The Industrial end-user segment is the largest segment for our Specialty Chemicals Business Area. We sell chemicals into a wide variety of applications, including metals and mining, agrochemicals, plastics (polymers) and pulp, where they play an important functional role during production or in the end product. We also sell liquid and powder coatings into the oil and gas, metals and mining and power industries. These coatings are largely used for their functional benefits, such as fire and corrosion protection.
22% of revenue
Lower oil prices are having a significant short to medium term impact on the outlook for the Industrial end-user segment. For example, in oil and gas new construction, we are seeing drastically reduced upstream investment. Meanwhile, some upstream businesses are not profitable and we are seeing a shutdown of high cost production units.
Lower oil and gas prices also have an impact on chemicals. In the Middle East, downstream chemical investments are being postponed or even cancelled. In North America, there has been a reduction in the cost advantage in terms of shale gas-based ethylene feedstocks and this is moderating regional chemical growth rates.
Longer term, we expect disproportionately high growth in regions with access to low cost oil, gas and chemical feedstocks, 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.
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 industries 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-to-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 South America in pulp due to the cost competitiveness of the region.
Future sustainability developments
The WBCSD 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
Where appropriate, while low oil and gas prices continue, we will ensure that we focus our organic growth efforts on higher growth areas, such as mining, power and pulp from a sector perspective and North America from a regional perspective. We will also optimize our cost position in Europe and China, where the cost position is less competitive in the long term. While we do this, we will continue to improve sustainability levels throughout the value chain.
Brent crude oil price 1
$ per barrel, freight-on-board North Sea
Chemical production 2
Real 2010 $ billion, value added
Key industrial sectors 3
growth rate % p.a.
1 Source: IHS.
2 Source: Oxford Economics.
3 Sources: PhillipsMcDougall 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.