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In the year 2020, if the chemical and performance technologies business could be summarized in one word, it would be "disruption." Some companies thrived, such as disinfection and diagnostic reagent manufacturers, while others faltered, such as those in the automobile, refining, and construction industries, to mention a few. Whether preparing for unanticipated surges in demand or battling to stay afloat, both scenarios resulted in considerable disruption.

In just a year, so much has changed. Previously used tactics are no longer effective. The pandemic highlighted industry flaws and boosted transformation efforts greatly. As one of five key trends that will shape 2021, digital will continue to be fast-tracked across every aspect of the chemical industry.

A renewed focus on the environment

Strong demand for both commodity and specialty chemicals should keep prices stable throughout the year as the chemical sector enters 2022. As key industry companies focus on boosting capacity and expanding into new end markets through both organic and inorganic methods, the industry should see higher capital investment. However, due to raw material cost inflation, which is expected to continue strong through the first half of 2022, the industry may suffer margin constraints.

Sustainability and decarbonization will likely be one of the most important areas of concentration for most US chemical businesses in 2022. Many chemical businesses are projected to expand their R&D spending and take advantage of advancements in decarbonization and recycling technology to minimize their own and their customers' carbon footprints and plastic waste. As a result, by 2022, more industry actors should have set targets and plans for reducing emissions and monetizing waste. In our annual industry forecast, learn more about what lies ahead.

TRENDS IN THE CHEMICAL INDUSTRY

Digitalization is becoming more widespread

The pandemic brought everyone's attention to the critical role of technology. The crisis' exceptional scope and speed resulted in a massive increase in technology investments. In reality, a spike in digital transformation is rarely seen in GDP figures, but this year's epidemic year was an exception.

While few firms could have anticipated something as significant as COVID-19, digital leaders were far better prepared than their counterparts. They also had stronger infrastructure in place to deal with the immediate requirement to switch to remote work and operations.

The digital focus in 2021 will be on changing structures and processes—connecting front, middle, and back offices—so that information may move freely between them. This ensures that all relevant information is available for decision-making, planning, and assistance. Emerging technologies such as robotic automation, artificial intelligence, machine learning, and natural language processing will almost certainly be more widely adopted in a connected organization. These investments will pay off in terms of increased revenue and efficiency—as well as better customer service.

The chemical business, which has lagged behind many others in adopting digital best practices, should learn from industries that have successfully transitioned to a connected organization, such as media, telecom, and technology.

Increased leadership diversity

Despite recent progress, the percentage of women and minorities in positions of chemical leadership remains stubbornly low. Leadership has traditionally followed a pretty traditional model: most have a chemical engineering degree and similar business experience, and they come from similar backgrounds, which could lead to a lack of variety of thinking. Better variety is required in today's dynamic environment to introduce fresh perspectives and ideas to deliver greater agility in responding to new problems.

The organization's diversity must be reflected throughout. Chemical businesses who can win the struggle for diverse and digitally savvy talent a conflict that will be fought across numerous industries—will be the most successful in the coming years.

Acquisitions and mergers

Multiple mergers and acquisitions have occurred in the recent few years, resulting in significant consolidation. M&A is being pushed by increasing pressure to assemble the resources needed for digital transformation as a result of poor overall industry growth and a desire to consolidate resources and expertise in the sectors with the most potential development. Mega mergers are reshaping the industry's top tier, a fact that has not gone unnoticed by farmers, legislators, and regulatory organizations.

COVID-19 had little effect on deal making. Even in a difficult market, there were a number of multibillion-dollar and billion-dollar deals. To name a few, Trinseo bought Arkema's PMMA business; BP sold its petrochemical business to INEOS; PPG bought global coatings manufacturer Ennis-Flint and then announced its intention to buy Tikkurila Oyj; and Cinven and Bain Capital announced their intention to buy Lonza's Specialty Ingredients business for $4.7 billion.

Cheap and plentiful funding, rising private equity interest in the industry, liquidity challenges on troubled companies due to the pandemic impact, and a desire by certain corporates to exit underperforming or noncore operations are all fueling M&A activity.

Transformation to the digital age

The push on all chemical firms to adopt innovative technologies and restructure their operations and structures has increased as demand and competition have grown. Implementing modern technology can result in increased efficiency, safety, and dependability, as well as cost savings for the producer. These changes are also opening the door to new business models that might bring chemical companies closer to their suppliers, direct customers, and even end customers.

Portfolio diversification

Many of the largest chemical companies have historically been diversified—typically as a result of previous M&As—but over the last decade, there has been pressure to restructure portfolios to focus on fewer, core industries, much of it pushed by activist investor pressure in the United States. Those enterprises that were concentrated on the "wrong" parts of the market, on the other hand, were the ones who suffered the most during the pandemic.

Following the lessons of 2020, all chemical businesses must actively examine their portfolios and consider whether a change in direction is warranted. Diversification should no longer be regarded as a negative word in the industry—as long as it isn't used as an excuse for a lack of focus.

Climate change is pushing efforts to achieve sustainability

As the effects of climate change become more obvious in 2022, governmental and scientific forces will undoubtedly compel the chemical industry to decarbonize. Furthermore, as the public becomes more aware of plastic waste and poor end-of-life product disposal, the industry may face further scrutiny.

While the chemical industry's carbon emissions are difficult to reduce due to its dependency on process heat, breakthroughs in decarbonizing chemical manufacturing could have a global impact. Because chemistry provides the building elements for numerous value chains, the benefits of decarbonizing chemical enterprises may extend beyond the industry.

Conclusion

As more end-users purchase appliances, consumer goods, automobiles, and other products that need the usage of chemicals and plastics, rising standards of living and a growing middle class in emerging nations will generate continued robust demand for chemicals. However, in order to take advantage of these prospects, chemical businesses must embrace digital transformation, which will allow them to update their development, planning, and production processes.

Leading organizations will accelerate their digital transformations–via technology, processes, and people–as the chemical sector seeks for ways to distinguish and excel in a fiercely competitive consolidated environment. Companies who are ready to adopt the most disruptive, challenge-the-conventional-industry-wisdom approaches to their business models may be the most successful.