Outlook for Chemical and Specialty Chemical Manufacturers

In the news every day we see the changes in economic activity in the upstream oil & gas exploration and production business caused by the significant drop in oil prices over the past several months.

Emerson's Peter Cox

Peter Cox
Director, Global Chemical Industry

But what have been the implications for downstream producers in the chemicals and specialty chemicals businesses? I caught up with Emerson’s Peter Cox who leads the Chemicals industry group. He’s been closely following some of the analysis from organizations such as the American Chemistry Council and the European Chemical Industry Council (Cefic).

Peter notes that the chemical industry, with its vast diversity ranging from production of oil-based petrochemicals and plastics to the high-tech specialty and consumer chemicals, has learned to live with the VUCA environment—Volatility, Uncertainty, Complexity and Ambiguity. It seems that it has been and will always be the order of the day in the chemical industry, but producers are becoming more clever and proactive in dealing with this current environment.

He describes some of the risks chemical producers face today beyond the drop in crude oil prices including geopolitical unrest and its many implications as well as China’s continuing growth slowdown and uncertain outlook. Production costs of basic chemicals and plastics are highly dependent upon the price of energy and energy-derived feedstocks. In the Americas, the American Chemistry Council reports that chemical production continues to expand.

The combination of both of these factors can represent as much as 75% of the total cost of the end product. Given this fact, lower oil prices are taking most chemical and polymers prices down worldwide. No doubt this will compress profit margins in commodity chemicals, even as input costs from oil and its derivatives decline.

On the other hand, as you move further downstream into the specialty and consumer chemicals realm, their profit margins have actually improved due to the lower oil prices and the return on investment (ROI) has subsequently also improved. Chemical companies that are likely to benefit include those that manufacture products such as industrial coatings, adhesives, alcohols, fibers and solvents.

Source: ICIS.com, Whitepaper: Budgeting for Uncertainty

Source: ICIS.com, Whitepaper: Budgeting for Uncertainty

For example crude derivatives like propylene are a key raw material for paint and coatings companies. Propylene derivatives can be found in adhesives, coatings, floor tiles, and polyurethanes.

The European Chemical Industry as a whole is seen as the highest production cost region. The lower oil price has provided some relief and improved margins as was seen with the industry confidence level as well as the production capacity utilization reaching the highest levels in three years.

Also positive on a macroeconomic level, the ISM’s Purchase Managers Index is at a current level of 53.50 which is an increase of 2.20 or 4.29% from last year and is higher than the long term average of 52.79. For this index, anything above 50% signals expansion.

The chemical industry has always been robust because of its diversity and it has always been good in looking at improving itself in the face of unfavorable odds. Continuing to focus on improving the performance of assets will be key for the industry’s success. Depending on the industry subsector, this could entail:

  • Reducing costs through energy savings both on the energy production as the energy usage side
  • Improving production capacity (debottlenecking) by looking at pressure drops and bad acting control loops
  • Improving the asset reliability by understanding its behavior and avoiding unplanned trips
  • Improving operator responsiveness through better insight in unit and asset efficiency
  • Increasing batch quality consistency and shorter transition times between batches through better instrumentation and better batch management
  • Improving regulatory compliance and increasing safety performance through the use of intelligent wireless sensors to measure and manage previously hidden process information

Automation can do much to improve chemical manufacturing operations and to ensure companies can be ready for continued VUCA times ahead so they can be flexible and profitable for many years ahead.

You can connect and interact with other chemical industry experts in the Chemical industry group in the Emerson Exchange 365 community.

2 comments

  1. WirelessHART can be used to modernize chemical plants and other plants upstream in the value chain to improve in several of the areas mentioned:

    Energy: steam trap monitoring, relief valve seat leakage monitoring, energy management e.g. for the five W.A.G.E.S energy flows (water, compressed air, fuel gas, electricity, and steam), heat exchanger fouling, and cooling tower fan optimization etc.

    Reliability: condition monitoring for pumps, blowers/fans, air cooled heat exchanger (fin fan), balance of compressors, cooling towers, pipe & vessel corrosion, valves, and flowmeters, as well as automatic data collection for vibration, temperature, and acoustic data

    Process operations productivity: automatic data collection instead of manual operator clipboead rounds to read gauges, sight glasses, and VA meters. Various missing measurements on offsite tank farm storage tanks

    HS&E: monitor emergency safety shower and eyewash stations for activation, manual and bypass valve position feedback, relief valve and rupture disk release, shutdown valve position confirmation, hydrocarbon leak/spill detection, and effluent discharge etc.

    Increased instrumentation and plant modernization is quite easy since the additional instrumentation requires no wires, and many of the sensors are non-intrusive. See further explanation in this article:

    Beyond the Control Room
    http://www.ceasiamag.com/article/beyond-the-control-room/10658

    For an existing plant, pervasive sensing can be added using wireless. For a new plant, pervasive sensing infrastructure beyond the P&ID has to be planned from the very beginning of a project. Below are a few more articles:

    NEW: Cut Your Losses with Relief Valve Monitoring
    http://www.ceasiamag.com/article/cut-your-losses-with-relief-valve-monitoring/11036

    Second Layer of Automation
    http://www.ceasiamag.com/article/second-layer-of-automation/10354

    Maintenance with a Hart
    http://www.ceasiamag.com/article/maintenance-with-a-hart/9894

    Smart Sensing: Situational Awareness
    http://www.iaasiaonline.com/more.php?id=2222&cat=im

    Are you sending people in harm’s way?
    http://www.iaasiaonline.com/more.php?id=1956&cat=ii

    Wireless for Asset Uptime
    http://www.ceasiamag.com/article/wireless-for-asset-uptime/8689

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