Thriving in the External Environment

How specialty chemicals companies and their customers innovate, collaborate, and operate does not change overnight. To develop the required know-how, relationships, and infrastructure in a timely manner, Clariant carefully tracks relevant external drivers, from current economic developments to megatrends with long-term impact.

1. Current regional trends shape the opportunity space

Regional developments relevant for the specialty chemicals sector, and for Clariant in particular, include:

  • Renewed investment interest in the European chemical industry for the first time in over a decade. As an importer of most base chemical products, Europe has an opportunity to increasingly meet demand with local production, and reduce reliance on imports to only key inputs, such as feedstock from the United States. In addition, by maintaining the competitiveness of the base chemical industry, the raw materials required for specialty chemical production will continue to be available locally.
  • An overall shift in China from export-related growth to growth based on local consumption. This would lead to slower, more sustainable growth but could also reduce the import demand for certain chemicals. Chinese companies aim to move into higher-specification products.
  • Conflicting trends in the investment climate for the chemical industry in North America. High availability of feedstock in the US makes chemical investments potentially attractive, while changes to trade policy entail higher risks for future investments as North America is an exporter of many base chemicals and polymers.
  • Growth in local currency rather than product volume in Latin America due to depreciating currencies. The current outlook indicates increased volume growth at potentially more stable currencies, with more optimism in Brazil than there has been in the last several years. The business environment is improving.

2. Innovative, sustainable solutions and trusted relationships are needed

Beyond these regional developments, a number of overarching trends are currently emerging. For example, demand for oil-based fuels is forecast to decrease globally in the longer term. This is motivating oil and refining companies to increasingly enter the chemicals business, where growth is still healthy. Regarding trends in market needs, customers are seeking innovative specialty products for differentiated, high-performance applications to avoid commoditization. In addition, customers are expecting shorter lead times from suppliers such as Clariant as they strive to become more agile, making digitalization an essential topic. Lastly, large customers are setting goals for supply chain sustainability that Clariant must meet as a supplier.

Concerning revenue developments, global Clariant sales were supported in 2018 by strong end-market growth during most of the year. Revenue growth in the oil, basic chemical, and refinery areas led to a continued recovery in the Catalysis and Natural Resources following a dip in 2016. Growing revenues in the specialty chemical, healthcare, and agrochemical markets and steady growth in surfactants supported Care Chemicals’ growth. Slower, but still positive, growth was experienced in the Plastics & Coatings end markets.

With regard to cost, after rising approximately 7% in 2018 partly due to increasing commodity and oil prices, overall raw materials costs are expected to rise in the range of 2.5 to 4% in 2019. Mitigating this will require collaborations with partners based on mutual appreciation, understanding, and cooperation. Clariant recognizes that trusted relationships with suppliers increase access to competitively priced raw materials, while proximity to customers supports value-based pricing by quantifying product and service benefits that allow customers to enhance their own offerings.

3. Long-term megatrends impact innovation and market perspectives

Megatrends, whose impacts will be felt beyond Clariant’s strategic planning horizon, are relevant for the company’s innovation programs and future- oriented marketing and business development. Considered megatrends are:

  • Future of Oil
  • Future of Plastics
  • Future of Transportation
  • Circular Economy

Concerning the Future of Oil, peak oil – the maximum petroleum extraction rate that will be achieved before decline begins – is forecast to occur in the 2030s. Over the next three years, forecasts project the oil price around USD 70 – 80/barrel (bbl), which is likely to motivate continued investment in shale oil in the US and in deep-water projects in Brazil – markets where Clariant has a strong presence – to meet demand growth while other sources mature.

With regard to the Future of Plastic, current demand for plastic products is expected to grow, especially in developing economies. In the longer term, however, growth may be slower than previously predicted due to plastic-saving product redesign and increased recycling. Both of these trends could create innovation opportunities for Clariant, as could the emerging need for substitutions between plastic types in order to reduce environmental impact.

Concerning the Future of Transportation, major shifts in automotive markets are expected over the next 15 years regarding powertrains, vehicle use, and design. Although Clariant currently has limited exposure to the automotive market, announced changes in the Clariant portfolio make Clariant well placed to benefit from the trends in this transition.

Finally, with regard to the Circular Economy, 130 trends that could impact parts of Clariant’s portfolio were assessed. While there is a business risk of decreasing demand growth from factors such as design for longer product life for consumer durables, this also presents opportunities to sell value-added products. The opportunities identified largely compensate for areas of potential risk to Clariant’s business. Furthermore, the risk can be further mitigated by innovating and investing in the most promising opportunities.