Not a lot of demand is building up or pent up demand is showing except for countries like India where the demographics are favourable, says the Chairman, The pH Report.
What is the global demand for chemicals looking like? What are the growth rates we are talking about and even there is a lot of buzz of O2C (oil to chemicals) gaining ground. What is your perspective?
I am afraid the chemical industry, which is a good leading indicator for the global economy and financial economies like India, is not doing very well at the moment. We just had the June production data from the American Chemistry Council which keep tabs all over. Yes there is a small recovery in June from May, but we are still down very close to the all time bottom that we saw back in 2008-2009. So, it is a pretty weak performance.
When I come to your question about oil to chemicals, I think that is one of those ideas that came and is probably going. Not a lot of demand is building up or pent up demand except in countries like India where the demographics are favourable. If you look at most of the world, the demographics are against a major increase in demand and we are going to be looking at a new type of chemical industry emerging like a butterfly from today’s situation.
A lot of strategists think that a lot of global companies in the backdrop of geopolitical issues will start moving their sourcing away from China in favour of some other ASEAN countries including India. What are your thoughts there?
Actually one of our key paradigm shifts is the idea that we are looking at resourcing a lot of production back from China and to some extent from India simply because if you look at key areas like pharmaceuticals, the supply chains have proved very fragile in recent months. You may have seen for example that the UK within a few days had run out of paracetamol, a very basic generic drug and that is not a fault of any producer or supplier or country. It just says that the supply chains that we set up are really not fit for the purpose and so I think the government is generally going to be looking to bring back strategic products and would manufacture them closer to home to avoid all those logistics issues.
We are going to be looking at building domestic demand and a key point is we are going to be looking at demand rather than supply so that we are not any more going to be looking at things like cost curves and we will not be going where it is cheaper to manufacture in China or India. We are going to look at the demand, where the customers for this product are. If we can be close to the customers, then we probably have got a good chance of making sales and building a business for the future.
A lot of global companies are coming to India to form joint ventures in chemical names, agrochemical space, pure chemicals, industrial chemicals and even pharma companies which are integrated backwards in the chemical side. It is all about how strong is your R&D and what kind of friendships you have forged in the R&D space. How are the Indian companies going to achieve this prowess in R&D and also up their capabilities for producing high quality complex chemicals?
It is a very competitive market. India has some very competitive companies. I have worked with Indian companies for most of my working life. I have got very high respect for the achievements of the Indian chemical industry. I have also worked across south-east Asia in Thailand and elsewhere in north-east Asia as well, as well as other regions of the world.
I would say that India has a very good position. One of the advantages that you have got is R&D. It is important to develop a new product and so on. But the other thing is the value chain. You have companies like Reliance which cover the whole value chain from oil and gas through refining, through petrochemicals downstream into resale. So they have actually got a much better view of end-user demand than most companies today because financial markets in the west by and large have broken up those value chains. So, if you are in petrochemicals or if you are in the oil markets or whatever, you do not have that clear view of what is happening on the ground. Are people actually buying your products or are they doing something else?
India has a real competitive advantage there. One of the things that I would emphasise is that we are moving away from what I would call a one size fit all model for the global chemical industry where we look at large plants, good logistics and these kinds of things which are fit for everybody. What we are moving towards now in a new normal way is instead to say that India has got a young population, it has got some very basic needs around health, water and so on which will be highlighted obviously in recent months. Those are key areas for Indian companies to work through.
If you look at the States, if you look at Europe and so on, these are aging populations. If you look at the population increase in the west over the next 10 years, most of it is going to be the over 55 generation. Now the over 55 are lovely people but we do not consume very much in the way that we do if you are a young country. We are not getting married. We are not having children. We are not buying houses. We are not buying cars. We have already got most of what we need. So the market in the west is going to diverge the and become much more service orientated, solution orientated, But in India you are at an earlier stage of that model because you have got such a young population that you can set up the base it needs and really make a fantastic difference for the next 20 or 30 years.
Which are the sectors globally that are driving demand for the various kinds of chemical in question right now?
Unfortunately, there are very few sectors that are shining today. We are going through tough times and I suspect and fear that will continue to go through tough times. The markets are difficult and there is a lot of unemployment coming particularly in the West with the end of the furloughs. So, I am not in that camp who is seeing a V-shape recovery anytime soon. But if I come back to the basics, what we are really looking at is health, mobility, water, food and shelter — the five basic needs. Those needs in India are going to grow exponentially and it is up to the chemical companies in India to address those needs. I have to use words like mobility, I did not say cars, it is not necessarily cars that we want, what we actually want is mobility and the great thing about India and I am an enormous fan of India, is you are very innovative and you have got some world leading companies.
I am very confident about the future of the Indian chemical industry because I can see there are a lot of opportunities and there are a lot of people there who are reasonably well funded and attuned to the future. One message I have got for everybody is that we must not look back at the past, the past was great, it was absolutely wonderful, it has been fantastic but the future is going to be a new normal. It is going to be very different with new challenges. India can compete very successfully in that area.
Talk about some of the big disruptive trends that you are observing in the global chemical space?
I can point you to companies like Nokia during the late 1980s who transitioned from being a forest products company to being the world leading telecom companies that we know and love today. So these top disruptions of the kind that we are going through does present a number of opportunities. You can either go oh, my goodness this is awful, terrible or you can adopt more of an Indian view and say okay, let us roll our sleeves up, let us get on with this.
As I say, we look at these basic areas and the government is moving forward in these areas and the companies are coming forward very fast. In areas like water, health and sanitation — one can do more to improve the lot of ordinary Indians in the villages as well as in the towns and the cities. That is going to be a fantastic investment for the future and that is the bedrock on which the future prosperity of India is going to be made, like it was with a country like Singapore 30 or 40 years ago which started with much less than India but came through very successfully by focussing on the basic needs and then moves on to the more advanced things in due course.
Mobility is very important. China has done very well in getting good mobility, good infrastructure. Chinaâs infrastructure development has been phenomenal and that has been the bedrock of its development. You can argue it has gone too far in recent years, I would probably agree with you but it has been in the right direction. That gives a great opportunity for Indian chemical companies. That is really key in all sorts of areas and creates demand and let us not forget that this is all a virtuous circle that the more you move forward in areas like this the more you create demand, the more wealth is created. Therefore you create more demand again and more potential to move forward. India has a very positive outlook although unfortunately today it does not look very positive.