This is the largest end-user segment for our Specialty Chemicals business. We sell chemicals for many applications, including metals and mining, agrochemicals, plastics (polymers) and pulp. We also sell liquid and powder coatings into the oil and gas, metals and mining and power industries. These coatings are largely used for fire and corrosion protection.
21% of revenue
Lower oil prices have had a significant impact on the outlook for this end-user segment. For example, in oil and gas new construction, we have seen a drastically reduced upstream investment. Meanwhile, certain upstream businesses are not profitable and some customers are having to shut down higher cost production units. However, the investment in downstream assets has remained robust and we see a shift towards significant investments in the power sector, meeting the rising demand for renewable energy globally. Investments in this respect are particularly strong in Europe and China.
Longer term, we expect higher growth in regions with access to low cost oil, gas and chemical feed stocks, such as the Middle East (due to oil) and North America (due to shale gas). However, there are currently record trade surpluses in chemicals in Europe and we expect this to continue, particularly in the chemical sectors relevant to AkzoNobel. Due to local demand, we also expect continued growth in the large and important Chinese market, albeit with lower growth rates than we have seen in the recent past. This is in line with all main markets.
From a sub-segment perspective, we continue to expect above GDP growth in many polymer markets, where there is continued demand growth as global wealth increases and products continue to be converted to plastics for a variety of reasons, including weight reduction.
Beyond plastics, there are differences in expected growth rates for various process industry sectors relevant to AkzoNobel. We expect GDP-level growth in segments such as agrochemicals, with significant regional differences in terms of growth rates, as well as substantial year-on-year volatility. While global growth in bleached chemical pulp is below GDP and the market is expected to contract in North America, we expect continued growth in Latin America in pulp due to the cost competitiveness of the region.
Future sustainability developments
The World Business Council for Sustainable Development’s Vision 2050 indicates that we should expect a four-to-ten-fold improvement in the eco-efficiency of resources and materials by 2050. Waste to landfill will increasingly reduce as closed loop processes become more common.
Implications for strategy and actions
While lower oil and gas prices continue, we will ensure that we focus our organic growth efforts on higher growth areas, such as power and pulp from a sector perspective and North America and Asia from a regional perspective. We also intend to optimize our cost position in Europe and China to deliver a robust long-term competitive position. While we do this, we aim to continue improving sustainability levels throughout the value chain, supporting the transition to a cleaner energy mix.
Brent crude oil price
$ per barrel, freight-on-board North Sea
$ billion1, value added
Source: Oxford Economics
1 Real 2010
Key industrial sectors
growth rate % p.a.
Sources: PhillipsMcDougall, company sources for crop protection; ICIS Supply & Demand Database for polymers; RISI for bleached chemical pulp (BCP)
Eco-efficiency means doing more with less; creating goods and services while using fewer resources and creating less waste and pollution.