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Sustainability is a key trend in modern business, and yet it can produce feelings of depression.

This is for two main reasons.

1. It conjures up images of our planet’s resources being exhausted and of industrial waste piling up, leaving a broken planet for our grandchildren.
2. It sets out an enormous challenge and lots of hardwork for everyone to be more sustainable to avoid a catastrophic scenario (see reason 1).

Take for example, the UN Development Programme’s “call to action” of sustainable development goals. A quick look at the list shows that each goal is a massive problem…and there are seventeen of them. Of the seventeen, all are relevant for the chemical industry.

But sustainability goes further than politics and a list of high-minded concepts from elites in ivory towers. Today, sustainability is a requirement for business survival.

As the industry consultants at BCG note, “Sustainability is no longer just a matter of complying with regulators and dealing with NGOs. As customers and investors join the chorus of concern about the need to protect resources over the long term, it’s become a hot topic in chemical industry boardrooms. And there’s a major upside to all this attention, as for many companies, the demand for sustainable products offers opportunities for revenue and margins that outweigh the associated costs.”

This is a point supported by Christina Välimäki, VP of Segment Marketing at Elsevier, as she reports on the Sustainable Brands website that, “By 2020, the market for ‘green’ chemistry is expected to reach $100 billion globally, with North America seeing an increase from $3 billion to over $20 billion during the same period. This growth, essential to the future of our planet, is a sign that the industry is engaged in much-needed change. Today, 8.3 percent of all deaths and 5.7 percent of the total burden of disease worldwide are related to chemical exposure.”

To meet these goals, the chemical industry needs both investment in new technology and to work together to achieve mutually beneficial gains.

Fortunately, this is something that the chemical industry is particularly good at. As Eric Bischof, International Executive and Change Manager at Covestro, discussed in a recent interview with the hosts of the upcoming CIEX 2018 conference that will be held on 19th and 20th September in Frankfurt. He said, “Let‘s talk about the problems and challenges of sustainability, but let’s also put them in perspective. We have to be able to explain the (substantial) contribution of our products and solutions, while at the same time acknowledging the aspects that still need work. Some of them can only be achieved in collaboration, others need breakthrough innovations – we should be working on both.”

While ‘facing challenges’ and ‘talking about problems’ may sound difficult, the reality is that chemical companies that fail to do so will be left behind. They will not have access to the rapidly expanding sustainable chemistry market and will lose both reputation and competitive advantage.

As the consultants at BCG highlight, “the opportunity [provided by sustainability] is so great that it is the driving force behind new products and services. The emphasis is on redesigning existing products to use new, more sustainable inputs—ones that generate less waste in production, for instance, or yield products that are easier to recycle at the end of their useful lives. Since such materials usually cost more, companies need to identify the payoff, either in lower production costs or a higher price premium. The petroleum giant Total, for example, recently launched a joint venture with Corbion to build a PLA polymerization plant with an annual capacity of 75,000 tons. The plant will generate biodegradable plastics that will reduce end users’ solid waste—and support a higher price point than conventional plastics. Likewise, Borealis took note of the rising demand for blended plastics when it acquired MTM Plastics, which mixes recycled and virgin materials to generate commercial-grade plastics.”

While at present, many sustainable chemical or polymer products require a higher price point to cover increased costs, it is unlikely that this will always be the case. Both regional economies and the chemical industry will change as sustainability becomes less of a trend and more of a universal goal.

As Välimäki acknowledges, “The chemical industry’s journey to sustainability is in its early stages, and we can expect to see plenty of further improvement and innovation in the coming years. As the world’s population nears nine billion, and the strain on the planet’s resources grows, this will become increasingly vital.”

All of which will take time, money, and an open-minded sharing of ideas. Many of the sustainable development goals laid out by the UN are relatively new concepts in the long, long history of the chemical industry. Business targets of ‘climate action’ or ‘responsible consumption and production’ were rarely discussed 100 years ago. Today they have become necessities, that require a united, forward-looking effort.

As Bischof notes, “I believe most can be gained by discussing difficult and controversial topics rather than just sharing what has already been achieved.”

It is this desire to find innovative ways to achieve sustainable goals that led to him taking part in CIEX 2018. Here he can meet other like-minded R&D experts across the chemical value chain to discuss the challenges and opportunities that the industry holds.

In doing so he hopes to “gain insights into how the chemical and more specifically the plastics industry believes they can contribute to a more sustainable world.”

At present, the planet is feeling the onset of climate change. As ice caps melt, plastic waste piles up, and mankind’s impact on the environment becomes ever more destructive, it finds itself in a time of great need. While this may sound depressing, it can also be inspiring. As Bischof notes, “Sustainability inspires Innovation – and great innovations have always occurred in times of great need.”

CIEX is the premier event created for R&D and Innovation experts from the consumer, industrial and specialty chemical sectors. Every year, CIEX brings together all players across the value chain to create a unique platform for participants to learn, exchange ideas, and collaborate. This year, CIEX is scheduled to be held on September 19-20 in Frankfurt, Germany.

Connect, discuss and discover the most compelling ideas emerging globally with an unmatched group of innovators from companies such as Merck, DSM, BASF, Cefic, Lego, IKEA, DAW SE, Avantium, Evonik, Unilever, Covestro and many more!

You can view the conference agenda and speaker panel at: https://ciex-eu.org. SPOTCHEMI partners and subscribers get 15% off. Use promo code SPOT15.

Photo credit: UN, nswai, tobuya3dprinter, seed, Ecoproducts & byjus

Under the influence of consumer demand, technology, raw material prices, and geopolitics, the industrial chemical industry is under a constant cycle of change. Perhaps more than any other sector, petrochemicals are enduring a time of special transformation. The emergence of shale gas resources, the growing desire for a circular economy, the demonising of plastic, fluctuating oil prices, and increased use of bio-plastics and renewable chemical feedstocks are all threatening to impact the petrochemical industry.

A petrochemical plant in the UAE

Yet all of these potential challenges have come after a period of healthy growth. As a recent report by industry consultants at McKinsey & Company states, “The global petrochemical industry has experienced more than 15 years of strong volume growth: annual ethylene production has risen from around 100 million metric tons in 2000 to almost 150 million metric tons in 2016. In conjunction with this volume growth, value creation has also risen at a 4 percent compound annual growth rate since 2005.”

Called ‘Petrochemicals 2030: Reinventing the Way to Win in a Changing Industry’, the study continues to explain how much of this growth (and profit) came from. It notes that, “Most of the history of the petrochemical industry in the new millennium has been one of regional asymmetry—where the key to success has simply come down to being in the right place. Emerging-market-based companies have risen as leaders in the industry, and companies in locations with access to cheap gas have earned the majority of profits.”

But what now for the future? Can we expect to see further decades of growth? Will value creation and low gas prices keep the dollars rolling in?

This article outlines three key trends that will influence the petrochemical industry over the next 15 years, and what can chemical companies do to ensure a smooth transition?

1. Reduced Demand.

Chemical producers should expect a period of contraction for demand. As efficiencies are made across the chemical industry, stricter regulations on plastic disposal (particularly packaging), lower consumer demand for single use plastic items, and a maturing of Asian markets, the petrochemical industry should expect a 10% drop in production by 2050.

A Californian plastic recycling plant

As the McKinsey analysis observes, “The GDP growth rate of the important Chinese market has slowed and may slow further. In parallel, per capita chemical consumption in China appears to be at the point where it may start to grow more slowly than the country’s GDP growth rate. This development is associated with macroeconomic trends in China, which is moving from the investment stage of development with spending on infrastructure, along with expanded purchases of new houses, consumer durables, and autos, to an economy more focused on services and upgrade-type purchases. The latter generate much less additional demand for chemicals.”

The report also adds that, “We estimate that the last decade’s 3.6 percent growth rate for global petrochemicals demand may slow to 2.0 percent to 3.0 percent through 2030. Growth may accelerate again as a new group of economies—for example, India, Indonesia, Pakistan, and countries in Africa—contribute more significantly to expanding demand, but this may take another five to ten years.”

2. Increased Recycling

Improvements in waste collection, technological breakthroughs, and industry scaling will all play a part in increasing the amount of material that is recycled. Increased public awareness and the resulting political impetus will also put downward pressure on demand for petrochemicals.

In the UK, for example, the government is discussing an overhaul of recycling schemes, including; increasing plastic bag taxes (one was already introduced last year [2017]), adding a ‘single use plastic’ tax, and a compulsory deposit program on plastic, glass, and aluminium bottles and cans. All of which has received widespread support, even from the plastics industry.

As petrochemicals consultant Jasper van de Staaij, explained to the industry journal Petrochemicals Europe, “As plastic waste becomes an environmental and public health focus and carbon abatement is required to achieve climate targets, governments are more likely to intervene.”

Although Van de Staaij acknowledges the expenses involved in reducing waste, stating that, “Any new regulatory obligations have the potential to create additional compliance costs for industry.”

He also believes that this development will have a positive impact on the chemicals industry. Noting how, “A regulatory framework that takes account of these [low carbon and circular economy] developments can only be beneficial for the chemical industry as it prepares for them. This holds especially if the regulation helps in the commercialization of new technologies and developing new cooperation standards and supply chains. For example: low-carbon production routes in the presence of carbon prices; development of biodegradable plastics; design-for-recycling in plastics production and industry wide quality standards that help the commercialization of plastic recycling technologies.”

3. Renewables and Feedstock Changes

It is predicted that most chemical suppliers will increasingly diversify their feedstock mixes. This is due to modifications in upstream production, consumer demand, and price.

As Van de Staaij, explains, “We expect that by 2050, the supply mix for petrochemicals will comprise a portfolio of hydrocarbon sources. It will combine fossil which is the large majority today, with recycling – utilizing recycling options along the value chain i.e. mechanical, chemical and thermal recycling, as well as renewables. However, since using renewable feedstock for the production of chemicals is from a business-case perspective more expensive, its increase will mainly be driven by customer pull in specific applications or regulation.”

He also notes that, “renewable feedstocks, such as bio-ethanol or bio-ethylene, are projected to increase from base rate of 0.5% globally (2015) to 4% by 2050.”

What does the future hold for petrochemicals?

The petrochemical industry is on the edge of a period of great change. Asian economic expansion and increasing demand for consumer goods is levelling off, to be replaced by a growth in service industries. Meanwhile, more mature economies in Europe and North America are heading towards renewable feedstocks, lower carbon emissions, and the goal of a circular economy. All of these events will lower the need for petrochemicals.

Furthermore, historic regional advantages, such as US shale gas and Middle East oil will begin to be removed through technological advances, or as other energy sources go on line. As McKinsey notes, “There are new possible sources of advantaged-price gas supply in the world, for example in Iraq and Kazakhstan, and there is also the prospect that shale-gas production could take off in countries such as Argentina.”

No single company can avoid the approaching challenges. Instead, petrochemical suppliers will need to adapt if they are to survive. They must find new raw material sources by embracing, not resisting the circular economy. They must make savings by investing in digitalisation and big data analytics. They must prepare themselves for a world of reduced demand, increased recycling, and alternative chemical feedstocks.

Photo credit: Inhabitat, LNGworld, AfricaCapitalDigest, TheTimes, theBusinessDesk & Mappingignorance

A few weeks ago, at the end of February, Bloomberg published an informative article about a commodities trading company called SourceSage. The story was insightful because it told of the unlikely team behind a Singapore raw materials trading company.

As the authors described, “Co-founder Jianmin (Jian) Sim, 29, has all the hallmarks of the young entrepreneur — a former machine-learning researcher with a Masters in engineering from Oxford University. His partner, though, is his father, 63-year-old John Sim, who has three decades of experience buying and selling commodities.”

It was also interesting because of their amazing growth in commodity trading markets. An expanding company with over 10,000 clients, including Cargill Inc. and Wilmar International Ltd., in 102 countries.

But while there have been plenty of family-run trading companies from Singapore, many of whom have found great success, what was truly inspiring was the founders’ vision. A father and son team with a plan to re-write the rules of trading for industrial raw materials. As Paul Santos, managing partner at Wavemaker Partners, which has invested in SourceSage, says, “They had a conviction that this industry was really messed up and needed a transformation.”

The industry journal, The Edge Markets, agrees, noting that, “Many physical commodities markets are ripe for disruption using technology. Unlike stocks, where prices are typically determined on highly regulated exchanges, most niche commodities have dodged intense regulatory scrutiny because of their relatively smaller value and the wide geographical spread between production, shipping, processing and end users.”

If you are interested in reading more about industrial raw material markets, chemical prices, and feedstock sourcing, then please take a look at the SPOTCHEMI blog page.

Seeing the advantages available for tech-savvy raw material traders, the team began to combine the commodities trading knowledge of father John, with son Jian’s understanding of the latest technology and communication techniques.

“Once he retires, his knowledge would be gone forever,’’ explains Jian. “I wanted to capture that, digitize it, and immortalize John Sim as a brand.’’

In doing so, the business has found a growing market for providing data and pricing information in a huge industry sector.

As the Nikkei Asian Review explains, “The Singapore start up gathers and verifies commodity prices from online and offline sources and distributes real-time data as well as weekly market analysis via its app, website and terminal. Chat-bot Amanda helps users navigate the app. They can search data on chemicals, oil & fats, oleochemicals, petrochemicals, freight & logistics and steel & iron ore, the app show.”

“It’s a robust technology platform that’s user-friendly and easy to navigate,” said Sathia Varqa, co-founder of news and data publisher Palm Oil Analytics, who uses the app daily to reach SourceSage’s palm-oil related community.

Neither father or son had originally planned to go into business together. When Jian was growing up, John’s work commitments prevented them from spending much time together, especially as Jian was often studying overseas. Then one day in 2013, John asked his son to set up a website for his trading company. The question came quite ‘out of the blue’, but was the beginning of a beautiful working relationship.

As Bloomberg explains, “John scribbled his workflow on a piece of cardboard and passed it to his son. They began talking about the pain points in the industry — how nice it would be to have cheap, reliable, real-time data, and a platform for buyers and sellers.”

Today, after just a small $50,000 start-up investment, SourceSage has grown to be a ‘go-to’ business for commodity traders, and a well-known supplier of information on Far East raw material prices.

Today, SourceSage is not alone in supplying an online hub for raw material buyers and sellers. SPOTCHEMI (who support this article) is an online community of chemical industry professionals. Through the company’s website, raw material manufacturers, suppliers, and traders keep up to date on news, price fluctuations, and market trends. The website also offers a product sourcing service, product promotion tool, and provides a general platform for networking among like-minded chemical professionals.

While the speedy expansion at SourceSage is to be commended, it is just one of several start-ups who have seen for reform in raw material markets. The need for ‘real-time’, international data on prices is modernising the sourcing and supplying of industrial raw materials. Given the advantages offered to those who use information hubs and online buying networks, those who ignore progress are sure to be left behind.

Photo credit: Wei Leng Tay/Bloomberg, LeHarvePort, ACI, SPOTCHEMI & NNZ