Category Insights & Outlook 2023
Industrials & Chemicals
Bearish market sentiments can be observed across several key chemical commodities, with inflationary pressure impacting consumer spending.
Consequently, there is a reduction in demand in key consumer industries, pushing prices downwards. For example, fertilisers have experienced price volatility due to conflict and supply constraints in the Black Sea region. This has triggered further knock-on effects across the agriculture sector.
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Trends to date
PET
+3% YoY change (Nov 2021-Nov 2022)
Bearish market sentiments due to:
- Increase in production capacity
- Rising inflation rates leading to reduction in consumer spending
- Lower demand as buyers avoid stockpiling due to recession concerns
End use: packaging, fabrics, automotive parts, construction materials
Price of PET
Source: AmplifiPro, selected chemical commodities for the period Nov 2020 through Nov 2022
HDPE
-11% YoY change (Nov 2021-Nov 2022)
Overall price decrease due to:
- Falling component prices (ethylene) leading to price downturn
- Muted demand due to high inflation and strong US dollar against major export destinations
End use: packaging, construction, automotive
Price of HDPE
Source: AmplifiPro, selected chemical commodities for the period Nov 2020 through Nov 2022
PVC Suspension
-68% YoY change (Nov 2021-Nov 2022)
Downward trending prices due to:
- Lower component prices (ethylene)
- Lower demand amongst seasonal decline in construction work
- Slower economic activity
End use: packaging, construction, automotive
PVC Suspension
Source: AmplifiPro, selected chemical commodities for the period Nov 2020 through Nov 2022
Methanol
-13% YoY change (Nov 2021-Nov 2022)
Decreasing prices in Europe due to:
- Ample supply and lower component prices (natural gas)
- Seasonally slow construction
- Bearish macro sentiments curb demand
End use: construction, automotive, electronics, paints & coatings
Price of Methanol
Source: AmplifiPro, selected chemical commodities for the period Nov 2020 through Nov 2022
Benzene
-18% YoY change (Nov 2021-Nov 2022)
Fluctuating prices with slight decrease YoY:
- Higher interest rates and lower demand from downstream segments leading to falling prices in H2 of 2022
- Prices expected to rise in Europe due to increase in feedstock (toluene) prices
End use: plastics & resins, fabrics, paints & coatings, pharmaceuticals
Price of Benzene
Source: AmplifiPro, selected chemical commodities for the period Nov 2020 through Nov 2022
Urea
+0% YoY change (Nov 2021-Nov 2022)
Fluctuating prices with no overall change:
- Temporarily lower prices in Q2 2023 due to increase in supply as major European production hubs restart operations
- Shortages in supply of components and energy from the Black Sea region continue to exert upward pressure on prices in Q4 and beyond
End use: fertiliser, feedstock, plastics & resins, automotive
Price of Urea
Source: AmplifiPro, selected chemical commodities for the period Nov 2020 through Nov 2022
Future outlook
Amid volatile energy markets and geopolitical tensions shattering trading patterns, chemicals commodities have experienced price increases of ~10% over the last 12 months, though are forecasted to fall by ~8-12% in 2023, according to the World Bank.
Short term outlook
Expect global inflation, weakened GDP growth, and reduced consumer confidence:
Concerns regarding economic slowdown, coupled with a rise in interest rates by major central banks, are expected to weigh down on consumer demand, exerting downward pressure on chemical commodity prices.
Expect oil price volatility and high global gas prices:
With oil and natural gas being the key feedstock for many chemical commodities, continued volatility in oil and natural gas markets due to conflict in the Black Sea region indicates continued volatility in chemical commodity prices.
Medium term outlook
Responses to fragile supply chains and risks stemming from health and geopolitical shocks expected:
- Continued disruptions have revealed the fragility of chemical supply chains. Consequently, we expect to see increasing regionalisation of key chemical commodities to combat supply chain bottlenecks.
- On the flipside, we expect this will open up opportunities for global buyers to leverage global supply markets to obtain better pricing.
An increased sustainability focus amongst consumers:
- An increased interest in sustainability is expected amongst consumers. This, combined with a wave of sustainability regulations globally, will lead chemical manufacturers to invest heavily in sustainable production.
- Shifting away from oil and natural gas towards more sustainable component sources may provide more stability in chemical commodity prices.
Dos, Don'ts, and Best Practices
Dos:
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- Consider renegotiating prices.
- Run an impact assessment and estimate exposure and dependencies.
- Prioritise initial supply continuity and consider inventory / planning levers.
- Look for alternative suppliers (new locations) to limit exposure.
- Treat this as an opportunity to optimise, reduce, and innovate.
- Pass through costs where possible.
Don'ts:
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- Do not accept increases; determine if they are justified and agree on conditions for accepting.
- Do not rush – assess risks, opportunities, and create short-, medium-, and long-term strategies.
- Do not treat the category in silo, see it as part of total spend basket.
- Do not think you can't break a contract – breaking and paying a penalty can be better.
best practices:
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READINESS
- Understand the price breakdown:
- Create full transparency across your procurement costs and supply chain impacts
- Arrive at a position where "should cost" analysis can be performed
SHORT TERM
- Ensure supply and prepare mitigation:
- Confirm exposure and priorities
- Ensure supply
- Thoroughly prepare for negotiations with business-critical supply partners
LONG TERM
- Manage volatility impact and boost resilience:
- Review long-term procurement strategy
- Ensure the right capabilities
- Explore risk management strategies
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Key takeaways
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The economic downturn is expected to lower demand for key chemical commodities in North America and Europe in the short term, exerting downward pressure on prices during H1 2023.
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An increased focus on sustainability amongst consumers and regulators is pushing chemicals producers to invest in sustainable feedstock alternatives, which is expected to restore price stability with the shift away from volatile oil and natural gas markets.
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How Efficio can help
If your business is or has been impacted by any of these trends, or you would like to dive deeper into the outlook and associated guidance for any of the above categories, our SMEs are available to help.
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