Business leaders across all industries are keeping an eye on 2019, wondering whether favorable marketplace conditions might materialize. For executives overseeing enterprises in the U.S. chemicals space or other sector-adjacent organizations, the outlook for 2019 is quite favorable. Production in the states is expected to rise 3.6 percent over the forthcoming 12-month span as manufacturers introduce new higher-capacity workflows and demand in key market increases, according to research from the American Chemistry Council. These developments are likely to lay the foundation for long-term growth, ACC analysts found, vaulting revenue beyond $700 billion by 2023. However, paired with this maturation are a number of significant challenges that American chemical companies will have to address over the course of 2019 and beyond. So as executives and other key stakeholders in the U.S. chemicals space prepare for the coming year, it essential that they weigh every variable in this complicated growth equation.

Dissecting the industry upside

The American chemicals industry has been on the upswing for the past three years, with manufacturers making considerable production headway due, in part, to rising demand within the automotive sector, ICIS reported. Here, the average vehicle rolls out of the factory equipped with $3,500 worth of chemical products. Housing has also been a boon for the sector, along with the oil and gas and mining spaces. However, the strengthening U.S. manufacturing is perhaps the biggest driver behind the ongoing growth within the American chemicals arena. Output and capacity in this sector, whose members consume countless chemical compounds during the production process, have risen steadily for the last decade, according to data from the Bureau of Labor Statistics analyzed by the Federal Reserve. These trends have greatly benefited the stateside chemical space, which now appears to be poised for additional expansion over the next year.

Grappling with future challenges

That said, there are some burgeoning roadblocks that might hold U.S. chemical companies back in 2019, beginning with the declining state of the global marketplace. Chemical manufacturers outside of the U.S. are struggling as a consequence of numerous variables, including the emergence of protectionist trade policy, according to researchers for PricewaterhouseCoopers. Global chemical production decreased in the opening weeks of the fourth quarter, continuing an underwhelming year for sector in general, ACC analysts found. This is likely to continue into 2019, which might drag on the U.S. industry even as it grows. Unfortunately, the industry is expected to face additional challenges stemming from another corner of the global marketplace: the manufacturing sector. Manufacturing firms worldwide are grappling with several serious issues – most notably severe labor shortages and rising raw material prices, Reuters reported. Consequently, economists foresee the arrival of strong financial headwinds that threaten not only manufacturers operating abroad but also those based in the U.S. Should adverse developments materialize in this arena, American chemical companies could certainly feel the effects.

In addition to these relatively recent roadblocks, chemical manufacturers in the states continue to deal with several long-standing issues. Enterprise digitization, for instance, continues to pose problems for businesses in the industry, according to consultants for PwC. While most recognize that they must rejigger their internal processes and workflows to meet the needs of technology-savvy customers and keep pace with forward-thinking competitors, pinpointing and implementing the right digital tools continues to be a challenge for chemical companies everywhere.

Making the most out of the market

The businesses that populate the American chemicals sector have solid footing in the marketplace and appear to be in a strong position entering 2019, according to the ACC. However, it is essential that these firms continue to pursue operational improvement, as there are a variety of pitfalls in play here at home and abroad.

 

Drinking water quality measures worldwide have reached historic highs. Today, an estimated 71 percent of the global population has access to safe drinking water, according to researchers from the World Health Organization. The U.S. boasts some of the cleanest supplies on the planet, as 94 percent of its residents can take advantage of pollutant-free aquifers, pipes and fixtures. Numerous parties laid the foundation for this progress, here and abroad. From government institutions and nonprofit organizations to private enterprises, countless entities have contributed to drinking water decontamination efforts across the globe. Surprisingly, chemical companies are among these H20-conscious groups.

Businesses within the global chemicals space have long provided the synthetic materials needed for water treatment operations. These organizations produced more than $24 billion worth of such products in 2018 alone and are expected to generate another $25 billion in water treatment chemicals this year, according to projections from BlueWeave Consulting and Research. In short, chemical companies play an essential role in drinking water decontamination programs and will continue to do so as these initiatives expand.

Unpacking the water treatment equation

Here in the U.S., water treatment unfolds at the community level. Independent public drinking water systems across the country sanitize the supplies found within local aquifers and transport the clean end product to individual homes, per the Centers for Disease Control. The decontamination portion of this process features four distinct phases:

• Coagulation and flocculation: Water treatment teams introduce positively-charged chemicals to untreated water. This neutralizes the negative charges carried by dissolved sediment and draws these particles together, creating larger, easier-to-handle dirt flecks called floc.
• Sedimentation: The floc sinks to the bottom of the supply and settles there.
• Filtration: With the larger contaminants resting at the base of the supply, water treatment personnel run the purified water above through a series of filters that collect particles still present in the H20, including charcoal, gravel and sand. These fixtures also catch microorganisms such as bacteria, parasites and viruses.
• Disinfection: Following filtration, a number of disinfectants are put into the supply to eliminate any lingering bacteria and inoculate the water against any of the germs it might pick up will traveling through delivery infrastructure.

This water purification methodology has proven extremely effective domestically, despite the scale at which it is deployed. However, this is not the only strategy communities around the world use to rid their supplies of harmful particles. For instance, some leverage slow sand filtration, a much simpler and more cost-effective technique, according to the WHO. That said, the approach outlined above is perhaps the most dominant water treatment procedure in Western nations with access to ample capital and manpower.

Understanding the role of chemical companies

Enterprises within the chemical production arena provide the solutions that propel the water treatment process deployed here in the States. Aluminum sulfate and other inorganic substances are used during the coagulation process, neutralizing the charged ions attached to dangerous contaminants and making them more manageable, per the Minnesota Rural Water Association. Chemicals facilitate flocculation too. All manner of molecular polymers are used here, lending loosened particles the magnetic attraction that allows them to bunch and sink the bottom of supplies in the moments before sedimentation.

And finally, chemical compounds make drinking water disinfection possible at scale, according to the American Chemistry Council. Chlorine is the dominant product here and has been for more than a century. The U.S. and Canadian government began using chlorine to treat drinking water during the early 1900s and have relied heavily on the chemical ever since. Why? Chlorine is an effective germ killer and can easily dispatch waterborne microorganisms, while keeping funguses and harmful chemicals such as ammonia and nitrogen at bay. It eliminates unwanted tastes and odors as well. Together, these features make it an ideal compound for use in this essential industrial niche.

Facing future water treatment challenges

While the chemical companies and other entities that support water treatment operations in the U.S. and abroad have managed to achieve significant success, numerous challenges lie ahead. Crumbling infrastructure is perhaps the most pressing for all parties. The American national drinking water delivery system, which is centered on fixtures installed 75 to 100 years ago, is falling apart, according to field analysis from the American Society of Civil Engineers. For chemical companies, other infrastructure problems, including deteriorating domestic railways, roadways and waterways, complicate logistics, creating further water supply risk. In addition to infrastructure-related hardships, chemical companies are coping with product-centric issues related to the increased regulation of disinfection byproduct, per the ACC.

However, chemical companies are up to the task. Many are providing products to supplement decaying water delivery infrastructure and ensure communities can access safe H20. They are also adjusting their supply chains to combat logistical issues and looking into new disinfectants to meet federal regulations and put residents at ease. In the end, these efforts will strengthen the industry and, by extension, the water treatment operations it supports across the globe.

Procurement is an unceasing challenge for businesses across virtually all sectors. From supply chain breakdowns to stocking issues, the stakeholders managing this essential organizational function often find themselves putting out fires rather than developing and deploying overarching operational strategies. However, these hardships are particularly pronounced for firms orbiting the chemicals space. Here, chemicals producers and consumers grapple with significant procurement roadblocks, some of which are entirely unique to the industry. Instead of mitigating procurement issues as they materialize, these chemicals-adjacent companies must pinpoint and implement sustainable solutions that lay the foundation for success, now and in the future.

Here are some of the common procurement challenges that arise in the chemicals sector and what industry leaders are doing to address them:

Product toxicity

It is no secret that many of the products chemicals manufacturers develop are hazardous by nature. For instance, sulfuric acid, which is perhaps the most commonly produced and used chemical compound in the world, according to researchers from the University of York in the U.K., is intensely caustic and poses a serious threat to all who handle it, including logistics teams. The ubiquitous industrial ingredient ethylene, which the American Chemical Society deemed an imperative “petrochemical building block,” is similarly dangerous and can cause considerable damage if exposed to open flames or agitated, the Centers for Disease Control and Prevention found. This variable complicates the procurement process, as producers, shippers and buyers must implement safety measures to protect workers, bystanders and the environment, lest they risk regulatory action from government agencies such as the Pipeline and Hazardous Materials Safety Administration. In most cases, this involves developing safety training programs, investing in viable chemical transportation assets and cultivating complex reporting workflows, according to Inbound Logistics.

On the surface, these demands appear excessive and almost impossible to meet. This is not the case. Numerous organizations in the chemicals space manage to maintain compliant, efficient and effective procurement processes that drive growth. Most of these high-performers achieve this by ensuring supplier excellence via robust sourcing and vendor evaluation practices. This allows them to pinpoint and collaborate with only those partners that can facilitate optimal availability, while meeting regulatory and safety standards. This emphasis on partnership and supplier excellence has proven effective among businesses with top-flight procurement operations, according to analysts for the consulting form A.T. Kearny, who found that this strategy generated 27 percent of the total procurement value when deployed effectively.

Increased competition

Competition is fierce in the global chemicals industry, which rakes in approximately $5 trillion in sales annually, researchers for Deloitte revealed. While this robust marketplace offers immense potential, it also creates significant operational issues, especially where procurement is concerned. The cost pressures and increasingly intricate organizational relationships that have arisen as a consequence of this booming environment make it difficult for suppliers distinguish themselves. And, the shortened value chains associated vertical integration and portfolio consolidation create risk for purchasers. In all, the immensely competitive state of the chemicals space has created volatility that disrupts procurement operations.

That said, both chemicals suppliers and consumers have viable options for addressing such competition-related roadblocks. For those in the latter category, network optimization combined with renewed client collaboration workflows can bring down expenses and attract the attention of potential customers, all of whom prize cooperation and transparency. Businesses reliant upon raw chemical compounds must explore new supplier selection and performance tracking methods, while adding elasticity to existing vendor networks to mitigate the risks that come with managing procurement operations in an arena where mergers and acquisitions flourish and vertical integration reigns.

Fluctuating economic policies

For the better part of the last decade, businesses everywhere have been adjusting their processes to address the emergence and crystallization of globalization. Procurement stakeholders in the firms navigating the chemicals arena pursued extensive infrastructure expansions in an effort to more effectively tap global supplies and draw in international customers. Unfortunately, things appear to be moving in the opposite direction thanks to the very recent phenomenon of “deglobalization,” according to PricewaterhouseCoopers. Over the last year, countries across the world, including the U.S. and U.K., have disengaged from the global marketplace with the intention of boosting domestic growth. This has further complicated procurement activities in the chemicals space, as businesses that spent years rolling out worldwide supply networks now grapple with finding themselves working to mitigate the risks that materialize as this bulwark breaks down.

Optimizing supply chain flexibility is really the only recourse for the organizations dealing with this particular issue. These entities must have options when it comes to procuring raw materials and finished chemical compounds, and this necessitates the cultivation of multi-layered supplier networks primed to reduce the risk of operating amidst deglobalization.

Together, these issues pose a serious challenge to procurement departments tasked with sourcing chemicals and the base compounds that form their foundations. However, as discussed above, there are viable solutions for addressing these roadblocks, no matter how serious.

Plastic is perhaps the most dominant industrial material on the market. From building supplies and consumer items to commercial packaging provisions and textiles, plastic is deployed in the fabrication of countless products. However, this foundational substance would not boast such value without plasticizers – the colorless and odorless chemicals that make it pliable and therefore usable across numerous applications. In 2017, organizations worldwide invested more than $12 billion in plasticizers, according to research from MarketsandMarkets. The market for this material is expanding at a compound annual growth rate of almost 6 percent, with analysts expecting plasticizer spending to reach $16.15 billion by 2022. Of course, this should come as no surprise to those familiar with this transformative substance.

Grappling with the plasticization process
Plasticizers are responsible for softening a variety of plastics – most notably, polyvinylchloride, more commonly known as PVC or vinyl. Businesses that produce and sell this material account for between 80 and 90 percent of the plasticizer market, according to IHS Markit. Phthalate esters are the most common plasticizer types, accounting for 65 percent of all the plasticizer products sold in 2017. These assets center on alcohol and phthalic acid, which combine with plastic polymers to reduce rigidity and support optimal chain flexibility. The acid’s low molecular weight makes these outcomes possible, cutting down on crystallization and supporting polymer elongation. In the end, this entire process lays the groundwork for great flexibility and strength, two qualities that make vinyl an immensely popular material.

Grasping the impact of plasticization
Vinyl and other plastics produced via plasticization hold great sway in the global marketplace, underpinning a variety of critically important industries. The homebuilding industry is perhaps the biggest consumer of PVC, as roughly three-quarters of all vinyl products are used in construction projects, analysts for the American Chemistry Council discovered. Where? Just about any homebuilding application imaginable. Synthetic products such as vinyl flooring are extremely popular among architects and builders, more than half of whom reported using these items in 2018, according to data from the American Institute of Architects. PVC is also an essential ingredient in many electrical wiring products, including conduit which is used to protect cabling. And vinyl is, of course, the linchpin component found in PVC plumbing fixtures, which is industry standard.

As mentioned above, the homebuilding sector is merely one of the many industries that leverage products derived from plasticizers. Packaging, for instance, is another industrial arena that relies heavily on PVC, the ACC found. As does the health care space, where hospitals and other medical entities take advantage of PVC-based intravenous therapy and blood bags that are flexible yet unbreakable. In all, this versatile material has an immense impact on consumers, playing a central role in the creation of key consumer products, some of which quite literally save lives.

Unpacking the plasticizer safety equation
Despite the widespread use of PVC and similar plastics, some question the safety of items fabricated via plasticization, Stephane Content, Sector Group Manager for the European Council for Plasticizers and Intermediates, explained in an interview with Chemistry Views. Why? Content said a small number of concerned customers and environmental health and safety analysts believe plasticizers leach out of PVC products, resulting in the release of harmful gases. In reality, in well-formulated compounds and products, this is not the case. Leaching of this kind only occurs in the event that vinyl is exposed to highly caustic solvents for extended periods of time, or in a compound that may not be properly and definitively compounded for its’ required application. For everyday items, the possibility of this occurring is slim-to-none. In addition to leaching, some outside of the plastics space have been known to claim that PVC dust is an active irritant or pollutant. Again, scientific studies have proven this to be false. PVC dust poses no harm.

On top of being safe, plastic materials produced via plasticization are heavily regulated, according to the ACC. The Environmental Protection Agency, U.S. Food and Drug Administration and NFS International, a third-party product testing organization, manage PVC-related regulatory workflows and ensure all vinyl materials used in the American industrial space are safe to consumers.

How plasticization propels product advancement
Plasticizers and the polymer fortifying processes in which they are used are critical to numerous industries, lending enterprises across numerous spaces the ability to create and deploy sturdy assets that stand up to punishment and the slow march of time. And, as plastics carve out an even deeper niche in the global marketplace, plasticization will only increase in popularity and importance.