IHS Chemical Week


Consultant Report: Industry Set to Reset?

3:34 PM MDT | July 9, 2009 | By VINCENT VALK

Deloitte, the consulting major, recently released its mid-year outlook for the chemical industry. Here are some interesting takeaways, along with some other thoughts:

Consolidation, which the report says will be a "major trend," came up several times in the reprinted discussion among industry experts. It will be driven by an overall demand reset and the sale of highly leveraged players, says Deloitte's Tim Hanley.

Forecasting is still a problem – "Companies are struggling with how to effectively plan for the future given current marketplace uncertainty," says Deloitte's Jim Manocchi. Some companies can cope by using more flexible forecasting, but this takes experience, adds Williem Vaessen of Deloitte in the Netherlands.

"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," says Jim Manocchi.

This echoes something I was told by A.T. Kearney's Vance Scott, who nonetheless characterized himself as a relative optimist: consumption patterns in developed nations are changing. Scott's main point was that discretionary funds in developed economies are increasingly being spent on "experiences," such as travel or education, so the industry will need to reconfigure itself to better serve the locales where consumer demand will continue to see robust growth. This is something that stuck with me because I see it in my own life – I'd rather spend my extra cash on a vacation than a new car. I don't think anybody in the chemical industry harbors any delusions about how the industry will look on the other side of the downturn, but I do wonder if people can quite grasp the possible extent of the change. What happens if Americans stop moving around all the time? What happens if, as U.S. Transportation Secretary Ray LaHood recently told the New York Times, we go back to the one-car family?

There are other markets for the chemical industry, such as China and India, and other opportunities, such green materials and electronics. It's hard to say whether this will be enough to make up the difference, as Scott thinks it will, or if demand will remain off-peak, as Manocchi suggested. But it should be clear to everyone by now that 2007 is not coming back.

CW's consulting cover story, which will have more from Tim Hanley, Vance Scott, and other leading industry consultants, will appear in the July 27 issue.

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