BY SHARON TODD, SCI'S CEO | 10 APRIL 2024
Globally, the chemicals sector continues to grapple with high energy prices, high interest rates and a weak economic outlook. Add to that the continuing conflict in Ukraine and the Middle East. Meanwhile, 2024 is not just an election year, but the election year, with 64 countries and the EU headed to the polls.
So how is 2024 shaping up for you? Understandably, many of us in the chemicals sector may find this question challenging. Although geographically the picture is mixed, finding a safe harbour from low growth prospects is tough. In the US, the Inflation Reduction Act (IRA) and the CHIPS and Science Act are credited with boosting business investment and ensuring a soft landing for the US economy. Nevertheless, sluggish consumer spending and industry-wide destocking resulted in a fall in chemical output of 1% in 2023 compared with 2022, and the forecast in 2024 is for a year on year increase of just 1.5%. The consensus is the US will outperform Europe, but the advantage is perhaps looking thinner than before.
China, where the chemical sector grew in 2024, is focused on domestic growth. However, Chinese overcapacity is proving an issue – particularly in the EU which is itself recovering slowly from recession. The Middle East benefits from lower production costs, but the 64% drop in 2023 versus 2022 profits reported by petrochemicals major SABIC illustrates that no region escaped 2023 intact.
Large diversified and commodity chemical companies have been worst hit. While high end and speciality firms have been hit by volume declines, they have continued to deliver strong profits. Business leaders across the board now face some critical decisions. Global supply chain shocks and threats of regional trade conflict require the reshaping of supply chains, with onshoring and near-shoring favoured. Investments must also be made in data – Deloitte’s 2024 Chemical Industry Outlook notes: ‘data is becoming an important feedstock for chemicals excellence’.
To tackle these issues, companies need a stable political, regulatory and tax environment. Yet elections in 2024 could deliver further change and disruption. The Economist has labelled the potential return to power of Donald Trump as the ‘biggest danger to the world in 2024’. His hands off attitude to government intervention would raise doubts about the future of the legislative framework that has encouraged a migration to new and cleaner technologies. If the IRA is scrapped, will a shaky US recovery stall?
In Europe, where elections will be held in May, there are calls to bolster 2020’s Green Deal – a €1.8 trillion post-pandemic stimulus package and series of policies designed to set the EU on track to being climate neutral by 2050. In February 2024, business leaders from 73 companies, meeting at a BASF site in Belgium, signed the Antwerp Declaration expressing ‘full support for a European Industrial Deal to complement the Green Deal’ and outlining a 10 point plan to streamline legislation, foster innovation and turn Europe into a global leader in clean, affordable energy production.
In the UK, SCI continues to make the case for an Industrial Science & Innovation Strategy, promoting the levers to stimulate and accelerate scaling of new technologies, whether from start ups or large corporates. A new deal between the UK and US on science has also been signed.
All this against a backdrop of increasing demands for sustainability. Some commentators think activist investors are tiring of clean technologies investments, putting pressure on boards to redirect investments elsewhere or return cash to shareholders. The fact is many technologies do not yield sufficient returns on investment and ultimately businesses need to be sustainable.
The debate on decarbonisation rages on. ‘The world should abandon the fantasy of phasing out oil and gas,’ Aramco’s CEO Amin Nasser told the March 2024 CERAWeek conference in Houston, TX. ‘Despite the world investing more than $9.5 trillion on energy transition over the past two decades, alternatives have been unable to displace hydrocarbons at scale.’
These comments were met with dismay by climate campaigners who contend that the transformation to Clean Technology cannot be ignored, especially in times of economic uncertainty.
So, how is your 2024 shaping up? The World Meteorological Organization has recently confirmed 2023 was the hottest year on record. Now is the time for the broader industry to come together and agree collective and collaborative action. There are no easy or quick solutions, but together we can transform our businesses, grow sustainably and deliver a brighter future for our planet.
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