Chemical Sector: Outlook Opportunities

Chemical sector: Outlook and opportunities

11:17 AM, 28th December 2017
Chemical Sector: Outlook and Opportunities
Australian chemical sector has shown minor improvements in its employment statistics, average wages in the industry are witnessing a decline. (File photo)

By Aditi Yadwadkar

Overview of the Australian Chemical Sector

A number of Australian industries, including healthcare, food, construction, packaging, and information technology are dependent on steady supply of chemicals. As stated by the Department of Industry, Innovation, and Science of the Australian government, the chemical and plastic industry in Australia can support 109 industries out of 111 industries through the huge range of supplies it offers. Increasing applications and health concerns arising due to extensive use of chemicals have led the Australian government to regulate the industry at a more stringent level. In a bid to safeguard the interests of all stakeholders, especially environmental groups, the Australian government continues to introduce changes to the existing regulations.

According to the 2006 Australian and New Zealand Standard Industrial Classification (ANZSIC) system, the chemicals and plastic manufacturing in Australia is classified into three segments:

  • Petroleum and coal manufacturing
  • Basic chemical manufacturing expect pharmaceutical and medical manufacturing
  • Polymer and rubber product manufacturing

Even though the Australian chemical sector has shown minor improvements in its employment statistics, average wages in the industry are witnessing a decline. Higher percentage of imports than exports can be considered as an indication of the growth of the chemical sector in Australia.

Relief from Harsh Regulations on Low-Risk Industrial Chemicals

The Australian Industrial Chemicals Introduction Scheme (AICIS) has been established under the Industrial Chemicals Bill 2017, which is planned to replace the current scheme – the National Industrial Chemicals Notification and Assessment Scheme. The Industrial Chemicals Bill modifies the process of manufacturing and import of industrial chemicals, protecting harmful chemical impact on the environment by banning cosmetic testing on animals. The bill also encourages businesses to self-assess the use of low-risk industrial chemicals, which is expected to decrease the dependency of industries on the government for the evaluation of low-risk chemicals being used. However, it has received criticism from environmental and health organizations in the region, having a stand that low-risk chemicals being used today can be “tomorrow’s toxic chemical disasters.

The Globally Harmonized System of classification and labelling of chemicals (GHS) came into effect in Australia from January 2017. Changes in the safety regulations in terms of classification, code of practice for preparation of safety sheets, and code of practice for labelling of workplace hazardous chemicals can be observed in Australia chemical sector. Suppliers, manufacturers, and importers in Australia chemical sector may face an impact of GHS as they are required to classify the hazardous chemicals supplied to workplaces according to the modern work and health safety (WHS) laws and GHS standards in Australia.

The Australian Research Council (ARC) grants by Chemistry Australia are expected to benefit the members and manufacturers in the chemical sector in Australia. Around A$7 mn will be granted over the next 5 years to encourage two collaborative research initiatives – ARC Research Hub for Energy-Efficient Separation and ARC Training for the Chemical Industries. The grants will be offered to conduct researches to reduce energy inputs for Australian manufacturers, improve environmental sustainability and industry competitiveness of Australian chemical sector. Developments in terms of high degree research programs are expected to be witnessed by the Australian chemical industries to establish a highly-skilled workforce and world-class industry skill base, through the ARC grants.

Australian Chemical Sector Imports More Than it Exports – Asia to be the Most Prolific Market

Australian exports and imports from the Chinese chemical industry are increasing. Australian branded vitamins are receiving greater demands in Chinese market, as a lot of Chinese consumers are preferring to buy Australian pharmaceutical products. Although there is a lot of scope for Australian chemical industries in the Chinese market, it is important to understand that the Chinese chemical industry is still being hampered due to lack of advanced technology. The industry is growing slowly, and most of the private businesses are grappling with financing problems. Instead of investing in research and development of the chemical sector, the Chinese government is encouraging foreign joint ventures and exports. The Chinese market is boosting the exports of Australian chemicals, especially after the free trade agreement between China and Australia.

Regulations and Policies by the Australian Government to Improve the Future Scenario

Australian chemical sector can experience decline in the domestic production, resulting in high reliance on imported material, which can cause trade imbalance in the Australian market. Targeting market sectors such as agriculture and food, mining, building and construction, and healthcare can prove to be lucrative for Australian chemical businesses. Considering the drawback of loss in domestic production, working on strengthening and securing the domestic supply chain in the chemical sector can decrease the dependence of downstream companies on the imports and improve the future scenario of the market. Increasing efforts taken by the Australian government can bolster the energy efficiency and provide the chemical sector with highly-skilled and well-qualified workforce. Due to the encouraging policies by the Australian government, the businesses may experience fewer challenges due to rules and regulations in the Australian chemical sector.

Incitec Pivot Limited Performing Better on the Stock Market Than Orca Limited

Companies like Orca Limited, Incitec Pivot Limited, DuluxGroup Limited, Nufarm Limited, Highfield Resources Limited are among the most prominent companies and influencer industries in the Australian chemical sector. Orca Limited is one of the world’s largest multinational corporation to produce commercial explosives blasting systems to various sectors of the market like construction, mining and tunnelling, etc. Incitec Pivot Limited is also an Australian multinational corporation which produces chemical explosives, fertilizers, and provides services to the mining sector. Nufarm, an agricultural chemical company, captures markets in more than 100 countries in the world, with more than 2100 product registrations. Even though Orca Limited has the highest operating revenue among all the industries in the Australian chemical sector, there has been reduction in its operating revenue and share prices, making it a time of economic decline for Orca. On the other hand, Incitec Pivot Limited can be observed to have a good profitability ratio (ROA) and Return on Equity (ROE).

Author: Aditi Yadwadkar is Feature Writer at Future Market Insights. 

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