How Should South African Chemicals Companies Cope With The Economic Downturn-mar09

"How Should South African Chemicals Companies Cope with the Economic Downturn?"

Mani James, Programme Manager Chemicals, Materials and Food March 19th, 2009

Focus Points • • • • • • • •

Economic Downturn – the global chemicals industry Analysis of the South African chemicals Industry Key product trends Key industry challenges and drivers How to cope with the economic downturn Key end user market trends Best practices in the South African chemicals sector Conclusions

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Economic Downturn

•

•

CHEMICAL PRODUCTION GROWTH BY REGION % ANNUAL CHANGE 20 ME/Af

15

AP WE

10

NA

5

%

•

Global chemical production is decreasing at an alarming rate, down over 4% in November as demand from core sectors collapses Some major announcements by companies in the chemicals sector include: • A US chemicals, coatings and glass producer is considering more job cuts and restructuring after it was reported the company may cut up to 4,500 jobs • US chemicals major DuPont reported a $629m (€478m) loss for the fourth quarter Chemical industry participants are cutting back production, shuttering or idling plants and conducting massive layoffs to stay afloat The Africa and Middle East chemical sector is however growing at 14%

Percentage of growth

•

0 -5 -10 -15 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Source: Frost & Sullivan

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How is the South African chemicals sector faring? •

•

Consistent demand for various types of 2008 South african Chemical Industry segments chemicals has seen the Middle East and Composistion Africa record positive growth of over 14% Demand for chemicals is expected to be Specialty steady as sub-Saharan African countries Chemicals are witnessing impressive GDP growth and 11% Inorganic are continuing to invest Base Chemicals Chemicals • Core sectors driving demand are 8% 41% infrastructure development, housing, Intermediate energy and transportation Chemicals • Countries such as Nigeria, Angola, 13% Mozambique, Zambia, Uganda and Polymers Ethiopia in particular are all expected and Plastics to grow between 3% - 5% in 2009 27% • Africa has oil and gas feedstock, a sizeable population and relatively low Source: Frost & Sullivan cost labor which makes it a viable attractive investment destination

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How is the South African chemicals sector faring?

350

Com parison of PPI index for dom estic output in the South African chem icals industry 36%

Feb-08 Jul-08 D ec-08

300

250

-0.1%

12%

17%

9.7%

150

100

50

0

Bas ic organic c hem ic als

Bas ic inorganic c hem ic als

Fertilis er and pes tic ides

O ther bas ic c hem ic als

Paints , vanis hers O ther c om pound and related produc ts ; c hem ic al produc ts artis ts ' c olours ; ink

Source: Frost & Sullivan

Index

10% 200

5

Key Product Trends

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Key Product Trends Sector

Trend

Indications and hot spots

Base chemicals

Petrochemicals and liquid fuels are likely to experience growth in line with global trends. Nigeria, South Africa and Angola are hot spots

Polymers and Plastics

Infrastructure spending by government and companies looking for alternates to traditional products is likely to drive growth. Angola, Nigeria, DRC, Mozambique and South Africa are hot spots

Agrochemicals

Developing and emerging economies will continue to invest in food-related activities. Nigeria, Mozambique and Zambia are hot spots

Intermediate Chemicals

Demand in metals is likely to decline in the wake of the global crisis and manufacturers are expected to cut down production in line with global trends

Speciality Chemicals

Spending on pharmaceuticals and other speciality chemicals is expected to reduce considerably. Source: Frost & Sullivan 7

Key Industry trends

Industry Challenges and Drivers

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Major Challenges Key market challenges to the South African Chemicals industry, 2008

Weakened supply chain

Current economic situation

Key Key Market Market Challenges Challenges

Low product brand awareness

Rising raw material prices

Source: Frost & Sullivan

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Major Drivers

Infrastructure growth – focus on 2010

Increased demand for commodities in Growth in core sub-Saharan sectors beyond African 2010 economies

Product improvement through technological advances Consumer spending to increase

Sustained growth in key end user industries

Market drivers

Note: The length of the arrows represent the degree of impact.

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How to cope with the economic downturn

High Green Products Steady Spending

Emerging Market Opportunities

Strategic Alliances

Cost Effective Production

Areas to Concentrate Mergers and Acquisitions

Understanding Customer Needs Supply Chain Network

New Geographic Expansion

Low High

Low Impact on Business

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Best Practices in the South African chemicals industry

Low-cost Low-cost performance performance driven driven products products

Technologically Technologically superior superior products products

Exceeding Exceeding customer customer expectations expectations

Industry Industry Best Best Practices Practices Well Well established established R&D R&D capability capability

Excellent Excellent product product performance performance Established Established distribution distribution network network nationwide nationwide

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Key End User Market Trends •

Chemical companies are expanding operations into more sub-Saharan African countries. •

Companies such as Sasol and Omnia have committed close to ZAR 50 billion in capital expenditure spending until 2011

•

French energy group Total and Algeria's Sonatrach confirmed plans for a $3bn gas-based project in Arzew

•

The large emerging economies, particularly China and India, are eyeing Africa as part of efforts to source energy and raw materials to feed their rapidly expanding manufacturing sectors

•

Middle Eastern feedstock supplies have been largely allocated, and this is also motivating chemical majors to look further afield into sub-Saharan Africa

•

With a population estimated at over 805m, Africa presents a large opportunity in terms of chemical consumption.

•

The food, plastic products and textiles industries are driving growth in African demand for polymers - including thermoplastics, isocyanates, fibres and paints

•

Reduction of fuel imports and a high oil price have fuelled the demand for alternative fuel sources such as biofuel

•

Chemical product manufacturers in construction chemicals will capture growth opportunities in governments’ expanded infrastructure programmes

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Conclusion

•

The South African chemicals sector has been largely unaffected by the current global economic turmoil

•

Core sectors driving demand are infrastructure development, housing, energy and transportation: • •

•

Focusing on fundamentals is key •

•

Focus on 2010 initiatives Sub-Saharan African countries – hot growth spots and growth potential to be tapped

Concentrating on strategies that are aligned with growth prospects

Adapting best practices, and doing so before being forced into it by the competition 14

Next Steps


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For Additional Information

Steve Lee Strategic Account Manager Chemicals, Materials and Food, Asia Pacific (65) 6890 0914 [email protected]

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