Dr. Inna Baigozina-Goreli,
A.T. KearneyPartner, explains how chemicals companies can outperform their peers in a volatile market.
Survival for European fertilizer producers depends on thoughtful strategies and some feeding from EU policy makers.
Chemical fertilizers play a central role in meeting the agricultural needs of a growing population. And those needs are surging. The United Nations predicts that the global population will increase by 2.3 billion people through 2050, and the world will have to produce 70 percent more food.
However, in Europe the fertilizer industry is facing a period of struggles. As most of the continent reaches its limit in terms of both arable land and fertilizer use European demand for nitrogen, phosphorus, and potassium is expected to remain low through 2022. This slow growth is just one of many hurdles for Europe's fertilizer industry to overcome before it can benefit from the global increase in food demand.
The paper examines the moves European fertilizer firms can make to thrive, highlights five success factors, and discusses what EU policy makers can do to improve the industry's competitiveness.Close
U.S. private equity-led deals caused a surge of 22 percent in deal value while deal volume stayed flat.The Midyear Trend Review of A.T. Kearney’s Chemicals Executive M&A Report analyzes merger and acquisition activity in the chemical sector in the period 2001-2012 and the first half of 2013. Emerging trends between January and June of 2013 include the following:
M&A deal activity flat despite a strong surge in the stock market. Despite a surging stock market, strategic investors’ strong balance sheets, significant funds available to private equity, and the low cost of debt, the expected rise in merger and acquisition (M&A) deal activity has not happened. Limiting factors include the reduced availability of chemical assets on the market as the low cost of borrowing drove alternative ways of funding; increased stock market volatility; a slow economic recovery (especially in Europe); and uncertainty about China’s future growth pattern.
Increase in M&A deal value, driven primarily by high-value private equity deals. In contrast to deal volume, deal value increased sharply during the first half of this year—supported by private equity deals—with specialties and fine chemicals leading the pack. The announcement of tightening economic policies in the United States is expected to support asset availability, and private equity may be best positioned to take advantage of this. Strategic investors, wary of economic instability, continue to focus on realigning their portfolios.
Deals based on the rationale of backward integration and competency addition, driven by low-cost feedstock access. Most high-value strategic investments were driven by competency additions, regional expansion, portfolio extensions, and backward integration. Deals within and across developed countries still dominate, but acquirers from developing countries continue to invest in Western countries and represent a large share of top-value deals. China has been the leading nation in this respect, with a focus on access to feedstock and shale gas technology. The number of domestic deals in emerging economies has continued to decline because of advances in Asian market consolidation and China’s slowing economic growth. Deal values, however, have grown as consolidation increased.
In addition, the report features an interview with Ronald Ayles, managing director and partner of Advent International, who discusses the chemical M&A market, how private equity is doing in the chemical sector, and Advent’s billion-dollar acquisition of Allnex (formerly Cytec Coating Resins).
About the SurveyClose
The survey was conducted among executives from leading chemical industry players and investment banks between October 2012 and January 2013. Survey respondents, typically the heads of strategy or M&A departments of chemical companies, discussed their expectations for future M&A market developments on a Likert-type scale. Dealogic is the main data source for this study, with all historic M&A-related information extracted exclusively from this data source.
The Chemical Customer Connectivity Index has remained a steady presence during an era of volatility.
Even as volatility has become the norm, the C3X study has remained a steady presence in examining the state of the global chemicals industry. Every six to 12 months, A.T. Kearney, in association with CHEManager Europe magazine and Westfälische Wilhelms-Universität Münster’s Institute of Business Administration at the Department of Chemistry and Pharmacy, has surveyed executives from chemical manufacturers and from the companies that buy from them, including the automotive, pharmaceuticals, construction, paper, and consumer goods industries. The study, which includes the survey and executive interviews, off ers a unique view that compares how manufacturers perceive their own performance, and how their customers perceive manufacturers’ performance. First focused on Europe, the C3X now includes the chemicals industry in the United States, China, and other countries.
The C3X’s five-year anniversary is a perfect time to take stock of what we have learned. Where has the industry been, where does it stand, and where is it headed? How has market demand changed over time? How has collaboration between the chemical industry and its customers evolved? This paper looks at the answers.Close
- Natural Gas & Electricity, January 2013
The immediate risks of major or catastrophic incidents require augmenting your longer-term PSM programs with specific short-term actions to identify the highest risk exposures.
©2013 Wiley Periodicals, Inc., a Wiley company
The U.S. shale gas market is out of balance, with production outstripping demand. When the glut ends, how will the market shake out?
Despite all the talk about shale gas development—the potential environmental consequences of hydraulic fracturing, the potential to replace coal with gas for generating electricity, the potential for the United States to export liquefied natural gas (LNG)—none of it addresses the bigger picture: The market is structurally out of balance, and it can’t stay this way. The technological triumph of shale gas has led to production that far outstrips demand, and if this were a normal market, price and demand shifts would have already delivered a quick rebalancing.
But shale gas is not a normal market and a rebalancing is not likely in this complex ecosystem where a wide array of players have diverging incentives and investment horizons. Over the past 20 years, gas prices have fluctuated between $2 and $15 per million BTU. At the low end, the producers are not viable, and at the high end, users of gas cannot afford to use it. Will we face more years of such fluctuations before achieving balance, especially since numerous decisions affecting that balance are still up in the air? And yet, bets must be placed now. Infrastructure must be built. With fortunes to be made or lost, these decisions must be as informed as possible.
If supply and demand were stable and investment cycles were shorter, it would be easy for market forces to align them. But the U.S. market for natural gas and NGLs is driven by several diverse and unpredictable variables: the global economy, oil prices, energy and environmental policies, a rise in the global gas supply, or technological advances that are still unknown. Although these variables could interact in any number of permutations, our analysis finds five scenarios that could capture a range of potential outcomes. The most likely scenario, which we call free markets, involves the least dramatic changes from current conditions. In this scenario, GDP growth is modest, oil prices remain within current trading ranges, LNG export becomes a reality, and no major global natural gas production or technological advance affects the balance of forces seen today.
We believe the price of natural gas in the free-markets scenario will find equilibrium by 2020 in the $6 to $7 range. Any lower than that and production from dry-gas wells would not be profitable and would not increase sufficiently to meet demand; any higher and demand from power plants will wane. But in this range, demand is high in all major sectors, leading to high margins for producers and strong capital investments.
Although the free-markets scenario is the most likely in our analysis, the outcome of global events and governmental actions could lead us down other paths. There are four other possible scenarios:
- Troubled times. A geopolitical event triggers a disruption in oil supply, sending oil prices up and the global economy into a double-dip recession. Natural gas demand collapses to 20 percent below the free-market scenario level.
- Limited export. The U.S. government decides to limit natural gas exports and provides support for other fuels in an effort to achieve energy independence, thus depressing natural gas demand.
- Global gas competition. Other major economies are successful in developing wet shale plays. As a result, demand falls for both LNG exports and ethane-based chemicals from the United States, challenging the overall economics of shale gas plays in North America.
- High output. Robust global GDP growth and lack of global shale developments lead to the highest level of U.S. natural gas demand.
These scenarios represent a combination of various, and sometimes drastic, supply and demand discontinuities.
For multinational companies working in China, the rules of the game are shifting.
Rosy expectations from headquarters about growth, profitability, and competition in China clash with the more realistic picture from the ground—new forces are reshaping the chemical industry for multinational companies working there.
China's 12th Five-Year Plan will further challenge multinationals' once-certain growth and profitability, as policy makers put their stamp on the industry and create an uneven playing field that favors state-owned enterprises. The newest plan seeks to increase China's self-sufficiency in chemicals, create national champions with more access to Western technology and processes, secure international access to raw materials, and provide SOEs with privileged access to key raw materials and energy. At the same time, the plan is aiming to boost domestic consumption by expanding infrastructure and creating housing for about 300 million migrants moving to cities, while dealing with severe environmental degradation and avoiding social unrest.
This report, based on our research, our experience in China, and more than 25 interviews with presidents, vice presidents, managing directors, and directors working for chemical multina¬tionals operating in China, offers a window into one of the most important industries in China.Close
Vision 2030 outlines emerging major challenges, analyzes the current positioning, and highlights how the European chemical industry can stay ahead.
Since the mid-1980s, the global chemical industry has grown by 7 percent annually, reaching €2.4 trillion in 2010. Most of the growth in the past 25 years has been driven by Asia, which now owns almost half of global chemical sales. If current trends continue, global chemical markets are expected to grow an average 3 percent in the next 20 years, mostly pushed by the major players in Asia and the Middle East. Enjoying a home-field advantage, Asian players are positioned to own two-thirds of the market by 2030. Meanwhile, growth in Europe is expected to be moderate at just 1 percent. In fact, we expect more than 30 percent of jobs to be lost in the European chemical industry by 2030 as a result of slow growth and productivity gains.
Thus, the European chemical industry faces major challenges. Understanding what these challenges mean, and more importantly, identifying the right strategic options to thrive in this new competitive environment are at the top of every chemical executive's agenda. Vision 2030 outlines emerging challenges, analyzes the current positioning, and highlights imperatives for positioning the European chemical industry to stay ahead in the game.Close
- Supply Chain, 26 June 2012
In part two of a two-part feature article, the authors discuss the benefits of an agile value chain.
The 2012 Chemical Customer Connectivity Index (C3X) finds that future growth depends on exploiting the benefits of supplier-customer collaboration.
In A.T. Kearney's 2012 Chemical Customer Connectivity Index (C3X) study of recent and future developments in the chemicals market, one major theme stands out: collaboration. Respondents in this year's study make it clear that those chemical manufacturers that exploit the benefits of supplier-customer collaboration across the entire value chain will have the brightest future. The potential value is enormous: The C3X study finds that for European chemical companies alone, collaboration could trigger additional sales of more than $30 billion over the long run.
For the sixth time since 2008, the C3X assesses the chemical industry from the vantage point of executives from both chemical companies and the companies that purchase products from them. This paper discusses the study findings, including the market's volution over the past year and the eff ects of volatility on the industry. We also look into the types and degrees of collaboration, its drivers and obstacles, and the benefits related to it.Close
- Supply Chain, 25 June 2012
The first in a two-part feature, discussing the increase in market prices of rare earth elements and the effect on the global supply chain.
A.T. Kearney's 2011 Chemical Customer Connectivity Index (C3X) finds Europe's chemical sector is rebounding to pre-crisis levels and making plans for growth.
The market for chemical raw materials has heated up in the year since A.T. Kearney conducted its last Chemical Customer Connectivity Index (C3X) survey of executives of European chemical companies and their customers. Demand to refill chemical supply chains is rising, with some strategic raw materials, such as titanium dioxide, butadiene and rare earth minerals, in short supply and most companies reporting price increases. Half of the study's participants report raw material price increases of 10 percent or more in the past year, while another 20 percent of participants report price increases of 30 percent. And debt troubles in the United States and the euro zone, continued global financial instability, and political unrest in the Middle East and North Africa continue to be concerns.
Amid this landscape, the 2011 C3X study, the fifth in a series since 2008, finds cautious optimism among survey participants as growth continues. More than 90 percent of chemical companies expect demand for chemicals to continue rising in the next 12 months. And while most chemical company executives expect these trends to continue, many fear the pace of growth will slow amid global economic pressure. This paper discusses the study findings, examining how relationships between chemical manufacturers and their customers have changed since the downturn, the search for new growth opportunities in developing markets, and the impact of mergers and acquisitions (M&A) on the industry.Close
The 2010 Chemical Customer Connectivity Index (C3X) finds that a tireless focus on business agility, risk, and sustainability are vital for long-term success.
As the global economic crisis eases, the future of the chemical industry in Europe looks bright. But with market conditions still volatile, a tireless focus on business agility, risk and sustainability will be vital for long-term success.Close
Onsite service providers in the chemical industry are confronting rocky economic conditions and the impact of globalization.
As European chemical companies struggle, the onsite service providers that supply these companies with utilities, maintenance and logistics also face an uncertain future. To survive, providers must prove flexible enough to stand up to global competition while also protecting their own interests.Close
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