to manufacture the products to a high standard, cheaply. Economics of scale and costs are particularly important with petrochemicals. Refineries are located in coastal, politically stable regions with good access to supplies of oil and gas. Many major oil companies are selling their commodity refineries to Asian producers or Finance Companies.
Governments are desperate for breakthroughs in the energy generation and transport sectors, to satisfy the demands of their green voters but the chances of technical breakthroughs do not match the size of the large subsidies they are providing. Opportunities for developing new technological are greater in electronics. The development of new types of sensors is an interesting area. The requirement will be for low volumes of expensive ultrapure chemicals.
The medical sector and pharmaceuticals is another sector where returns are potentially very high. But it is becoming more difficult to identify and develop new actives, so the costs are high. Pharmaceutical companies are looking at new ways of maximizing the chances of success, thus AstaZeneca and Sanofi’s recent agreement to share their library of compounds. Preventing infections is of great concern as microorganisms are building up resistance to many conventional antibiotics. It is an important sector that consumers will pay highly for – sales of disinfectants always increase dramatically during periodic health scares.
The use of biological catalysts (enzymes) to carry out chemical transformations has proved very successful, resulting in the launching of many new technologies and products. The issue is, has the sector exhausted new ideas or is there still scope for new developments?
The Defence Industries are again on the lookout for new materials with interesting properties to provide them with new defensive and offensive capabilities, especially in the light of recent Jihadist attacks.
In the Developed Countries, the consumer sector (Detergents, cleaners, personnel care, cosmetics, etc.) is mature but the total market size is very large. There is always scope for innovation in presentation, even if not in performance, especially if you have large advertising budgets. There is more scope for smaller producers in sectors such as personal care and cosmetics, where consumers are prepared to pay highly for biological “cosmeceuticals” that you can persuade consumers will make them look younger. In the Developing Countries the market will grow with their population growth and increasing wealth, provided they can maintain political stability.
One of the characteristics of the development of new technology is that it often results in the new and unexpected applications; chemistry is no exception.
What are the key challenges?
The ability to assess new technology developments and to decide whether they will provide new and innovative products. Certainly politicians have been very poor at picking winners. Look at their past enthusiasm and backing for supercritical fluids and nanotechnology, interesting technologies with their uses but not game changers. Will the same fate overtake their current enthusiasm for graphene? Governments are probably not the best agency to identify the potential for radical new technologies.
But the biggest threat to the development of the industry is regulation. It is vital that the industry operates in a responsible and safe way, so some regulation is essential. But European REACH Regulations, instituted to appease the green lobby, is not only absurdly expensive, requiring repeat testing of the same compounds, but will prevent new producers entering the market, which cynics argue is probably its objective anyway. It is also difficult to see how it will not discourage the development of new substances with novel effects. This has reached a peak with the current introduction of the EU Biocides Product Regulations, which defies rationality. Regulation has spawned a whole new sector of Regulatory Advisors, who guide companies through the minefield, without making any improvements to society.
Much of this Legislation has been introduced because of Consumer’s negative perception of the industry. Many people automatically think all “chemicals” are bad, unaware that everything, including themselves are made of chemicals. They feel “natural products” are more sustainable and safer than “synthetics”, which clearly is not always true. The long term solution is better education but in the meantime it will continue to have a major effect on the choice of products people buy. Thus the industry is looking to ways of sourcing chemicals from agricultural products or by biological processes. Some of these routes will be successful (e.g. Citric acid is now mainly made by fermentation as are the new platform bio-chemicals such as polyols) but many are unlikely to be viable. It is important not to be blinded by the concept of sustainability and assess ideas objectively. These processes are likely to be more successful close to the source of the raw materials, as their feedstocks are usually less concentrated than crude oil.
But by their nature scientists and engineers are expert at developing new ideas and solving problems, so they will take these issues in their stride.