There is a big battle being played out on planet Earth. The fighting is intense, but the rewards are worth billions. The battle is for the global chemical market and, as any chemicals trader, company CEO or salesman will tell you, competition is hotting up.

There is much thinking at present, amongst economist circles, that the battle is being played out between the giant multi-national corporations of Europe and North America (Dow, BASF, Bayer, LyondellBasell etc.) and the emerging giants of the BRIC countries (Sinopec, Braskem, Reliance, Alpek and Sasol). As both these groups vie for power and influence over the all important chemicals market, as demand increases, there is much money to be made. But of equal importance, is the fact that the battle is intensifying as the number of players in the market increases.

As most chemicals professionals are aware, the real growth area is in the markets of the Far East, India and South America. The more professional, chemicals professionals will also have observed how the emerging giants are taking a larger part of this booming market. Whilst the western multinationals that have moved into these regions have used experience and financial muscle to their advantage, the emerging markets ‘new kids on the block‘ have used their local knowledge and influence in government to their advantage, at the same time as grabbing major market share.

As Nikolaus Lang and Andreas Gocke (of industrial consultants, BCG) note in their recent report entitled, Dueling with Dragons: The Next Phase to Global Competition, “With $60 billion in revenues in 2013, China’s Sinopec is larger than Dow Chemical. Sabic, a $50 billion conglomerate based in Saudi Arabia, is bigger than LyondellBasell Industries, DuPont, and Mitsubishi Chemical.“ The position of these conglomerates has been greatly aided not only by insider government contacts, but also by their contacts with nationalised power generators and oil companies.

These major emerging market conglomerates at present have a strong hold on the raw material markets, as well as basic plastics and polymer production, but many economists believe that this position will soon change.

This theory is based on the success that emerging market companies have had over the last 30 years, changing from small inexperienced start ups into supersized corporations (as the emerging market’s thirst for chemicals has also become supersized). It therefore follows that if the emerging markets have an increased demand for speciality chemicals, that companies based in the emerging markets (like Sinopec and Braskem) will grow into the speciality chemicals sector.

Furthermore, logic states that these companies will be drawn into the speciality sector as their R&D budgets expand, and because of the higher margins to be made there. Indeed, the Chinese government’s last five-year plan included giving additional support for Chinese businesses in speciality materials, advanced polymers, as well as research into new composities and inorganic materials.

Already the growing power of the newer players from the emerging markets can be seen, as Lang and Gocke note, “From 2007 through 2012, the amount that emerging market companies spent on acquisitions [of western companies] grew from $7.9 billion to $10.6 billion [whilst] the transaction volumes of western multinationals‘ acquisitions of emerging-market-based chemical companies dropped from $4.6 billion to $2.8 billion during that same period. Emerging market companies are making bigger deals, too. The average emerging market company outbound acquisition—$881 million—was nearly nine times larger than the average outbound western multinational deal.“

That said, no one is predicting the immediate death of western mulitinationals (like Dow and BASF) anytime soon. As the industry grows there will be room for them, as well as other new players in the market. However, many predict a period of oversupply in the coming years that will further reduce margins. To combat this many of the larger businesses in the industry are adopting strategies like these;

• Continued diversification. A wider range of products will give greater flexibility and stability, given the great price fluctuations to which the industry has historically been prone. Diversifying into speciality chemicals makes sense, not only for their higher margins, but also as part of a trend to apply modern technological solutions to more specialised problems. One such example being the premium product Zetag. Zetag is a specialised polymer developed by BASF to solve a particular, specialised problem (to more effectively remove water from sludge, reducing the cost of disposal for the customer). It is expected that the future growth of the chemicals market will lie in specialised chemicals for specialised problems.
• Localisation. Businesses will increasingly focus on speciality markets. As the BRIC economies become wealthier and have an expanded middle class (with its ensuing consumerist demands), they will demand their own specialised chemical products based on regional and cultural influences. R&D will also become increasingly localised, moving from western universities and research centres to the emerging markets. For example, when in early 2015 the chemicals company Hallstar opened a new polymer research facility in Suzhou, China, at a cost of many millions. This is a new trend that would have been unheard of only a decade ago.
• Sustainability. This final point of action has become a rather overused buzzword in the last few years, mostly because it is becomming an increasingly important factor. An industry with small margins needs sustainability for two good reasons; it reduces waste (at a time when energy and raw material prices are rising), and it improves a companies image in a time when consumers and politicians are becomming more and more environmentally conscious.

Whether these strategies will help western businesses stay competitive when the flow of power is heading east, remains to be seen. However, with such large profits at stake, it is sure to be a major battle for control and influence over this vital economic sector.

Indeed, given the global strategic importance that the chemicals industry has in so many areas (modern weapons, telecommunications, space exploration etc.), it may not be long before other factors, such as politics, start to influence the winners and losers in this field. Furthermore, as control of chemical supply and production means control over almost every part of our daily lives, then the battle for supremacy in the chemicals markets of the 21st century may soon evolve into a war.