The boom and associated bubble that drove petrochemical prices to an all-time high in 2008 does not necessarily spell doom for the industry's post-recession performance, according to a report launched today by global management consultancy Arthur D. Little. In "Smart reactions in the crisis," the consultancy's Chemicals practice analyses the credit crunch's impact on the chemical industry's longer term growth plans, arguing that businesses must re-evaluate their corporate structure based on the understanding that for many market segments, post-recession business conditions will have permanently changed.
According to the study, despite predictable growth since the 1970s, between 2000 and 2008 the petrochemicals industry experienced a boom, with prices driven up by major increases in the cost of energy and raw materials. Supported by the availability of cheap credit, end-customers continued to purchase higher-priced chemicals, but once credit was no longer in supply, the deterioration of customers' balance sheets meant both volume and price have dropped across the board. Based on current pricing and volume, Arthur D. Little predicts the chemicals industry will have fully corrected this "overpayment" by 2012, with new growth starting sometime next year.
Illustrated by three industry case studies, the report urges chemicals companies to consider how the recession has permanently changed their customer base, and to review each distinct portion of the business based on its projected contribution to overall long-term growth. The report suggests businesses develop a quantifiable perspective of which elements of their portfolio will be long-term affected, and for which elements the drop in demand is temporary.
Edouard Croufer, ADL's Global Chemicals Practice Leader, commented: "Although across-the-board cost-cutting measures are sometimes in order, in most cases Chemicals executives should focus cost reductions on those business units in long-term decline, while leaving less-affected businesses able and ready to benefit from the coming upturn."
"As our clients' experiences echo, drastic changes to corporate structure can be painful, but are necessary to uncovering under-utilized resources, and identifying the most promising growth areas where those resources should be brought to bear."
Download the full report, "Smart reactions in the crisis," at www.adlittle.com/smartreactions
About Arthur D. Little
Arthur D. Little, founded in 1886, is a global leader in management consultancy, linking strategy, innovation and technology with deep industry knowledge. We offer our clients sustainable solutions to their most complex business problems. Arthur D. Little has a collaborative client engagement style, exceptional people and a firm-wide commitment to quality and integrity. The firm has over 30 offices worldwide. With its partner Altran Technologies, Arthur D. Little has access to a network of over 16,000 professionals. Arthur D. Little is proud to serve many of the Fortune 100 companies globally, in addition to many other leading firms and public sector organizations.