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Deloitte outlook for global chemicals industry positive, with revenue growth expected in 2011

Regional uncertainty in the Middle East and a surge in the price of oil cause a strain on the chemicals industry
14 July 2011 - A new report from Deloitte's Global Manufacturing Industry group, Compass 2011: Global chemicals sector mid-year outlook, indicates that the chemicals industry is continuing to recover with revenue growing at a compounded annual growth rate of 7.9 percent over the near term. Higher prices and improving global economic conditions, leading to increased demand in the end markets for chemical products, have contributed to the revenue growth. The trend is expected to continue in the second half of 2011.

However, according to the report, the price of oil based feedstock continues to be negatively impacted by the recent wave of uncertainty, which has also placed the chemicals industry in the Middle East under considerable scrutiny. "Despite this uncertainty, which is challenging large Middle Eastern participants differently than in the past, they are responding very robustly, using the considerable resources at their disposal," said Kenneth McKellar, partner and Middle East Energy & Resources leader at Deloitte.

"If oil prices continue upwards, we will see a race to the bottom in the chemicals sector. Only those companies with the highest liquidity and the most long term perspectives will win through, regionally and worldwide," he added.

Contributing to the upswing internationally was the increased global sales in the automotive industry, which is a significant market for chemicals because of the high volume of products used in the development process. Other end markets that have helped drive revenue so far in 2011 were consumer electronics and pharmaceuticals.

Looking ahead, china is anticipated to dominate the global chemical scene with the highest parentage revenue growth for the remainder of 2011. Markets such as India, Brazil, and Korea will follow China closely. While demand in the United States and Europe is expected to be moderate, higher prices will likely translate into stronger revenues for chemical companies in these markets this year.

"China is likely to be a key market for the industry. As domestic demand increases and Chinese chemical companies shift to produce more value added products, profit margins will likely rise," says Tim Henley, Global Chemicals Sector leader, Deloitte Global Manufacturing Industry group.

The Deloitte Global Manufacturing group's outlook anticipates oil prices to continue to trend higher. "The current 30 percent spread between oil and natural gas prices per barrel in the United States is creating market advantages for chemical companies with production facilities that are capable of feedstock flexibility" adds Henley. "In the long term, the sustainability of this advantage will likely be dependent on shale gas permitting, supply chain infrastructure development, and demand for natural gas in other markets."

Merger and acquisitions (M&A) activity is a bright spot for the global chemical sector, with 2011 deal volumes and volumes likely to exceed pre-recession figures. China and other developing countries will likely be targets for M&A activity in both the chemical and plastics sectors, which will likely accelerate the rate of deals in 2011.

According to the report, sustainable housing and agriculture are two global megatrends in play this year for chemical companies looking to gain a competitive advantage. Chemical players that are proactively looking to capitalize on megatrends are now focusing their long-term business strategies on solutions that are critical to society. Therefore, research and development (R&D) is a significant way to bring megatrend solutions to market. More chemical producers are recognizing the need for collaborative innovation with other value chain constituents that are just as critically important to the development of solutions for a growing global economy, energy, mobility, urbanization and climate change.

The global chemicals sector is well positioned for the remainder of 2011 to not only hit revenue forecasts, but also create opportunities to enhance growth in the future.

-Ends-

About Deloitte:
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Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 170,000 professionals are committed to becoming the standard of excellence.

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About Deloitte & Touche (M.E.):
Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle East region with uninterrupted presence for over 85 years. Deloitte is among the region's leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with over 2,500 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region (International Tax Review World Tax 2010 and 2011 Rankings) and was recognized as the 2010 Best Consulting Firm of the Year in the Complinet GCC Compliance Awards.

Contact: Ayad Nahas
Title: Regional Public Relations Manager
Deloitte Middle East
Tel: 00961. 1. 748 444
Email: anahas@deloitte.com

© Press Release 2011