Specialty chemicals industry expected to return to growth in 2021

This year's covid-19 epidemic has impacted various segments of the global specialty chemicals industry to varying degrees. IHS Markit's recently released Specialty Chemicals Industry Overview shows that the epidemic has led to a contraction in demand in the specialty chemicals industry, which is expected to return to growth in 2021.

According to the report, the global specialty chemicals industry was valued at $615 billion in 2019, up 2.4% from 2018. Specialty polymers, electronic chemicals, and industrial and utility cleaners were the largest segments last year, but they each accounted for less than 10% of the global market capitalization share. Regionally, mainland China was the largest consumer market for specialty chemicals in 2019, accounting for 25% of total consumption and $156 billion in market capitalization. China's antioxidants, catalysts, construction chemicals, feed additives, printed circuit board and semiconductor packaging chemicals, plastic additives, rubber processing chemicals, specialty coatings, specialty polymers, and water treatment chemicals accounted for more than 30% of global consumption.

IHS Markit said North America was the world's second-largest consumer market in 2019, led by consumption of biocides, corrosion inhibitors, cosmetic chemicals, food additives, industrial and utility cleaners, lubricant additives, oilfield chemicals, printing inks, surfactants and synthetic lubricants.

The specialty chemicals market is closely linked to the rate of economic growth as many industrial and consumer markets rely on specialty chemicals. Prior to the outbreak, global GDP was expected to grow by 2.5% in 2020, implying a 2.5% to 3.5% increase in specialty chemical sales. However, the unprecedented damage to the world economy caused by the blockade imposed by governments to curb the spread of the outbreak has severely affected demand, supply chains, international trade and tourism.IHS Markit estimates that global specialty chemicals industry sales are expected to decrease by 3.5% in 2020 compared to 2019, reaching $593 billion.

IHS Markit noted that the specialty chemicals market may see some recovery in the third quarter, driven by the reopening of some regional economies, but uncertainty remains high. With new cases of coronary pneumonia still on the rise globally in late June and July, the risk of a second round of forced shutdowns and reduced consumer spending could lead to another economic contraction this fall.

According to the report, specialty polymers remain the largest specialty chemicals segment in 2020, accounting for about 9% of global specialty chemicals market capitalization, followed by electronic chemicals and industrial and utility cleaners. According to the report, the performance of the specialty chemicals market in 2020 will largely depend on its end-use, with growth in industries that are essential during the blockade, such as disinfection/cleaning, personal protective equipment and other medical devices, food and beverages, and other basic consumer goods. The report expects a decline in consumer demand for chemicals in sectors such as automotive, construction and other manufacturing industries, which have been forced to shut down fully or partially due to the outbreak.

IHS Markit noted that a significant drop in demand for crude oil will result in a decline in demand for specialty chemicals used in exploration, extraction and refining processes. In 2020, demand for specialty chemicals is expected to weaken in all regions of the world compared to 2019, but consumption levels will be roughly flat. China will remain the top consumer of specialty chemicals, accounting for 26% of global consumption, followed by North America, Western Europe and Japan.

IHS Markit expects the global economic recovery to drive a return to growth in the specialty chemicals industry after 2020. By 2022, most segments will return to their historical growth patterns. The report expects global specialty chemicals to grow at a CAGR of 3.3% from 2022 to 2025, with a market capitalization of more than $700 billion in 2025.IHS Markit said that electronic chemicals, specialty polymers and nutritional ingredients will be the segments with higher growth prospects, as the corresponding end-use industries have a positive outlook and are expected to grow at a CAGR of more than 3.3%. China is expected to remain the largest consumer of specialty chemicals from 2022 to 2025, with a projected CAGR of 5.5%.

IHS Markit points out that, nevertheless, global economic conditions remain a key indicator of industry demand for the industry over the next five years, with factors including the availability of fully tested and mass-produced effective vaccines to combat the new coronary pneumonia epidemic and restore future economic growth, Brexit and the outcome of trade agreements between the UK and Europe.

According to the report, the specialty chemicals industry is in transition and is becoming less dominated by North American, Western European and Japanese companies. In addition, consumption of specialty products is growing faster in China and other emerging markets in Asia. Manufacturing activities for products such as automotive and electronics are also expanding significantly in these regions.

According to the report, the higher growth rate of specialty chemicals in emerging market regions is driven by trade liberalization, the spread of processing technologies, the breaking down of multiple economic barriers, the rapid growth of Asia's newly industrialized economies, and rising living standards in these countries. Per capita consumption of specialty chemicals in emerging markets remains low compared to developed regions. Nevertheless, "the global chemical industry is shifting its center of gravity to the Middle East, where cheap raw materials for petrochemicals production are available, while Asian labor costs remain relatively low and economies are growing rapidly," IHS Markit said.

Specialty chemical producers in North America, Europe and Japan are continuing to look for growth opportunities in developing regions, IHS Markit said, many companies have established production facilities in Asia and elsewhere, and some producers in China and India have become key players in parts of the specialty chemical market.

Innovation remains the key to competition as competition intensifies and mature products become more commonplace.