Anchor country’s modern economy

Anchor of country's modern economy

11:45 AM, 11th December 2018

The Australian chemistry industry is composed of more than 5,500 individual businesses, from small family-owned Australian businesses to multinational enterprises. Australia’s chemical industry is of strategic importance to the sustainable development of the country’s economy.Being one of Australia’s leading manufacturing sectors, Australia chemical sector directly employs over 60,000 people with most of them in highly skilled jobs, and contributes more than $11.5 billion to GDP in industry value add. Chemistry Australia CEO Samantha Read said, “We have an important story to tell. The business of chemistry is at the nucleus of the Australian economy; it provides inputs that enable 109 of Australia’s 111 industries.”

Key Drivers and Challenges

• The Australian chemistry industry can be referred to as the ‘anchor’ of the modern economy as it is a key employer of Australia’s valuable STEM capability and is driving innovation through advanced manufacturing. Chemical products are essential for the nation’s continued health, safety and quality of life.

• As a result of the structure and size of the Australian market for chemicals, and freight costs from Australia, the chemicals sector in Australia is typically import replacement focused.

• Local producers lack the scale and economies of plants in other producer countries, but reliable, low-cost energy, comparatively lower capital costs (on depreciated plant) and production flexibilities that meet demands from local customers for low-volume, specialized products enable Australian companies to remain competitive in their own market.

• Rapid growth in the income and technological advancement in the rest of the world has emerged as new and tougher competition for the Australian industry in both domestic and global markets. Over the last decade, Asian countries, including India, China, Singapore and Korea have been ramping up exports faster than Australia.

Future Outlook

According to the Australia Academy of Science, Australia has the capacity to discover and develop new chemical products and has the experience, expertise and resources needed to exceed its Asian competitors in design, innovation and product quality. The business of chemistry is vital to Australia’s economic, social and

environmental well-being. As per Chemistry Australia, the Australian chemistry sector can help meet the demands of global and domestic growth while adding significant value to the national economy, by ensuring companies and supply chains manufacture essential products and services.

Presently, the fundamental need of Australia chemical sector is the access to natural gas for feedstock and energy; it needs balanced regulatory environment; and investment readiness. The nation needs to become the ultimate investment destination. Government has to work with the industry to remove the roadblocks and improve investment incentives.

In the medium term, Australia’s chemical sector requires social license to operate; innovation and strong intellectual property; strong customer base; and skilled and productive talent. Finally, in the long term the nation must have stable financial and political systems to nourish. Chemistry Australia has called for the aforementioned key actions for the growth of Australia’s chemical sector. 

For long, Australia chemical industry has notably made its way in the direction of large, centralized, economies-of-scale production. But in the future, chemicals’ producers in Australia may compete more on how closely they collaborate with customers’ needs for products meeting the fresh preferences.

Trends and Opportunities

Chemical companies foraying into new market

Fast income growth and technological advancement in Asia, and the rest of the developing world is likely to open up fresh markets for Australian chemicals.

Resource constrained world making chemical sector more valuable

Energy, mineral and water resources are essential feed stocks for the chemicals and plastics industry. These resources are scarce in the natural world, and the domestic and global demand is growing. Australian chemical products could become highly valuable in a resource constrained world as substitutes for limited mineral resources in construction, energy storage and generation systems and recycling.

Increased global demand for food ahead may create opportunities for chemical market

In the coming decades, the growth in global population (The current world population of 7.6 billion is expected to reach 8.6 billion in 2030, 9.8 billion in 2050 and 11.2 billion in 2100, according to a new United Nations report) and economic growth (Growth in the world economy is surpassing expectations and global GDP is now expected to expand by more than three per cent this year and in 2019, a new UN report finds) will fuel increased demand for food. As a result, food pricing is only expected to go

high. Also the quantity of food traded across borders is also rising sharply. The interaction between demand and supply factors in the food sector may create opportunities for Australia chemicals industry in terms of fertilizers, herbicides, pesticides and food additives, to name a few.

Upcoming health, well-being scenario holds opportunity 

Due to the ageing population (According to UN data 2017, the number of older persons those aged 60 years or over is expected to more than double by 2050 rising from 962 million globally in 2017 to 2.1 billion in 2050) rise of chronic and lifestyle related illness and changing consumer preferences healthcare expenditure is likely to soar. This rise will create a demand side opportunity for the chemicals industry to supply products and inputs to the pharmaceutical sector, hospitals and other parts of the healthcare industry.

Technological development likely to accelerate chemical sector

The rapid pace of technological development in the chemicals industry have the capability to substantially alter production processes, supply chains and the competitiveness of companies, industry sub-sectors and the whole industry.The existing era is more about frequent disruptions triggered by unprecedented change, which makes it important for the Australia chemical sector to imagine the unimaginable, to think through alternate futures. With such a mindset, the sector could easily take advantage from disruptive developments, instead of being blindsided.

Author:

Kavya Sharma is Business Writer at Future Market Insights.

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