Global Chemical Industry Growth
Chemicals is highly susceptible to oil and gas price volatility. As the industry, and indeed the world, transitions toward clean energy this will create challenges as well as opportunities for the sector. Chemical businesses will face ever tighter regulatory directives, as well as changing customer preferences.
Decarbonisation involves substantive financial investment. However, few chemical businesses can afford to be left behind as they face increasing pressure from various stakeholder groups. Moving forward, ESG performance is expected to be benchmarked as highly as cost and other productivity metrics.
The year of 2023 has been a disappointing year so far for the global chemicals market, with output growth predicted at just 0.1% for the whole year. What growth there is in the market has mainly been generated from Asia-Pacific. Meanwhile, the Americas and Europe recorded contractions.
The reasons are complex and are rooted in the industry’s reliance on energy, feedstocks, and consumer confidence. The chemical industry was amongst the worst impacted by the energy crisis. Output is heavily reliant on oil and gas as feedstocks and requires energy-intensive manufacturing processes. High inflation and tight monetary policies are keeping feedstock prices high and are also causing buyers and consumers to cut back on spending.
However, the outlook will brighten in the second half of next year. A rebound of 3.2% is predicted for the sector on a global level in 2024. (Source: Atradius, Nov 2023)
Indonesia’s Chemical Industrial Growth
In Indonesia, the chemical products industry and basic chemical derivatives are important factors in meeting national production needs. Until now, the chemical products industry has become the basic capital for various downstream industrial sectors such as food and beverages, fabric fibers, textiles, packaging, plastic goods, electronics, automotive, and pharmaceuticals. Based on this, the Government continues to develop the chemical industry as a strategic industry that plays an important role in national development for the next few years.
In 2023, the Indonesian chemical industry experienced negative growth, namely around -0.12% (y-o-y). This was caused by global economic conditions which experienced a decline. The decline in the global economy, namely 2.3 points to 6.5% (y-o-y), caused a decrease in demand for products from sectors supporting the chemical industry. The decline in demand for supporting industrial products is the same as the decline in their productivity and the decline in productivity causes the need for chemical raw materials to decrease. If conditions improve, in 2024 growth is predicted to reach 0.65% (y-o-y), but if nothing changes, it is predicted that it will decline again.
Based on Statistics Indonesia (BPS), in 2023 there was a negative growth in Q1 and Q2/2023 compared to the previous year, namely -3.52% (Y-o-Y) and -1.36% (Y-o-Y), respectively. This is caused by the decline in people's purchasing power which has an impact on the productivity of industries that support the chemical industry. Meanwhile, in Q3/2023 there was a recovery where growth became positive, namely 4.53% (Y-o-Y) and it is predicted that in Q4/2023 it will still grow positively at around *5.2% (Y-o-Y).
Indonesia’s Export Market of Chemical Products
In June 2023, Inorganic Chemicals became one of the commodities with the largest percentage increase in exports, namely 61.58% or an increase of USD 61.9 million. Its position is right below the Animal/Vegetable Fats and Oils commodities which is in first place. However, the increase in the export value of chemical products does not necessarily indicate that the growth of the chemical industry is very good. If you look at developments broadly, many products from supporting industries have not experienced significant export growth and have even experienced a decline. This will of course have an impact on the demand for chemical products from the domestic market.
The decline in exports was influenced by world economic conditions, including China, which experienced slowing economic growth. Unstable economic conditions in export destination countries can cause reduced demand for products from Indonesia. Therefore, to anticipate the negative impact of the decline in exports on the performance of the manufacturing industrial sector, the Ministry of Industry continues to monitor global economic dynamics. Especially those that have a big impact on the industrial sector, to be able to take strategic steps to support the industrial sector.
