COVID-19, Design & Technology August 05, 2020
Digital Considerations for the Chemicals Industry
The COVID-19 pandemic has thrown the global economy into a state of flux, impacting industry across all sectors. The chemicals industry has seen stock prices plummet, severe shocks in demand across end-markets and major disruption to global supply chains.
While governments are launching budget packages to boost the economy, a quick recovery is still unlikely and long term ambitions such as hitting sustainable development goals, are at risk. Industry analysts have identified key changes facing the chemicals sector:
- Accelerated oversupply and imbalances from supply disruptions and demand shock.
- New competitive world order due to oil price collapse
- Accelerated deglobalisation of supply chains.
- Bold restructuring requirements as new winners and losers emerge.
- Boost for consolidation in what was a stagnated market.
- Catalyst for innovation and acceleration of digital-enabled business models.
- Investment in green technology.
As the landscape shifts with these changes, there will be clear winners and losers. The companies who will thrive, will be the ones who invest in creating long term solutions to the challenges, while optimising the opportunities with agile business models.
As seen in other manufacturing sectors, rather than halting all progress, the crisis has expedited previous trends, especially when it comes to digital transformation. Each one of the above changes can be helped by investment in digital solutions, many of which will have already been on your company’s long term roadmap. With the pressure on to streamline operations, reduce costs and maximise revenue, digitising operations is an imperative.
It’s not an even playing field
There are two extremes at play in the sector, with very few covering the middle ground; either you’re doing okay, or your business has been severely impacted. There’s a combination of factors that dictate how you’re faring. Firstly, stock prices. These have been falling since the start of the year, and survival now depends on your company’s level of exposure to both the impact of COVID-19 and the oil price crash, teamed with your pre-pandemic financial strength.
The imbalance of demand in the chemicals sector is notable. Automotive, transport and consumer products have been the hardest hit end markets, with chemicals demand dropping by 30%, resulting in an oversupply situation. On the other hand, demand for pharmaceuticals, food additives and disinfectants has peaked, with record volumes being reported.
For those exposed to the price of oil, the biggest drop in oil price in thirty years has caused a shift in feedstock prices and competitive order, with the US and Middle East being most negatively impacted. European manufacturers benefit from lower chemicals feedstock prices and from more specialty chemicals products, which are less exposed to the price of oil, so you may not have been hit as notably.
The cash rich will be able to seize opportunities, while weaker companies with impacted portfolios may not survive in their current form. Although one camp is clearly more beneficial than the other, both come with challenges. This may well be a boon for acquisitive businesses, and we’ll likely see the M&A market pick- up. Selective acquisitions could accelerate growth, help to expand your portfolio and achieve more competitive cost structures. If you’re acquisitive, do you have an efficient and cost-effective process for systems integration? If you plan to consolidate, do you have a digital ecosystem that is scalable to account for potential new markets, products, languages and regulations?
For those hardest hit, how do you mitigate risk by making operational cost savings or, indeed, open up new revenue streams? Once the market picks up, is your business prepared for the new, digital way of doing business? And, indeed, for those whose business is buoyant, are your internal systems and processes coping with the additional strain? Are you maintaining high service levels for your customers? Is your data available, in real time, to help you make decisions?