UK: Adapting To A Changing Landscape: Midyear Outlook For The Global Chemical Industry

Last Updated: 13 July 2009
Article by Deloitte Manufacturing Group

Most Read Contributor in UK, August 2017

The past year has been a defining one for the global chemical industry. The well-known struggles of the automotive and construction industries have translated into reduced demand, declining revenues, and diminishing profits for nearly every chemical company worldwide. Globally, production declined over 10% midway into 20091 resulting in companies being forced to rethink and adapt their strategies for the present as well as the future. To help better understand the forces moving the industry, Deloitte Touche Tohmatsu's (DTT) Global Manufacturing Industry Group turned to a global panel of chemical industry leaders, including Tim Hanley, Tom Marriott, Dr. Willem Vaessen, Kevin Gromley, Duane Dickson, Jim Manocchi, Dr. Barry Phillips, and Jim Guill, for perspectives on the state of the industry — and the difficult decisions companies in the sector must make in the short term that will determine who wins, who loses, and who survives in the future.

Q: How has the recession affected the global chemical industry?

Tim: The most obvious impact is the sudden and significant drop-off in demand from end user markets. Due to the chemical industry relying so heavily on the success and failures of the automotive and construction industry, it is unavoidable that the chemical industry is directly affected by the volatile state of those industries.

Barry: Tim, I agree that diminishing demand is a root cause of the many troubles global chemical companies are facing. Companies, especially those that are not managing cash well or are too highly leveraged, are taking drastic measures to quickly reduce costs. We are seeing plant closures, decrease in production units, and employee reductions to conserve cash.

Tom: Indeed, some companies are taking significant measures to survive, including divesting operations or filing for Chapter 11. Recently we have seen LyondellBasell, Tronox, and Chemtura file for bankruptcy, which is a direct result of a business condition characteristic of this recession2. There are, however, some subsectors in the chemical industry that have not been as impacted by the recession including agriculture and nutrition.

Kevin: It has been interesting from my perspective to experience the recession while living and working in China the past few years. The recession has been pervasive across the board in Asia with commodity producers affected more heavily. Export-oriented companies, especially those in Japan, have also been hit harder than those serving domestic markets, such as China and India.

Q: In your view, what is the biggest challenge ahead for chemical companies in this unprecedented environment?

Jim Manocchi: Companies are struggling with how to effectively plan for the future given current marketplace uncertainty. Executives are wondering, will this recession be 'V'-, 'U'-, or 'W'- shaped and how long will it last? Some companies can only develop 45–60 day forecasts at best to balance supply and demand.

Willem: I agree with Jim but see some companies using a flexible planning strategy to deal with demand uncertainty. It does, however, take a more experienced company to execute this type of plan and effectively synchronize production with market forecasts. Those companies that are struggling and have challenges forecasting future demand are experiencing substantial destocking. Once they start restocking, we are going to see a stop-and-go phenomenon as pickup in demand resumes.

Duane: Certainly more precise planning is going to be a differentiator, but experimenting with new business models that look at new customers and suppliers may be required to position companies for successfully managing in these challenging times. Most of the chemical company business models that I see are very capital intensive and asset-centric. By looking at multiple scenarios for the future, it will help chemical executives evaluate a variety of possible outcomes, consider the variables, and prepare a flexible and profitable response.

Tom: I can see both sides my colleagues have described and do agree that an overhaul in business model strategy will help executives develop a new perspective on their companies and define what is needed for revival. In my opinion, research and development (R&D) is an important driver for any chemical company because it paves the way for future revenue growth opportunities. Most of the chemical companies I follow are aware they need to invest in R&D but they are concerned about the short term and the need to conserve cash. Government stimulus money may be a source of funding for R&D programs in this environment where liquidity concerns are forcing companies to curtail R&D budgets.

Q: Some are saying that this recession will force major restructuring in the global chemical industry, including drastic measures. Do you agree? What might this look like?

Jim Manocchi: The chemical industry is at a turning point. After this downturn, the world is going to look very different for chemical companies. The weaker players are going to be acquired and it will be interesting to see by whom. Will it be by the big players or will the industry continue to be fragmented?

Duane: It is hard to predict. Over the next 18 months, I foresee many companies faced with the real danger of bankruptcy, which has the potential to change the face of the industry. Worldwide, I expect there will be fewer production facilities as they are going to be rationalized at an unprecedented pace.

Kevin: Although we may see fewer facilities, the geographic footprint of the industry will no doubt broaden, providing more global balance. Asia's importance to the industry will continue to increase, both from a demand and supply standpoint.

Jim Guill: This in an interesting scenario and we already see this happening within the petrochemical industry as more production migrates to the Middle East.

Q: What are chemical companies saying about demand coming out of the recession? Do they expect demand to return to pre-recessionary levels?

Jim Guill: There is still too much uncertainty within the chemical industry. Many executives do not believe that demand will return to pre-recession levels anytime soon. The possibility of a no or low growth scenario may trigger a situation where top line growth comes more from market share gains than a robust expanding market.

Jim Manocchi: To Jim's point, many of the executives that I talk to do not see the recovery bouncing back to the demand we saw a few years ago. They are anticipating that the location of demand will change, there will be a different mix of customers, and buying patterns will change significantly. These executives cannot predict what it will be like, but they have come to the conclusion that 2010—2012 will not look like 2007.

Tim: I agree that the recovery stage is going to be a slow and uncertain process, but we are starting to see signs of improvement from key indicators including the housing and automotive markets, durable goods, and even some of the recent labor statistics3. Additionally, we are starting to hear positive comments about the affects of the government stimulus packages on the manufacturing industry. Globally, governments have injected $3.6 trillion in total stimulus packages worldwide with $50 billion going to the ailing automotive industry4. Also, a good portion of the money in the U.S. and China is going to public service construction projects. It may take some time to make its way to the chemical industry, but we can anticipate the industry may benefit from the stimulus money.

Tom: As I mentioned earlier, government stimulus money is going to be a key factor helping companies to regain their momentum. Because of the large injection of stimulus in China and its indirect impact on the chemical industry, companies are also asking themselves if they should be placing even bigger bets on China and the Asia Pacific region.

Kevin: China is expecting a slow recovery with a few bounces. The Chinese economy is smaller than Japan's but its growth rate is higher. Asian executives believe that growth will start in China this year due first to $586 billion in stimulus funding spending and then to the return of consumer confidence5. It is not clear when the recovery will happen in Japan. With the recent elections in India, a new government may mean new stimulus spending.

Q: What indicators do you think will signal a recovery? Are there end-use markets or regions we should be watching?

Willem: European companies are trying to look for positive economic indicators, which may result from government incentives. In Germany, for example, the government is encouraging new car sales through a €2500 subsidiary to trade-in old cars for more efficient new models. They have waved road taxes, exempted vehicle taxes for cars purchased before June 30, 2009, and opened a €100 loan guarantee for German carmakers6. Although encouraging for the consumer, it does make it difficult to get good recovery signals from the chemical sector.

Tom: Adding onto Willem's comments, part of the challenge is going to be separating real economic growth from the effects of economic stimulus packages. I think it is going to be a gradual recovery with certain geographies recovering faster than others. The winners will be those with the best "sense and respond" models for understanding economic activity by geography and end user sectors.

Duane: In addition, other indicators to watch are volume and pricing trends, and new capacity announcements. As companies regain capital and anticipate a rebound in their stock prices, we will see a pickup in merger and acquisition activity.

Barry: As I see it, a significant indicator in recovery is the spending confidence of the consumer. Although still on a downward slope, it is not as steep, which is encouraging. In the U.S. we have seen some growth through new orders in the chemical industry in May7. This is again encouraging news!

Q: As we look toward recovery, what do you think will separate the winners from the losers?

Tim: Some companies are just too heavily leveraged or unable to refinance their debts. It is unfortunate, but many of these financially troubled companies will more than likely not survive. The companies that have taken the tough steps now to prepare for the other side of the recession will be better equipped to grow again. As a result, I expect to see many chemical companies engaged in consolidation transactions over the next two years.

Kevin: Adding on to Tim's point, not only will we see companies consolidating but moving quickly to open up new facilities in low-cost regions.

Jim Manocchi: From what I am seeing, the real winners are going to be those who are truly adaptable. The way companies manage during a downturn is not the way they would manage for growth. They cannot cost-cut their way to prosperity and need to continue to innovate to create new products, develop new value propositions, and tap into new markets.


1. American Chemistry Council, March and Provisional April 2009, Global Chemical Industry Production Index

2. Chemical & Engineering News, "Chemtura's Bankruptcy", March 23, 2009

3. Deloitte Services LP, Strategy Research & Innovation, "Weekly Economic Update", Week of June 8, 2009

4. Deloitte Touche Tohmatsu press release, "Deloitte says more is needed to revitalize ailing automotive industry", March 2009

5. Deloitte Touche Tohmatsu press release, "Deloitte says more is needed to revitalize ailing automotive industry", March 2009

6. Deloitte Touche Tohmatsu press release, "Deloitte says more is needed to revitalize ailing automotive industry", March 2009

7. The Institute for Supply Chain Management, May 2009 Manufacturing Report on Business

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.