UK Chemical Industry Outlook – 2017

In this article we aim to present a quick and easy to digest run-down of the main trends and developments in a highlighted sector of the main process manufacturing industries in one of our covered regions. For more information on the areas we cover, click here.

UK Chemical Industry – Background

• Adds £15 billion of value to the UK economy every year
• The UK is a leading global chemical producer
• The chemical and pharmaceutical sector is the UK’s largest export earner with annual exports of close to £50 billion
• Over £4 billion of capital and R&D investment is made by UK chemical and pharmaceutical companies
• The sector employs around 140,000 people directly and supports in total around half a million jobs in the UK economy
• Highly skilled workforce earns on average 30% more than the average UK manufacturing worker

(Source – The Chemical Industries Association)

The UK Chemical industry is the nation’s biggest manufacturing exporter and, while having a relatively small global market share, remains a strong asset to the UK economy.

Post-Brexit referendum result we are seeing multiple opinions emerge. Two recent industry surveys offers diametrically opposed views on the future. Some see a bleak future in the next five years, others point to recent improved market performance as a sign of things to come. The only certainty for UK industry as a whole, including the chemical sector, is that uncertainty rules.

Challenges & the lack of competitiveness in a global market

Whilst many Industry leaders are upbeat, they are keen for Governmental support and legislation to protect the industry going forwards. An independent UK capability in chemical manufacture and supply is seen as essential and the CIA, supported by many industry leaders including NEPIC, are lobbying government to support this aim. Our refineries have been closing for years and if this carries on into basic and intermediate chemical manufacturing sites (e.g. steel and Ethylene Oxide), then we become dependent upon imports. This situation may not be good for balance of trade, or for independence and strength in trade negotiations. More is available in this article.

Refineries

There are six remaining refineries in the UK – Exxon Fawley, Valero Pembroke, Essar Stanlow, PetroIneos Grangemouth, Phillip66 & Total Humber. International competition is fierce and closure of more is possible, the last was Murco in 2014. If this trend continues this may jeopardise the UK’s independent refining capability.

New technologies & trends

Sourcing and producing chemical feedstock is one of the greatest single business drivers at the moment. The desire to reduce fossil fuel dependency coupled with low oil prices presents a dilemma. Alternative sources for feedstock are being sought; Ineos are starting to import US Ethylene by sea. Feedstock from waste is also being developed with Tourian Renewables using UK mixed plastics and cellulose from packaging in other processes.

The Protel View

Following the Brexit referendum result, Protel saw the immediate placing on hold of many projects and potential capex. This has been followed by a steady trickle of projects and spending coming back into the mix, as business becomes less fearful of a post-Brexit trading environment. Broadly speaking we are back where we were before the referendum, with a fairly upbeat outlook arising from our coverage and from many industry players.

There is however a great deal of concern as to what happens one or two years down the line. The previously referred to ‘lack of global competiveness’ is seen as a real threat. Investment by overseas headquartered organisations might dry-up, or they might move out – there are too many unknowns to make any forecasts in that regards and this makes the corporate finance community nervous.

At Protel we focus on new capex, and therefore in times of uncertainty see fewer project schemes being planned, although within chemical we are slightly insulated from this. This is because the heavy process industry, by nature, requires a permanent spend simply to keep the plants operational. There is a constant stream of maintenance, shutdown and T/A projects on the go, some delivered from opex, but many from capex.

Our Coverage

Protel are currently reporting on approx. 200 active chemical projects with a total potential investment value of £6.4bn and an average project value of £32m.

To see our project intelligence in full or gain information on specific projects, including all the contact details you need to start your sales process at the right time, get in touch.