By Amanda Drane
The Houston Chronicle, Oct. 25, 2022
The good news is the petrochemical industry, flush with cash from soaring commodity prices elevated by the pandemic and the war in Ukraine, has a strong financial footing as it heads into 2023.
The bad news is it faces a bevy of new obstacles that will require massive investments in the years ahead, the London financial services firm Deloitte said in its annual outlook released Tuesday.
The world economy is sinking, dragging down demand for chemicals in the short-term and hitting the industry’s revenues just as it embarks on what could be its next big pivot. Still, its efforts to remake itself into a more resilient, climate-conscious industry could result in a dramatic transformation, Deloitte said.
“Even though we’re facing headwinds, there’s also the opportunity to really think about things strategically and lean into the macro trends that are in front of us,” said David Yankovitz, Deloitte Consulting’s U.S. chemicals leader.
The industry must bolster weak supply chains while reducing emissions, producing lower-carbon products and using recycled materials to make new ones, Deloitte said. For the most part, Yankovitz said, the industry is prepared to make these changes.
The path ahead will separate the strong from the weak as the industry’s largest chemical companies have room to spend while some others may be unprepared for the investments required.
“The companies that have been disciplined, have performed well, have the balance sheet to be able to really invest,” he said. “Quite frankly, there’s also probably going to be companies that don’t have the balance sheet to be able to go do that.”
The chemical industry is at the cusp of a materials transition, Yankovitz said. The smartest companies are rethinking how to use their resources more efficiently and are branching into new sources of materials, such as using recycled plastics or plant-based feedstocks to make their products.
Some companies have said they plan to invest a third of their capital budget in lowering emissions and creating more sustainable materials, he said. Some 70 chemical companies have net-zero or carbon-neutral targets to reach by 2050 — goals “which will require considerable and immediate work,” Deloitte said in its report.
Motivating the companies is shifting consumer demand for environmentally friendly products and new policies meant to encourage climate-conscious investments, such as the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, which Deloitte said are signals of government support for technologies that lower emissions.
Companies’ sustainability goals may require a larger share of their capital budget going forward, Deloitte said. At the same time, companies face issues with supply chains, it said, noting that more than half of chemical manufacturers said delays at ports have gotten worse since last year. More than a third reported worsening railway delays.
Originally posted on The Houston Chronicle.
