No new normal in chemicals

Looking back on the first quarter of 2022, there’s one thing we can say for sure: The more things change, the more they keep changing. We‘re shifting to a new normal of “no normal,” where business and global events pose the existence of ongoing uncertainties and increasingly more profound transformations impacting supply chains, markets, and customers.

Some of this change is occurring along trajectories that have long been recognized. Climate change continues to increase in severity, driving uncertainty about markets, demand, raw material availability, and weather-related events impacting chemical facilities, supply chains, and ports. In general, ESG remains a key consideration for deal activity as companies look to minimize their carbon footprints, improve circularity, and enhance their environmental stewardship. Buyers are also recognizing the business value of ESG agendas that focus on social responsibilities to community stakeholders and the importance of recruiting and retaining a diverse, inclusive workforce.

Other ongoing changes in the chemical industry include digitization and the increasing use of data to gain greater
visibility into deal financials, estimate potential deal value outcomes, and guide successful integrations of dissimilar businesses. At the same time, cybersecurity risks are steadily increasing as companies engage in a global “arms race” against bad actors intent on data theft, extortion, and disruption. Companies continue to fine-tune their reshoring and localization strategies depending on current business conditions and future objectives. Many organizations are expanding their investments in product innovation and new ways to boost manufacturing efficiency, reduce waste, and improve logistics. Remote working, the hybrid workplace, and more flexible working hours are becoming a permanent part of a rapidly evolving business world.

Beyond these known trends, the first quarter witnessed unanticipated events and developments. The Russian invasion of Ukraine prompted harsh economic sanctions, supply chain disruptions, and significant volatility in the petroleum and downstream markets. Global investors and target companies are keeping a close eye on geopolitical developments and how they might impact deal value, especially for global industries such as chemicals. Many countries in Europe have long depended on Russian oil and gas for energy as well as chemical feedstocks. In addition, Russia is the seventh-largest exporter of chemical products ($6.5 billion) to the European Union (EU), and it is the sixth-largest importer of chemical products ($10 billion) from the EU.¹

Along with war in Eastern Europe, the recent COVID-19 lockdowns in parts of China also came as a surprise. For the chemicals industry, the Chinese government’s rigorous enforcement of a zero-tolerance stay-at-home policy has—temporarily at least—reduced domestic demand, lowered production levels, and reduced international trade of chemicals, chemicals-based products, and raw materials. For some foreign investors, the outbreak itself may be less unnerving than the unpredictability of government measures.²

In the face of these uncertainties, chemical companies and investors can take a proactive approach in developing a portfolio designed to reduce risk and improve resilience. For example, Huntsman has announced the strategic review of their textile chemicals business based in Singapore including a possible sale, helping them to focus on a long-term strategy of “value over volume” and a fully deleveraged balance sheet.³