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Before chemical industry 4.0, before Amazon, before Windows 97, before even the Internet, industrial chemical suppliers picked up the phone, wrote a letter, and sent a fax to offer their chemical products to prospective clients.

Later, as the wild, wild west of the world wide web took hold as the third millennium began, chemical industry supply chainers switched from ‘bricks’ to ‘clicks’ to gain their chemical trades. And so was born a plethora a start ups; Elemica, Omnexus, Rubber Network, Ariba, Covisinit, Quadrem, and Chemplorer hoping to find a business model to conquer online chemical trading.

While most focused on an order-to-cash or procure-to-pay process, some could be considered original online chemical marketplaces. Some ideas were badly executed, others had the right idea at the wrong time; none truly succeeded.

E-business in 2019 has matured, allowing for a series of different solutions that has seen a slower, more cautious spread of online chemical marketplaces. Their differences stemming from their different starting points.

As Simon Hardy, a chemical industry consultant at Elemica, notes, “In today’s business economy we see Chemical Companies taking various approaches to generating marketplace revenue. From the industry itself you have solutions built by the Chemical industry, which are Chemondis, OneTwoChem and Covestro Select. There is also a group that has either come from chemical distribution or saw a gap in the market and created a company to address it. These include companies like GoBuyChem and Pinpools. Agnostic platforms such as Alibaba and Amazon are also growing share in this marketplace. Recently, we have also seen interest from eBay, which already has a very successful B2B Marketplace operating for the Aviation Industry.”

Despite the action of the larger players, there remains a long list of online chemical trading spaces created as start-ups; Buyersguidechem, Lookchem, and Globalchemmade; all striving to make their presence known. Which ones will survive will depend on three main factors:

1. Functionality. The smoothest webpage with the widest product choice.
2. Investor staying power. For how long will the backers of these companies be prepared to take losses (in the hope of becoming the next Alibaba) before they pull the plug?
3. The entry into the market of another big player. As Hardy mentioned, Alibaba, Amazon, and eBay have already made tentative expansions into industrial chemical sales. But what if Bayer, DowDuPont, or INEOS made a sizeable investment. Their know-how, market influence, and bank balance could be a game-changer.

Hopefully, the chemical industry is wise enough to avoid the B2C style campaigns of click-bait marketing, but no one can be certain that the market will not head in that direction.

Whilst chemical procurement officers are typically of above average intelligence, we are all still human and prone to the same basic marketing tools that sell ice cream and toothpaste. Most likely, the chemical industry will get the online market it deserves.

Instead, we can only hope that online markets that are more customer-centric will find success.

As Hardy notes, “Today’s buyers want to order in a B2C way, where they know where their order is at all times and when and where and what time it will be delivered.”

Having information at the touch of a tablet is the true benefit that online chemical marketplaces can offer. And while it may seem far-fetched for an industry with such long lead times and complex logistics to reach this goal; time and money can achieve great things.

Because, if, within the next decade, only 10% of the chemical industry’s annual $5 trillion revenue flowed through online marketplaces it would create a $500 billion sub-sector. Money like that could make a pretty smooth website and order tracker.

Photo credit: Freeimages

While the ability to turn agricultural waste, such as corn stalks, wheat straw and husks, or even sewage waste, into industrial chemical feedstock has long been achievable in the lab, full scale commercial production has been slow to progress.

While bioethanol sourced from corn, sugar beet or cane, potatoes, sunflowers, sorghum, fruit, and other biomass feedstocks have had greater success, the industry’s future is still uncertain due to these products uses as food or animal feed. By focusing on wheat straw waste, chemical industry ecologists and entrepreneurs are hoping to improve the economics by gaining free and easy access to chemical raw materials.

As the wheat stalks are inedible to animals, they are typically only used as livestock bedding or are left in fields in an attempt to return their nutrition to the soil.

As the scientific journal, Phys.org observes, “The development of new bio-refining technologies based on agricultural waste is seen as key to reducing Europe’s dependency on fossil-based products. According to a White Paper by the International Council on Clean Transportation, about 144 million tonnes of wheat residues accumulate each year in the EU.”

Part of this development is the EU-funded OPTISOCHEM project, which is making good progress in transforming waste straw into bio-isobutene (bio-IBN), a chemical feedstock that is a precursor to numerous other industrial chemical products.

The basic chemistry of the process involves converting wheat straw into hydrolysate which is then fermented into isobutene, which can be used to make a wide-range of industrial chemicals.

The enterprise leading the project, is called Global Bioenergies. Their website outlines the value in making a success of this method, stating that, “isobutene, one of the major building blocks of the petrochemicals industry, represents a market worth $25 billion and may one day address an additional market worth $400 billion.” Noting that already, “15 million tonnes are produced every year and are turned into plastics, rubbers and fuels.”

Now a key step on the road to success has been made, as Global Bioenergies has delivered the first sample of isobutene made from wheat straw to industrial chemicals giant INEOS for inspection.

As Jean-François Boideau, EMEA Commercial General Manager at project partner INEOS Oligomers, made clear in a recent press release, “To date, we have received several batches of bio-isobutene from Global Bioenergies for qualification purpose[s], and the quality is promising.”

Adding that, “During the next phase of the project, INEOS is ready to evaluate conversion of additional quantities of bio-isobutene into downstream products in order to assess the potential of this bio-based feedstock as a building block for end consumer applications.”

Encouraged by the results, Global Bioenergies is now focusing on increasing production to more industrial levels. As the company’s COO, Frederic Pâques, states, “We expect to produce several tons of bio-isobutene on this new non-conventional feedstock in the remaining periods of the project.”

The project has further been boosted by the April 2019 announcement of a €135m investment surge from the Bio-Based Industries Public-Private Partnerships (BBI JU). Their goals, as listed on the partnership’s website include:

• Increasing the yield of targeted bio-based product(s) by more than 20 percent compared to state-of-the-art processes.
• Reducing the production costs of bio-based products by 10-20%, compared to current market situation.
• Reducing energy consumption by more than 30% for bio-catalytic processes as compared to state-of-the-art production processes.
• Delivering savings, in terms of CO2 emissions per kg product by more than 20% for bio-catalytic as compared to state-of-the-art production methods.

And while these numbers may sound insignificant in a chemical industry that is dominated by fossil fuels, the ultimate rewards are well worth both the effort and the investment.

As analysis conducted by Bernard Chaud, Global Bioenergies’ director of industrial strategy, found, “If just 48 million of the 144 million tonnes of wheat straw waste produced in the EU annually was collected, it could produce 21 million tonnes of sugar that could feed 100 commercial biorefinery plants to produce a steady supply of biochemicals for use by different industries, including biofuels, and substitute the equivalent of 35 million barrels of fossil fuel per year.”

Furthermore, it would provide a boost to rural economies, as chemical plants would be located in the countryside near the fields where the feedstock is, bringing jobs to many of Europe’s poorest regions.

“It offers an additional revenue stream,” said Chaud in a recent interview with Phys.org. “(Farmers) will not only sell the grain, but also the straw.”

While the business model may sound simple, the practicalities of breaking down cellulose isn’t easy. As discussed in earlier SPOTCHEMI articles, numerous breakthroughs have been made in developing enzymes that are more efficient or resilient, but despite the low-cost raw materials, lowering costs remains an ongoing project.

As the environmental journal, Earth Island, reports “Over the past decade, the National Renewable Energy Laboratory [NREL] has brought down the cost of cellulosic ethanol from about $10 a gallon to $2.15 a gallon, primarily by bioengineering better enzymes.”

Employing cheaper enzymes with cheaper chemical feedstock will make for a more profitable bio-chemical industry.

But while profitability is at the heart of all chemical businesses, removing dependency on fossil fuels must also remain a goal, and one that remains in sight. As the BBI JU websites states, today’s bio-based chemical products are, “… comparable and/or superior to fossil-based products in terms of price, performance, availability, and environmental benefits. … [And] will on average reduce CO₂ emissions by at least 50 percent compared to their fossil alternatives.”

Photo credit: Freeimages

The world is ever changing, and nowhere more so than in the chemicals industry. Technological developments, new products and processes, new regulations, and even new companies, the chemical industry of the future will be a very different place.

As SAP CEO Bill McDermott, noted at the recent SAPPHIRE NOW conference, “the pace of change has never been faster – and it will never be this slow again.”

A big influence on the changing face of the chemical industry is the sphere of mergers and acquisitions. Where once stood ICI, Allied Chemical, AkzoNobel, and AGFA, now stand Corteva, Nouryon, and Covestro.

With these changes influencing chemical company strategy, much time and energy is spent by experts predicting future mergers and acquisitions. Given that every year the value of chemical industry mergers is more than $200 billion then it is time and energy well spent.

So, what do chemical industry analysts foresee for 2019?

Deloitte’s 2019 Global Chemical Industry Mergers and Acquisitions Outlook, observes that there were lower trading volumes, “… by private equity investors in 2017 compared with the 2015-2016 period. While this volume continued to decline in 2018, the value of these transactions increased significantly due to the Nouryon deal [when the Carlyle Group and GIC bought out AkzoNobel].” As a result, Delloitte predicts that, “private equity will continue to play a role in the M&A market in 2019. If valuations remain high, private equity will continue to team with other bidders, perform roll-ups, or make bolt-on acquisitions.”

This outcome is a point highlighted by chemical industry consultants at EY, who state in their report of Dec 2018, that “The growing sway of private capital is creating new possibilities for deals. Activists and private equity (PE) groups have raised record amounts of dry powder, which means greater competition for outright acquisitions. As a result, we expect to see more innovative financing partnerships between private investment groups and businesses in the year ahead, especially around divestitures. It also will mean more large deals. 2018 has seen the most deals in the US$5 billion and US$10 billion range on record. As the market corrects and PE firms seek to deploy their capital, we anticipate seeing this trend continue.

The belief in this trend is based on the research they conducted, which found that 74% of American executives see the US M&A market improving. Additionally, 51% of executives expect to pursue acquisitions over the next year.

This expectant surge of activity is perhaps in part to offset the slightly quieter 2018 which many chemical industry sectors experienced.

One such slower sector in 2018, was in agrichemicals, where Deloitte reports that, “M&A activity in the sector was driven largely by portfolio reshuffling as a result of the mega-deals of previous years. This meant smaller, more precise moves, such as product line divestitures.” Adding that, “Trade disputes, particularly between the US and China, have had a negative impact on agricultural commodity prices.”

This leaves Deloitte to predict that, “With these challenges facing the sector, M&A activity in 2019 will likely continue to target smaller, more focused portfolio rebalancing. Mega-deals of the size we saw in 2015 and 2016 are unlikely. Activity in 2019 and beyond may skew toward fertilizers rather than agricultural chemicals, where significant rebalancing and consolidation is approaching the endgame.”

Similarly, slow activity was seen in the commodity chemical segment, where, “As measured by volume, deal activity … dropped 10 percent in 2018 from 2017, when volumes had reached their highest level since 2010.”

This has been blamed on the Chinese government’s new restrictions on outbound capital as well as the general slowing down of the Chinese economy.

Another area experiencing a period of reduced deals was the sector for intermediates and specialty chemicals, where, “M&A deal volumes … declined for the second year in a row.” That said, “Despite the decrease in deal volumes, deal value in the sector increased to levels not seen since 2014. This, thanks in part, to five transactions exceeding US$1 billion in value, including Carlyle Group and GIC’s US$12.5-billion acquisition of AkzoNobel’s specialty chemicals business, Nouryon, and IFF’s US$7.1 billion acquisition of Frutarom Industries.”

2018 was also a quiet year in the industrial gas sector, with the exception of the two large deals that emerged from the Praxair/Linde merger.

In general, despite the reduced activity in a number of sectors in 2018, and economic uncertainty on a global level (trade tensions, Brexit, slower Chinese economy, rising interest rates), Deloitte still predicts that 2019 will see a, “… robust market for M&A in the global chemical industry.” Particularly as, “The past demonstrates that M&A in the chemical industry can flourish, even in uncertain times.”

These are sentiments supported by consultants at NetatWork, who in their assessment of the 2019 Trends in the Chemical Industry, state that “Merger and acquisition activity in the U.S. is growing rapidly. With companies spending more as they see increased cash levels, M&A is still the primary focus of those funds. Moreover, this is expected to continue.”

The consultants at EY concur, although with caution, asserting that, “We expect a robust mergers and acquisitions environment in 2019, but remain cognizant of increased global tension. From the rise of tariffs and protectionism to evolving international alliances, the shifting geopolitical chessboard is affecting how US companies define their strategic priorities, both near and long term.”

But while mergers and acquisitions have for so long been the catalyst of change in the chemical industry. Maybe this too will change in the coming years. Digitalization, globalization, and technology breakthroughs such a nanotech, are changing the world order, and this may well result in an end to the ‘economies of scale’ thinking of bigger is better, instead flexibility may become key.

As strategic consultants at PWC note, “The chemical industry may finally be approaching a tipping point, prodded by accelerating technology advances, which are shaping customer purchases and needs, some chemicals companies have begun to rethink their growth strategies, finally moving away from cost-cutting and retrenchment, toward more nimble, coherent, and aggressive business models.”

All change, please, all change.

Photo credit: Deloitte, Imaa, M&ACritique, Wbscd, SPOTCHEMI, FiberMarine, & Corporateeurope