Transition in the chemical sector
January 2025 | TALKINGPOINT | SECTOR ANALYSIS
Financier Worldwide Magazine
January 2025 Issue
FW discusses transition in the chemical sector with Steve Horstkamp at Marsh.
FW: Coud you provide an overview of the key risks and opportunities shaping the chemical industry globally? How would you characterise the complexity of issues the sector is navigating?
Horstkamp: The global chemical industry is currently navigating a landscape of interconnected, dynamic issues. Key challenges include geopolitical tensions, economic uncertainty and supply chain vulnerability. The ongoing conflict in Ukraine keeps energy and petrochemical feedstock costs high in Europe. The transition of power and policies from a new presidential administration in the US in 2025 indicate potential trade wars through the implementation of new or increased tariffs on goods, including chemicals. Economic factors such as inflation and weak macroeconomic conditions are dampening consumer demand for large purchases like durable goods, automobiles and housing, which are major end markets for the products made by chemical companies. Supply chains are affected by regional conflicts and climate-related issues like severe storms and severe drought that impact production and increase the cost of shipping and distributing products. The industry competes for talent with technology companies and companies offering remote or flexible working conditions – neither of which is compatible with the operational demands of chemical manufacturing. There are promising opportunities for growth and innovation. Although small in comparison to the existing industry, the demand for sustainable and eco-friendly chemicals continues to fuel investment in green technologies and the development of products that align with evolving consumer preferences. However, these investments must be fuelled by an increased willingness from consumers to pay more. The push for digital transformation within the industry will lead to faster product innovations and continue to enhance operational efficiency.
FW: In what ways are chemical companies adjusting their capital spending and strategic investments in response to this volatile landscape?
Horstkamp: Companies are reviewing their assets through a strategic lens and tightening capital expenditures as they navigate the challenging business landscape. Some companies have begun taking the first steps to transform themselves to focus on specific customer sectors. These moves intend to separate highly specialised chemistries from the more traditional, basic materials producers. Examples include Solvay’s recent separation into the traditional Solvay and speciality Syensqo entities, and BASF’s plan to launch an initial public offering for its agricultural chemical division. Targeted, complementary acquisitions either before or after separation bolster these strategies. Cost-reduction strategies are highlighted within quarterly earnings calls as companies look to manage costs under their control. Strategic evaluations of assets in oversupply areas like Europe have led to plant closures, retraction of planned projects and movement of production to cost advantaged areas of the world.
FW: Could you explain how the green energy transition is feeding into opportunities and rising demand for chemical products?
Horstkamp: The chemical industry is foundational to the green energy transition as it provides materials critical for energy infrastructure, advances innovations that reduce greenhouse gas emissions and improves material circularity. Green energy production equipment requires engineered materials to support generation and transportation of electricity. For example, polysilicon and specialty films are key components in solar panels and rigid, lightweight materials like fibreglass and carbon fibres are important for wind turbine blades. Other materials important to the energy infrastructure include coatings for transmission and distribution cables, gear lubricants and oils, and lithium compounds for batteries. Companies are implementing ways to increase circularity of carbon materials either by converting captured carbon dioxide or chemically recycling plastics. Among innovators in this area, Celanese Corporation is using methanol produced from captured carbon dioxide in its acetyl product chain and Eastman Chemical Company is planning to expand its polyethylene terephthalate recycling process from the US to Europe.
“The global chemical industry is currently navigating a landscape of interconnected, dynamic issues.”
FW: To what extent are economic factors, regional dynamics, commodity prices and supply chain disruption impacting production levels and reshaping the competitive landscape in key markets? What actions and strategies are being adopted to improve resilience?
Horstkamp: The interconnection of regional dynamics and economic factors are reshaping the competitive landscape for chemical production. In Europe, sluggish growth throughout the EU has dampened demand for major petrochemicals and intermediates for the construction and automotive industries. Over the last decade, China’s capacity expansions have outpaced demand, resulting in global oversupply of key polyolefins and negative margins for the owners of the expansions. In North America, the US continues to enjoy energy and feedstock advantages over all areas except the Middle East and continues to benefit from the export of natural gas and ethane to Europe and China and other parts of Asia. National policies among the US and its allies to move strategically important manufacturing away from China to economically aligned regions have started to take shape. For example, as companies have begun to build or expand semiconductor manufacturing in these ‘friendshore’ countries, their chemical and material supply chain partners are following them and are in the initial stages of operation or will be later in 2025.
FW: Are you seeing increased adoption of digital technologies and artificial intelligence across the chemical industry? Is this key to unlocking vital innovation?
Horstkamp: The chemical industry is experiencing a significant surge in the adoption of digital technologies and artificial intelligence (AI) and looks to transform the sector by speeding material research and development (R&D), enhancing efficiency, productivity and cost-effectiveness. Innovative platforms, such as self-driving labs, are at the forefront of this transformation. These advanced labs are revolutionising R&D processes by seamlessly integrating AI, robotics and digital technologies. They enable faster pipelines and quicker time-to-market for new products and material applications. This technological evolution is essential for fostering innovation, as it empowers chemical companies to make data-driven decisions, optimise operations and respond more effectively to market demands. Integration of generative AI tools is helping chemical companies develop and refine strategies by extracting insights from their business data. Revenues, costs, regional production and supply chain plans, among other variables, can be developed, modelled and implemented more quickly, giving advantage to companies that implement these digital methods. AI tools are also employed to model process equipment as so-called ‘digital twins’ to help guide production improvements and maintenance scheduling, which reduces costs and improves reliability.
FW: Amid growing regulatory pressures and consumer expectations, what steps should chemical companies take to address sustainability challenges and improve transparency with stakeholders?
Horstkamp: Regulatory frameworks are continuously evolving, requiring companies to comply with varying regulations across jurisdictions, such as the Task Force on Climate-related Financial Disclosures and the International Sustainability Standards Board guidelines. Additionally, the necessity to comply with diverse global standards complicates operations, as companies must meet regulatory requirements in both domestic and international markets. Recent economic conditions and shifting political will in parts of the world have impacted the momentum of environmental, social and governance (ESG) initiatives, creating uncertainty in sustainability strategies. To build trust and promote sustainable practices, the chemical industry must prioritise stakeholder transparency through comprehensive reporting frameworks that disclose ESG metrics alongside financial performance. Engaging stakeholders through open dialogue can enhance trust and accountability. For example, in some jurisdictions, companies can engage local groups of stakeholders and guide discussions that explore the impact of operations on the local environment, local natural resources and the communities themselves. Finally, fostering a culture of continuous improvement in sustainability practices is vital. Regularly reviewing and updating strategies, setting measurable goals and tracking progress will help companies build trust with stakeholders and create a more resilient and responsible business model.
FW: In your opinion, what is the outlook for the chemical industry in 2025 and beyond? How confident are you that the industry can embrace transition to the next phase of its evolution?
Horstkamp: In 2025, we believe we will see similar macroeconomic headwinds restricting demand and keeping energy prices elevated in Europe until the conflict in Ukraine is settled and normalised trade with Russia is reestablished. Global supply chains will continue to be stressed as current interstate conflicts in the Middle East drag out and severe weather events like droughts and floods impact production facilities and close shipping lanes. Beyond 2025, the chemical industry will continue to transform itself as it adapts to a shifting global economic landscape and evolving customer demands. Today, approximately 95 percent of all manufactured goods contain products and materials from the chemical industry, making the industry a foundational contributor to our global economy. As the industry implements AI, it will accelerate the identification of new products and new processing techniques to advance material circularity and emission reduction on a larger scale. Furthermore, the industry’s talent challenges will be partially addressed by using AI system companions reading process data in real-time to present troubleshooting support and response to the workers, thereby increasing effectiveness and efficiency.
Steve Horstkamp is Marsh’s US chemical industry practice leader. His primary responsibilities include leading Marsh’s chemicals strategy planning, best practice client service, development of risk solutions for emerging risks and supporting colleagues across North America who service over 1000 global clients in this segment. In addition to these responsibilities, he is responsible for the development, assessment and oversight of Marsh’s US chemical client relationships and industry growth strategy. By following emerging issues and trends within the chemical industry, he is able to lead the National Chemicals Center of Excellence in developing unique industry specific products, services and risk solutions. He can be contacted on +1 (617) 385 0061 or by email: stephen.horstkamp@marsh.com.
© Financier Worldwide