Business

Chemical companies need a bold new way to measure the leverage of value

Due to the COVID-19 pandemic, the chemical industry is facing a series of powerful structural challenges, which are partly (but not all) due to the epidemic. Although the industry has had to master product commodification, shifts in consumer attitudes and regional preferences, and regulatory changes for decades, today’s dynamics are unique and more disruptive than ever. Taken as a whole, they affect the entire value chain and are driving the structural changes that have been brewing in the chemical industry for a long time.

 

Because these challenges and their effects are closely linked, chemical companies must take steps to look at them comprehensively, deal with them, and find ways to benefit from them. This means that, given the new pressures these companies face, they will comprehensively re-examine how value is generated. They must determine that these repositioned value levers are operational and targeted, combined with clear indicators to determine their effectiveness, while supporting future growth goals.

 

 

The uncertainty of demand and the cliff of profitability

 

The main challenge faced by many chemical companies is the instability and decline in demand. This trend will have different impacts on the chemical sector and applications. Between 2015 and 2019, the median sales growth of chemical companies remained at 3.8% per year, almost in line with global GDP growth. But many chemical companies, especially those targeting the European and North American markets, can no longer count on such growth.

 

In fact, the value creation of chemical companies has shown disturbing signs. In the past 20 years, the total shareholder return of the chemical industry has not only lags behind the average of all industries, but also lags behind the performance of its key customer industries, including construction and non-durable consumer goods. (See Table 1.) According to this standard, the development speed of chemical companies is second only to the automotive industry. chemical companies news

 

Why pay attention to the chemical industry? One explanation is “chemical fear”, which is especially important for suppliers of consumer chemicals, including single-use plastics. Out of concerns about their own health and the environment, some consumers are looking for alternatives to products that contain a lot of chemical substances. To this end, some chemical companies have begun to take measures to adopt circular economy methods, including continuous recovery of raw materials and materials throughout the production process to reduce energy and resource consumption. However, despite the imperative of large-scale recycling, for chemical companies, this will compress the demand for raw materials and other flows.

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