High

Chemicals

Regulatory cost and industry overcapacity across Europe places pressures on operators, however adoption of digitisation can improve efficiencies.

Sector trends & challenges

  • Need for digitisation

    The chemicals sector is behind most in terms of adopting new technologies. Initiatives such as the Made Smarter Adoption Programme in the North West of England (£10bn market) are helping reduce these operational inefficiencies.

  • Overcapacity

    Overcapacity across Europe continues to depress prices and margins, as do rising raw material costs. The produce price index (PPI) rose 9.5% in the year to September 2021, of which chemicals played a significant part.

  • Supply Chain Resilience

    Both chemicals manufacturers and their customers are looking to improve the resilience of their supply chains. COVID-19 has highlighted any weaknesses in procurement, and we expect operational restructuring to become commonplace.

Sector rating profile

The sector has been increasing in stress over the past few years, as Brexit and capacity issues drive pressures on margins. COVID-19 has increased this pressure on those firms with weaker balance sheets and merger activity has increased, however there is still an overcapacity issue throughout the market.

Chemicals

The chemicals sector continues to perform in a challenging economic environment.

During COVID-19 lockdowns there has been a significant amount of merger and acquisition (M&A) activity, as cash-rich operators identify opportunities for consolidation and value-building. A number of manufacturers were also able to both respond effectively to the operational challenges of COVID-safe workplaces and pivot production to support societal response.

As we move into 2022 and the economy slowly begins to recover, the chemicals sector continues to suffer from structural over-capacity, which has led to sustained margin pressure and declining return on capital in recent years. Operators will need to continue identifying cost reductions, non-core disposal opportunities and strategic opportunities to remain both competitive and generate acceptable returns, particularly as compliance and regulatory costs increase under the duplication of REACH regulations across the UK and EU post-Brexit.

Digitisation initiatives are starting to be implemented in order to get the sector up to speed with the latest technology. A great example is the Made Smarter Adoption Programme in the North West of England (a £10bn market) which is helping to reduce operational inefficiencies.

Environmental controls, both in Europe and across the world, will continue to be a strategic and operational priority for responsible operators.

Find Your Expert

James Fagan is Interpath Lead for ENR, which includes Chemicals as one of four core segments. James leads our approach to Chemicals nationally for Interpath, with support from Anthony Mayes and Kenny McKay. For a full list of our senior people with experience in the Chemicals sector use the button below.

Our senior team