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TRANSCRIPT
22017 Deloitte https://www.youtube.com/watch?v=BqTNb7SSxXc
A short video introduction into the subject
32017 Deloitte
Agenda
Challenges
Loss of relative importance of the German/ Western European chemicals industry,
especially at the roots of the value chain
Trends
Incremental trends create new business opportunities. Disruptive trends create
winners and losers among players in the chemicals industry and new eco-systems
Chemistry 4.0
Innovation that combines Digitalization and Circular Economy allows players in the
chemicals industry to take an important role in those newly forming eco-systems
Recommendations
Companies should actively explore and capture digital and circular opportunities.
Regulators can support through standards, infrastructure and incentives
2017 Deloitte
Challenges
Loss of relative importance of the German/ Western European chemicals industry, especially at the roots of the value chain
52017 Deloitte
Chemicals have reached a value peak, which managers currently find difficult to defend and very difficult to further increase
Challenges in the chemicals industry (schematic)
CommoditizationCheap energy & raws
Deflation
Growth in ChinaSector Consolidation
State Owned Enterprises
Chemicals Industry
Value PeakMargin decline &profit increase
62017 Deloitte
Value Peak – Value in the chemicals industry has peaked. Diver-sified chemicals companies under activist & shareholder pressure
Total return to shareholders (TRS)
[$ indexed Dec 31, 2000 = 100] [CAGR Dec 2000 – Mar 2015 (in %)]
2000 2005 2010 2015
400
300
150
0
250
200
100
350
450
50
9.8
Electronics
5.9Pharmaceuticals
6.3
8.0Automobiles
Consumer goods
Construction materials 9.4
Oil & gas
9.4
8.7
Mining
12.7
Commodity
8.0
14.1
Diversified
Speciality
Upstreamsuppliers
Chemicals
Downstream customers
Average, world market: ~5%Chemicals average: 10.5%
Average, world marketChemicals average
Source: Datastream, McKinsey
72017 Deloitte
Margin decline and profit increase – It is difficult or impossible to increase profitability in businesses, where gross margins decline
0%
5%
10%
15%
20%
25%
30%
35%
(% o
f sale
s)
Gross margin(-0,8% p.a.)
EBITDA margin(+0,9% p.a.)
Net margin(+2,7% p.a.)
Margin decomposition in chemicals industry
[in % of sales]
Source: Capital IQ, Deutsche Bank, Deloitte analysis
82017 Deloitte
Cheap energy & raws – Flatter cost curves reduce gross margins
Cash cost comparison 2015
[$/MT], @ $56/bbl of crude
0 20 40 60 80 100 120 140 160
Cumulative ethylene capacity, million metric tons
20152014
2012
Brent Crude
2012 = 112 $/bbl
2014 = 99 $/bbl
2015 = 56 $/bblWEP
WEP
NEA
SEA
NAM
MDE 280
175
215
240
70
325
295
310
90
80
75
90
80
Middle East - Ethane
USGC - Ethane
Europe - Naphtha
China - Syngas/MeOH
SE Asia - Naphtha
Feed Utilities Fixed
630
600
575
430
140
E.g.C2: Changing competitive dynamics & hydrocarbon resources
Cash cost flattening as oil settles between naphtha and gas based producers
Source: IHS, Tecnon, Deutsche Bank, ICIS; Deloitte analysis
92017 Deloitte
Deflation – Economic growth is driven by services, not by chemicals, materials and other goods
Price o
f core
goods/p
rice o
fcore
serv
ices [
no r
ebasin
g]
Year
0
20
40
60
80
100
120
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Average rate of inflation, 1984 – 2016:
Core goods: 1.04%
Core services: 3.46%
50
60
70
80
90
100
110
1985 1990 1995 2000 2005 2010 2015
Price of consumer goods relative to consumer services
1982-1984=100
Source: BLS/Federal Reserve Bank of St. Louis
Average rate of inflation, 1984-2016
Goods: 1.8%
Services: 3.6%
Average rate of inflation, 1984 – 2016:
- Core goods: 1.8%
- Core services: 3.6%
Price of goods, materials and chemicals relative to consumer service prices
[1984 = 100]
Source: Worldbank, BLS/ Federal Reserve Bank of St. Louis, Deloitte analysis
102017 Deloitte
Growth is largely determined by China. Outside China Chemicals grow 2.8% or 0.5% below global GDP growth
6.3 € T (100%)
Rest of World
1.6 € T (100%)
2.8 € T (44%)
LATAM
Rest of Asia
Germany (+1.1%)
2015
3.5 € T (100%)
South Korea
India
NAFTA
Japan
China
Rest of Europe
2030
1.3 € T (37%)
2000
0.2 € T (12%)8% of global
GDP
20% of
global GDP
24% of
global GDP
+2.8%
+3.4%
Chemical sales by country / region
[€T (% and CAGR in %)] (w/o pharma)
Source: VCI, CEFIC, Eurostat, Worldbank, Chemdata 2016, Prognos, Deloitte analysis Note: Without pharma sales
112017 Deloitte
Consolidation in Chemicals at segment, not industry level
TodayBefore 1990
CHF USDB/NL
Agro-
chemicals
Fertilizers
Ind. Gases
Polymers
Coatings
Horizonta
l Specia
lization
Specialty
Chemicals
Segment
From vertically integrated companies with national roots…
…to horizontally specialized, global segment leaders
122017 Deloitte
State owned companies increasingly dominate Chemicals
BASF
DuPont
Dow
ExxonMobil
Bayer
TotalFinaElf
Degussa
Shell
ICI
BP
2000
BASF
Dow
Sinopec
Sabic
Formosa
Ineos
ExxonMobil
LBI
Mitsubishi
DuPont
2015
Sinochem/CC
SaudiAramco
Mubadala/IPIC
Sabic
Sinopec
Reliance
Koch Ind.
BASF
Formosa
Ineos
2030
Western companies State owned companies
Top ten chemical companies by revenue
[2030 Deloitte estimations]
Source: C&EN, Deloitte analysis Note: 2030 are illustrative assumptions only
132017 Deloitte
The European chemicals industry is losing ground at global level, while at the same time increasingly relying on export business
German export share
[in %]
9.260
4.710
1.983
246189135
2000 2015 2030
GermanyGlobal
2.3%
5.9%
1.8%
2015 2030
85 %
2000
76 %
57 %
Commodity Chemicals 0.7%
Specialty Chemicals 1.9%
Pharmaceuticals 3.5%
Revenues and global market share
[in EUR bn (CAGR in %)] / [in %]
4.6%
7.1% 4.0% 2.7%
Source: VCI-Prognos Study; Deloitte Note: CAGR have been calculated based on 2030, not taken from original publication
142017 Deloitte
Especially the German/ Western European commodity chemicals roots are losing global competitiveness and market shares
DE Growth Rate (CAGR 1.8%)
DE Market Share 2015 (4.0%)
Global Growth rate (CAGR 4.8%)
DE Market Share 2030 (2.7%)
Commodity Chemicals Specialty Chemicals Pharmaceuticals
Specialty Chemicals
€19bn.(10%)
Petro-chemicals€48bn.(25%)
Polymers€29bn.(15%)
Bulk Inorganics
€11bn.(6%)
IndustrialChemicals
€10bn.(5%)
Pharma-ceuticals€46bn.(25%)
ConsumerChemicals
€21bn.(11%)
Fine Chemicals€5bn.(3%)
State-owned companies with low profit requirements
Import of base chemicals instead of production in Germany/ Western Europe
Low feedstock and energy prices
+
=
Strong WeakProduction in Germany / Europe endangered
Tran
sfo
rm
ati
on
Legend
X% X%
X% X%
-0.6% 4.3%
2.1% 1.0%
-0.3% 4.6%
7.3% 3.6%
1.5% 1.2%
3.8% 4.0%
2.2% 4.8%
4.4% 3.0%
1.2% 4.2%
4.8% 3.1%
1.3% 4.3%
3.1% 2.0%
3.5% 5.7%
3.8% 2.8%
2.6% 3.9%
3.1% 2.5%
Shortening of value chain
Source: VCI, Deloitte, Deutsche Bank Note: Figures are 2015 data [total: €189 bn., thereof €142.7 bn chemicals and €46.3 bn pharmaceuticals)
2017 Deloitte
Trends
Incremental trends create new business opportunities. Disruptive trends create winners and losers among players in the chemicals industry and new eco-systems
162017 Deloitte
Dynamic, partly disruptive developments around chemicals and demand for sustainability create opportunities and threats
New competitors
Transparency & digital processes
Digital operating system
Digital business models
New technologies
New customer demands
Resource efficiency
Greenhouse gas neutrality
Digital & circular synergies
172017 Deloitte
Overall, 30 trends have been identified, which will have a grave impact on the chemicals industry until 2030
Energy & Raw Materials Business-to-Business (construction, mobility, packaging)
Pharma & Health Care
1. Raw material mix and supply forGermany (I/EE)
2. Power-to-X (D/SP)
3. Waste-to-Chemicals (D/SP)
4. Carbon Capture Storage/ Carbon Capture Utilization (D/SP)
5. Renewable resources (I/SP)
6. Bio-refinery (D/SP)
7. Industrial biotechnology (D/EE)
8. Material efficiency in construction (I/EE)
9. Energy efficient buildings (I/SP)
10. Modular building (I/EE)
11. Electromobility (D/SP)
12. Lightweight vehicles (I/SP)
13. New mobility concepts (D/EE)
26. Personalized medicine (D/EE)
27. Genome editing in medical applications (D/SP)
28. E-Health (D/EE)
29. New Medical Technology (D/SP)
30. Self medication (D/SP)
Business-to-Consumer
18. Personalization of consumerproducts (I/EE)
19. Perception of chemicals (D/SP)
20. Changing relationship chemicalsupplier – customer (D/EE)
Agriculture
21. Urban Farming (I/EE)
22. Agricultural turnaround (D/SP)
23. Genetically modified plants (I/SP)
24. Genome Editing for precision breeding (D/SP)
25. Digitalization of agriculture (D/EE)
14. Additive manufacturing (D/EE)
15. Material mix for packaging (I/SP)
16. Bio-plastics for packaging (I/SP)
17. Renewable energy –production technologies (I/SP)
Source: Chemistry 4.0 workshops and expert interview Note: D=Disruptive/I=Incremental; SP=Societally/Politically and EE=Entrepreneuerially/Economically driven
182017 Deloitte
Incremental trends are areas, where chemicals companies perform well. Additional opportunities through digital tools
Societally / politically driven
Incremental
Entrepreneurial / economically driven
Raw material mix and supply for
Germany
Material-efficiency in
construction
Modular building
Urban Farming Personalization
Lightweight vehicles
Genetically modified
plants
Renewable energy – production
technologies
Energy-efficient
buildings
Renewable
resources
Bio-plastics as
packaging
Material mix for
packaging material
Large impactModerate impact
Little impact
Impact: Positive, Neutral, Negative
I/SP [#7]
I/EE [#5]
Categorization of trends
[12 of 30 are incremental]
Note: D=Disruptive/I=Incremental; SP=Societally/Politically and EE=Entrepreneuerially/Economically driven
192017 Deloitte
Incremental trends – New, lightweight vehicles and materials
Illustrative example – carbon fibers
Sources: Schuberth, BMW, Boeing, Bilfinger, BBS, Deloitte
202017 Deloitte
Disruptive trends will have a fundamental impact on the chemicals industry, creating “winners” and “losers”
Societal / politically driven
Disruptive
Entrepreneurial / economically driven
Genome editing in plants
Electro mobility
Perception of chemicals
(discussion on ingredients)
New medical technology
“Agrarwende” Bio-refinery
Carbon Capture Storage / Carbon Capture
Utilization
Waste-to-Chemicals
Power-to-X
Self-medication
Digitalization of
agriculture
Personalized
Medicine
E-Health
Changing relations chemical
supplier – end customer
Additive Manufacturing
New mobility concepts
Industrial
Biotechnology
Genome editing in medical
applications
Large impactModerate impact
Little impact
Impact: Positive, Neutral, Negative
D/SP [#11]
D/EE [#7]
Categorization of trends
[18 of 30 are disruptive]
Note: D=Disruptive/I=Incremental; SP=Societally/Politically and EE=Entrepreneuerially/Economically driven
212017 Deloitte
High performance polymers
Polyurethanes and
polypropylenes
Coatings
Pigments
Brake System
Battery materials
Catalyst
Coolants
(except A/C)
Fuel & oil additives
Axle/transmission/
engine lubricants
Disruptive trends| New drive trains in cars (e-mobility)
Expected volume change
Impact on chemistry
[example: E-mobility]
222017 Deloitte
Disruptive trends – Smart, digital products use radically less chemicals and materials to fulfill the given task
Precision farming
In-mould electronics
3D-Printing
Examples for illustration
[40-65% less chemicals & material usage]
Source: LocalMotors, Bayer-Monsanto, Holst, Faurecia, DuPont, Deloitte analysis
232017 Deloitte
Disruptive trends| Precision Farming optimizing the use of seeds, irrigation, fertilizers and agrochemicals
Data IntensityAsset Intensity
Extended Digital ProductsSolution Provider
Platform IntegratorIntegrated Ecosystems
1. Product
+ +
2. Smart Product
+
+ +
3. Smart, interconnected
Product
Planter
Culti-vation
+
Smart Tractors
Harve-ster
4. Product-System
5. Ecosystem
Innovation Model
Bala
nce
of
Pow
er
Farmer & Retail
Agchem, Seed & OEM
Open s
hare
d, publically
available
technolo
gy
Pro
prie
tary
inte
gra
ted
solu
tions
Bio and organicIndependent
Farmers
Commoditization
and generics
AgChem and Digital
Farming
Farm
equip-
ment
Data Intensity
Will there be a closed (iOS) or open system (Android)? Will AgChem Companies drive it?
Source: ClimateCorp, now BayerMonsanto (2015), PWC Global Industry 4.0 Survey; Deloitte
242017 Deloitte
Customer requirements gradually increase from incremental to disruptive changes in the surroundings of the Chemicals Industry
Production of better, optimized products or better production of excising products
Roles in value chains are newly defined and roles are
potentially changed or eliminated in the process
Optimization Customer Relationship
Disruptive ChangeIncremental change
Business Models
New business models and value structures arise; differentiation primarily
based on total offer being delivered in networks of manifold players (often
using digital tools)
Product
Existing products are replaced by fundamentally new products (physical or
digital)
New demands in the customer industries, driven by changed customer behavior, new technologies or regulation, results in fast and fundamental strategic, structural, and
technological demands for the chemicals industry
Customer demands grow along the historical development
Example:
Changing relations chemical supplier – end customer
E-health
Example:
Digitalization of agriculturePower-to-X
Additive Manufacturing
Example:
Industrial BiotechnologyPersonalized Medicine
Electro mobilityPerception of Chemicals
Example:
Lightweight in automotiveMaterial efficiency in
construction
2017 Deloitte
Chemistry 4.0
Innovation that combines Digitalization and Circular Economy allows players in the chemicals industry to take an important role in those newly forming eco-systems
262017 Deloitte
Digitalization and Circular Economy are the essential elements of Chemistry 4.0, following the 1.0, 2.0 and 3.0 developments
Chemistry 1.0Foundation and coal chemistry
Chemistry 2.0Petrochemicals
Chemistry 3.0Globalization & Specialization
Chemistry 4.0Digitalization & Circular Economy
1865
1950
1980
2010
Source: VCI, BASF
272017 Deloitte
With digitalization the industry can benefit from transformation through efficiency gains and driving new business models
Capturing company-internal data
Physical Digital
Capturing external data
Analyzing, interpreting,
connecting and visualizing data
(Analytics)
Applying algorithms, taking
decisions, acting based on data
Improving and connecting processes
Company Internal External
Introducing new products, services, business models
Transparency & digital processes
Digital business models
Data-based operating models
Source: Deloitte
292017 Deloitte
The efficiency potential of digital processes and digital operating models are rather in the downstream segments
R&D 30%
Procurement 5%
Logistics 20%
Production 15%
Sales & Marketing
40%
Administration 40%
Inorg
anciBulk
Chem
icals
Petr
ochem
icals
Indusri
al Chem
icals
Poly
mers
Fin
e &
Specia
lty
Chem
icals
Coatings,
Pain
ts,
Adhe-
seiv
es,
Ela
sto
mers
Pharm
aceuticals
Consum
ers
Chem
icals
Agro
chem
icals
Effic
iency g
ain
s(m
ax)
EBIT
DA e
ffect
(max)
Small impact Large impact
+1%
+2%
+1%
+2%
+3%
+2%
Overview of the digitalization impact
Source: VCI, Industrieverband Klebstoffe, Deloitte Analysis
302017 Deloitte
Societal, political and factual requirements increasingly demand higher resource efficiency. Seven levers to accommodate this need
(Re-)Design Resource-efficient and climate friendly
production
Return Recycling Regeneration of energy
Removal
Residue depositing
Customers and users of chemicals
Production of chemicals
Circular economy in the chemicals industry (7Rs)
312017 Deloitte
Application of chemicals and materials with different character-ristics - determine the use of the seven circular economy levers
Chemicals for
consumption
(e.g. detergents)
Pharmaceuticals and
food supplements
Crop protection
agents and fertilizers
PackagingPlastics,
synthetic fibers,
synthetic rubber
Composites,
ceramics,
metal alloys
Catalysts,
Membranes,
Cellular cultures
Additives,
pigments
Resins,
binders
Water chemicalsChemicals for mining
and fracking
Solvents
Abrasives, heating
media, coolants,
lubricants
auxiliaries
Production in all
segments of the
chemical and
pharmaceutical
industry
Production
ConsumptionAuxiliariesIn products –concentrated
Application through customers and consumer
Chemicals/
Materials
In products –dispersed
~ % revenues in DE 10% 35% 15% 40%
Source: VCI, Branchenverbände, Deloitte
322017 Deloitte
New ecosystems, new players, new alliances are being formed,E.g. Precision Farming, 3D/4D-printing, Personalized Medicine
Competition Competition
Chemical
Producer
Supplier
Distributor
Customer
New
players
Software
provider
Hardware
provider
Supplier
Chemical Producer
Distributor
Customer
Go
od
s, S
ervic
es, B
ran
d
Co
llab
orati
on
(D
ata
/ K
no
wle
dg
e)
Value based on production of
chemicals and materialsValue based on designing and building
smart, sustainable solutions
From linear economy … …to complex, often circular, ecosystems
2017 Deloitte
Recommendations
Companies should actively explore and capture digital and circular opportunities. Regulators can support through standards, infrastructure and incentives
342017 Deloitte
Companies should set strategic goals, seize opportunities, enhance resources, and transform the culture to embrace the trends
Improve political framework
Seize opportunities
Transform culture
Company structure
Competences – training
and recruiting
Investments
Enhance resources
Anticipate disruptions
Make digital and circular
an integral part of your
strategy
Amend decision criteria
Set strategic goals
Ideate freely
Utilize economic networks
Establish co-operations and
platforms
Develop new concepts for
participation
Seize opportunities
Transparent and open
Agile and tolerant
Collaborative und
communicative
Act multi-modal
Transform culture
Source: Workshops Chemistry 4.0, Political dialog sessions, Deloitte
352017 Deloitte
We have developed a check list for your chemistry 4.0 readiness
Chemistry 4.0 Checklist
Ch
em
istr
y 4
.0 C
hecklist
Opportunities
Digital opportunities
Circular economy
opportunities
Joint opportunities
Service Functions
Finance processes
IT processes
HR processes
QEHSA-processes
General Admin processes
Procurement processes
Document and contract
management
Operating and Business Processes
Cybersecurity
Efficiency potential (own value chain)
Efficiency potential (with suppliers,
customers, partners)
Efficiency potential in application
technology and development
Virtual R&D
Strategy and Organization
Strategy
Organization
Communications
362017 Deloitte
Chemistry 4.0 – Executive Summary
New development phase “Chemicals 4.0” (Digitalization& circular economy)
International competition
30 trends in the surrounding classified as incremental vs. disruptive and societal vs. economic
3 categories, 20 examplesof digital
Transparency and digital processes
Digital operating model
Digital business model
Circular economy as a holistic and open approach
From linear economy to resource efficiency and largely closing of material loops
Digitalization as enabler for circular business models
Companies need to- Set strategic goals
- Enhance resources- Transform culture - Build co-operations and
platforms and develop new engagement models
Politics should - Extend innovation grants- Support platform building- Train digital - Build infrastructure- Improve regulations for a
holistic concept of circular economy
- Create societal awareness what is needed to shift to a circular economy
Business models increasingly developing in ecosystems
Digitalization Circular Economy
Recommen-dations
Field Analysis