Chemicals and Consolidation
Mergers and acquisitions (M&A) are shaping today’s chemical industry in a significant way. The market is moving toward consolidation, where portfolio realignment is important. Companies are focused on developing their core strengths and are continuously looking for favorable acquisitions to deliver growth and greater shareholder value. During 2017 and beyond, intermediates, specialties, fertilizers and agricultural chemicals will likely experience high growth in M&A activity. Chemical producers across the US will move away from commoditized and price-sensitive chemicals to low-volume, high-value, and high-margin specialty chemical production.
OPEC’s decision to cut production has stabilized the oil market, to an extent. However, the question remains, “Is $50 per barrel oil still realistic?” Not anytime soon! The fundamental reasons for the price drop remain the same: U.S shale production continues to rise; oil inventories remain higher, and the decision to cut production is not sufficient to drain out the surplus. Some feedstock prices correlate directly to oil price, including ethylene and propylene, and are expected to stay steady at least for the short term. Other by-products of naphtha cracking follow its own undercurrents and show no direct relationship.
Additionally, with six agrarian hulks on the verge of integration into three massive corporations, customers and farmers are feeling a little uneasy about the implications.
It’s worth noting that if it any one of the three deals were taking place separately, it would be completely normal for the industry. However, all of them occurring at the same time makes the entire situation one to watch.
Some of the key themes we believe will be impacting the industry in the near term are rapid M&As, tumultuous oil industry, portfolio realignment and a move toward effective category management. Overall, specialty chemicals will be pivotal in the growth of the US chemicals industry, chemical M&As will hit record levels in 2017 backed by the shale gas revolution, and benzene and caustic soda will continue to remain tight in the US, while methanol will be readily available. I would like to leave the readers with one thought – risk is manageable; uncertainty is not.
Note: We have explored each of these topics in our quarterly category bulletins, which can be yours for free for a limited time. Please reach out to Anup.Shetty@gep.com to grab your copy.