UK Chemical Industry Outlook – 2019

Protel tracks capex project activity across the main process sectors to help suppliers win new business. In this article we aim to present a quick and easy to digest run-down of the main trends and developments in the main process manufacturing sectors in one of our covered regions – UK food & drink industry outlook. For more information on the areas we cover, click here.

In our previous chemical industry outlook article, we wrote that a ‘business as usual’ mindset had been adopted, which had started to mean that capex plans had begun to progress once more after a period of stagnation. Currently, Brexit looms as a huge risk to the UK chemical sector in 2019 and beyond, but the outlook for the UK chemical industry remains fairly positive. However, there is no getting away from the significant risk posed to the industry by a potential no deal Brexit.

Industry Challenges

Government studies, the CIA and other industry bodies seem to largely agree that the chemical sector could suffer the most impact from Brexit.

Primary areas of concern are:

• Supply chain – Where the process from raw material to finished product involves multiple border crossings, manufacturing supply chains are well-established and the possible imposition of tariffs threatens competitiveness.
• Regulatory environment – The industry has to be highly regulated and compliance with EU REACH requirements allows access to the single market. Establishing a ‘UK REACH’ and duplication of conformity and registration has major cost implications.
• Staffing & recruitment – Removal of access to essential EU-based hires and resource could render UK chemical sector less competitive. The UK chemical industry relies on a mobile and highly skilled global workforce.

The cost implications are likely to impact SMEs in a bigger way, as the increased costs of the highlighted risks are proportionately higher than for larger players.

In light of the potential risk posed by Brexit, we are seeing some impact to capex. As reported in our other recent UK article covering the food and drink industry, the negative narrative does not quite match up to the actual investment picture for the next 12 months.

There is a significant amount of investment from organic growth, maintenance and also new inward investment coming along the pipeline. Several major heavy process regional clusters such as Grangemouth, Teesside, Humberside, Runcorn and Fawley all feature heavily on our project database for subscribers.

Major manufacturers such as INEOS, Sabic, and the remaining UK refiners are investing to ensure a long-term UK presence post-Brexit. Leases are being signed for new plants in the North East and Humberside, with expansion, upgrade and refurbishment projects all featuring in capex plans.

Uncertainty in general is impacting more on smaller manufacturers, and the outlook is in general slightly less positive for these operators. Of course, much of the outlook for the next 12 months depends on any substantial Brexit developments and the future of the UK/EU trading relationship going forward.

Trends

In addition to capex investment for new lines, process expansions and relocations there are other areas attracting significant capex & opex expenditure. These are some trends we are seeing as areas to monitor currently and into 2019.

Digitalisation
As with other manufacturing sectors, the importance of ‘fourth industrial revolution’ technologies, the internet of things and AI are all growing in importance and influence. There is significant opportunity in optimisation, security and smart manufacturing. An example is improving logistics and reducing waste through the use of closed loop sensors.

Shale Gas
In the UK, shale gas and specifically the process of fracking has been the source of much debate, with particular concern given to the environmental impact. However, there are also opportunities on offer, in terms of job creation, cost reduction and reduced dependency going forward on imported Russian gas.

Environmental Policies
The push toward environmentally friendly policy can represent an opportunity for chemical manufacturers and, by extension, suppliers of related equipment and services, particularly over the longer term. The demand for low-impact products and production processes is growing, with governments increasingly introducing tighter regulations to achieve this. Short term this could involve higher costs for businesses, but could also give a push toward greater efficiency and productivity through waste reduction. Opportunity also exists in the development of new bio products.

Green Chemistry
Green chemistry is the broad effort of industry to reduce the negative impact that chemical manufacturing has on the environment through emissions and waste, by developing alternative products and processes. One such influential development is in the move to bio-based feedstocks. In recent years, however, the element D-limonene has seen its uptake increase as manufacturers look to move towards “greener inputs”. D-limonene is the main component of oil extracted from citrus fruit rinds.

3D Printing
3D printing is becoming a crucial technology in manufacturing generally, with the chemical sector being no exception. Several major players are already investing, in conjunction with 3D printing manufacturers, to develop chemical products suitable for this technology. Producing polymers, resins or powders able to meet required standards and to run efficiently in a 3D printer could be a potential source of revenue for chemical companies.

UK Regeneration
Much of the UK’s heavy process industry assets are reaching the end of their operational and design life. Post-Brexit, a UK presence is seen as a necessity for owners of this infrastructure and investment is proposed, or underway, to extend the working life of processing and refinery plant at: Grangemouth, Fawley, Runcorn and Teesside, amongst others. North Sea and Morecambe Bay subsea assets continue to provide feedstock and new resources are coming on-line, thus the need to maintain and expand onshore assets remains.

Automation & VR
These areas could help chemical companies to move personnel out of dangerous or hazardous environments. It could also potentially avoid the need for expensive human resource to be sent to site, where issues could be dealt with via an automated solution or remotely.

 

Our Coverage

Protel are currently reporting on approximately 272 active chemical projects with a total potential investment value of £8.97bn.

Some of the larger chemical investment currently being tracked by Protel (data taken from our MyProtel project search engine, full details available to subscribers):

• Sellafield Ltd – Engineering term services – £923m
• Inovyn Chlorvinyls Ltd – Site regen masterplan – £250m
• Sabic Petrochemicals Ltd – New production plant – £250m
• INEOS Olefins & Polymers – Ethane cracker/cracker conversion schemes – £450m
• EnQuest plc – Site upgrades – £250m

For more information on any of the organisations, projects or trends covered, including key information required to target specific projects, please contact us.