how should south african chemicals companies cope with the economic downturn mar09
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"How Should South African Chemicals Companies Cope with the Economic Downturn?"
Mani James, Programme Manager
Chemicals, Materials and Food
March 19th, 2009
2
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
3
Economic Downturn
• 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%
Pe
rcen
tage
of g
row
th
CHEMICAL PRODUCTION GROWTH BY REGION %
ANNUAL CHANGE
-15
-10
-5
0
5
10
15
20
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
%
ME/Af
AP
WE
NA
Source: Frost & Sullivan
4
How is the South African chemicals sector faring?
• Consistent demand for various types of chemicals has seen the Middle East and Africa record positive growth of over 14%
• Demand for chemicals is expected to be steady as sub-Saharan African countries are witnessing impressive GDP growth and are continuing to invest
• Core sectors driving demand are infrastructure development, housing, energy and transportation
• Countries such as Nigeria, Angola, Mozambique, Zambia, Uganda and Ethiopia in particular are all expected to grow between 3% - 5% in 2009
• Africa has oil and gas feedstock, a sizeable population and relatively low cost labor which makes it a viable attractive investment destination
2008 South african Chemical Industry segments
Composistion
Base
Chemicals
41%
Polymers
and Plastics
27%
Intermediate
Chemicals
13%
Inorganic
Chemicals
8%
Specialty
Chemicals
11%
Source: Frost & Sullivan
5
How is the South African chemicals sector faring?
So
urc
e:
Fro
st
& S
ulliv
an
Com parison of PPI index for domestic output in the South African
chem icals industry
0
50
100
150
200
250
300
350
Basic organic
chem icals
Bas ic inorganic
chem icals
Fertiliser and
pestic ides
O ther basic
chem icals
Paints, vanishers
and related products;
artis ts ' colours ; ink
O ther com pound
chem ical products
Ind
ex
Feb-08
Jul-08
Dec-08
-0.1%
9.7%
36%
12%
10%
17%
6
Key Product Trends
7
Key Product Trends
Source: Frost & Sullivan
Spending on pharmaceuticals and other speciality chemicals is expected to reduce considerably.
Speciality 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
Intermediate Chemicals
Developing and emerging economies will continue to invest in food-related activities. Nigeria, Mozambique and Zambia are hot spots
Agrochemicals
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
Polymers and Plastics
Petrochemicals and liquid fuels are likely to experience growth in line with global trends. Nigeria, South Africa and Angola are hot spots
Base chemicals
Indications and hot spotsTrendSector
8
Key Industry trends
Industry Challenges and Drivers
9
Major Challenges
Key Market Challenges
Key Market Challenges
Source: Frost & Sullivan
Key market challenges to the South African Chemicals industry, 2008
Current economic situation
Low product brand
awareness
Weakened supply chain
Rising raw material prices
10
Major Drivers
Infrastructure
growth – focus on
2010
Product
improvement
through technological
advances
Sustained growth in
key end user
industries
Note: The length of the arrows represent the degree of impact.
Consumer
spending to
increase
Increased
demand for
commodities in sub-Saharan
African
economies
Market drivers
Growth in core
sectors beyond
2010
11
How to cope with the economic downturn
Areasto
Concentrate
High
Low
Impact on BusinessLow High
New Geographic Expansion
Mergers and Acquisitions
Strategic Alliances
Supply Chain Network
Steady Spending
Green Products Emerging
Market Opportunities
Cost Effective Production
Understanding Customer Needs
12
Best Practices in the South African chemicals industry
Industry
Best Practices
Industry
Best Practices
Establisheddistribution
networknationwide
Establisheddistribution
networknationwide
Low-cost performancedriven products
Low-cost performancedriven products
Exceeding customerexpectations
Exceeding customerexpectations
Technologicallysuperior products
Technologicallysuperior products
Excellent productperformance
Excellent productperformance
Well establishedR&D capability
Well establishedR&D capability
13
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
14
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:
• Focus on 2010 initiatives
• Sub-Saharan African countries – hot growth spots and growth potential to be tapped
• Focusing on fundamentals is key
• Concentrating on strategies that are aligned with growth prospects
• Adapting best practices, and doing so before being forced into it by the competition
15
Next Steps
� Register for Frost & Sullivan’s Growth Opportunity Newsletter and keepabreast of innovative growth opportunities(www.frost.com/news)
� Register for the next Chairman’s Series on Growth: (www.frost.com/growthEU)
� Join us at our 3rd Annual Customer Contact Executive MindXchange (June 2009, Europe)
� Join us in London on 19 – 20 May at Growth, Innovation and Leadership 2009: A Frost & Sullivan Global Congress on Corporate Growth Event (www.frost.com/giluk)
� Request a proposal for a Growth Partnership Service to support you and your team to accelerate the growth of your company.
16
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17
For Additional Information
Steve LeeStrategic Account ManagerChemicals, Materials and Food, Asia Pacific(65) 6890 0914steve.lee@frost.com
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