A lot of the things that happened this year will define what the chemical industry will look like in 2023. Geopolitical and economic upheavals have had a significant impact on the industry on a global scale. In today’s episode, we take a look back at what happened this year and glean some useful insights and lessons as we move forward into the new year. The discussion goes from the relationship between Russia and Ukraine and the gas shortage to inflation, supply chain issues, digitization, and more. Tune in to this episode as Victoria Meyer gives us a quick summary of the most significant events of 2022 that will shape the industry in the next couple of years.

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Looking Back At The Most Significant Events Of 2022 And Looking Ahead To 2023

This is our last episode of 2022. It is episode number 80, and whether you are new to the show or an old friend, welcome and thank you. Thanks for joining us. Thanks for joining us on the journey of 80 episodes. It’s a pretty tremendous accomplishment. What I’m asking for people, this could be your holiday gift to me, which is to take a minute to leave a review or comment on one of the platforms, whether it be Apple, Spotify, or Podchaser, whomever you might tune in to. Also, take the opportunity to share this episode or your favorite on LinkedIn and with a colleague. This helps to grow the show and allows us to continue to make a bigger impact on individuals across the chemical industry.

This is a solo episode, and I’m going to be doing a little bit of a look back on the most significant events of 2022. Also, a look ahead to 2023 and tying those two things together, what those events, where that transpired in ’22, and how they might be playing out as we look ahead into 2023. First up is the Russia-Ukraine War. If we go back to a few years ago, that certainly was not on my radar screen. I don’t think it was on anyone’s radar. Yet on February 24th of ‘22, Russia invaded Ukraine.

It set off a wide variety of reactions. This is significant on both a personal and a political level, impacting many people, and there’s no doubt about that. It also highlighted the role that Russia and Ukraine both play in the global energy and chemical industries. We have become much more aware of the significance of Russia and Ukraine as global trade partners. We have become well aware of European dependence on Russian gas and what happens when those gas flows diminish or get cut off, and we have seen that. What’s significant is across Europe.

European companies have had to make significant plans for how to deal with the diminished availability of natural gas. We have also seen a lot of shipments of energy moving around, flowing to Europe and flowing elsewhere but we have certainly seen the impact of the dependence that we have had on Russia for the chemical industry for feedstocks. We are seeing the significance of this, and it’s also triggered a lot of price volatility and knock-on offense that has taken place throughout the whole year.

TCSP 80 | Significant Events Of 2022

Significant Events Of 2022: European companies have had to make significant plans to deal with the diminished availability of natural gas.

 

I go back to February or even March of 2022, and there was a belief it seemed that this conflict would get wrapped up and buttoned up pretty quickly. That certainly has not taken place. We have not seen that this 2022. When we start looking ahead and what this means in 2023, we are going to see more of the same. What we know is that it’s the start of what’s expected to be a very cold winter. That energy, whether it be oil and natural gas, is being prioritized by people rather than industry, and frankly, there’s no obvious end in sight.

Look for Russia and Ukraine to continue to have a significant impact on the industry in ‘23, both from a feedstock availability, a pricing volatility perspective, and the shifting of trade flows that we have seen take place over the last few years that started with the pandemic. Russia-Ukraine has had a significant impact on that and continues to look forward to that shift and that disruption in 2023.

It also leads to what I would say is the second significant thing that we can look at in 2022, which is global inflation. As high as 11% in UK and Europe, and in some countries, over 20%. In the US, it has been over 8%. Inflation is real. We maybe enjoy a period of almost a honeymoon period of money and extra cash flowing into economies of strong demand across the chemical industry. Prices are going up, and it’s starting to show up. We see it in consumer inflation, which is ultimately having an effect on individuals, consumer behaviors, and on the industry.

It has taken a while to fully feel that effect in the chemical industry. It’s not until the last fourth quarter here of the year that people and companies are saying, “We are starting to feel some of the effects.” We talked earlier, and I had an episode earlier this 2022 about what’s the impact of inflation and recession. Are we seeing a recession coming?

The reality is that’s for the economist to decide. Whether we call it an inflationary or recessionary environment, those are labels. What does it mean when we look ahead at 2023 and what chemical companies can and should be doing? We will be talking about this more on the episode as we launch into 2023 but while we are seeing maybe a tempering of inflation, it is certainly not going away.

I see the media saying, “It’s down to 7% or 7.5%.” That’s still pretty steep inflation. It’s less than it was at some point during the year, mid-summer or mid-year but we are certainly not seeing inflation going away. World economic leaders are looking to policies and practices to help manage this. What does it mean for the chemical industry? Cash is king. We have seen this many a time.

When we are in periods of uncertainty and volatility, people are working to preserve cash. Yet some of that real cash protection came in 2020 and 2021. What’s striking to me is that here we are in 2022, and some of the biggest companies are recording record profits. Profits have been strong, and cash is still king. As we move into 2023, what I see happening, what I’m hearing from clients, and working with clients on and working with others across the industry is securing the foundation.

What does it mean from a supply-demand perspective? What does it mean from the fundamental economics of your business? With a focus on customers and customer experience, there is no doubt that when inflation persists, we are going to see a softening in demand. It is not going to be, “I can sell anything I can produce at any price.” There will be a softening.

When inflation persists, we are going to see a softening in demand. Share on X

It’s during those times that the focus on customers and the customer experience, and the relationships that you’ve built with customers and suppliers reign supreme. The winning companies are those that are going to be focusing on customer and supplier experience and ensuring that they are creating differentiation there.

The other piece is that companies are still continuing forward with strategic decisions and investments. There’s no doubt, and we will talk about this a little bit later but ESG is driving investment. Sustainability and circularity are driving investment, and the fundamentals of the industry are driving investments. We will still continue to see this in a very strategic way.

The third significant thing of the past years has been the continuation of China’s zero-COVID policy. As I’m doing this here in mid-December 2022, China has relaxed that policy. As I talked with John Richardson of ICIS in Episode 79, we talked about this and what it means for the industry and what’s the effect. The policy itself, while protectionist in many ways for China, its industries, and its people, there were reasons those policies were put in place. It destroyed demand and consumer confidence. I would say Chinese consumer confidence.

When I talk to people and get stories about concerns that people have had about willingness to go out and buy products, willingness to go out and about. Zero-COVID has been pretty scary for a lot of folks inside China, which then has had a significant impact on the global economy and the chemical industry. Whether it be about product flows, shipments, the ability to move products in and out as ports close and open, and people availability shifts. We have had a significant supply disruption over the past few years. It continued into ‘22 in China far more than people anticipated.

One of the striking things that I have seen in a couple of global companies is basically saying, “They can’t afford to invest in China.” They are driving investment decisions towards a more regional supply chains focusing on North America and, to a certain degree Europe, although as we already talked about with Russia and Ukraine. Europe is challenging. It’s a challenging business environment. We are seeing a drive towards regionalism, and that is continuing from where we started with the pandemic in 2020. It has gotten heightened here in 2022.

As we look ahead into 2023, as zero-COVID controls in China relax, we are going to be seeing a spike in COVID cases. We have seen it and are to be determined as to China’s real response. Are they going to have a policy whiplash, backtracked, and tighten controls related to zero-COVID or are they going to allow this to shift? I don’t know. My crystal ball is not clear in this space, and I don’t think anyone says when you start reading about it or talking to people in the region.

As we look ahead, this is driving us as we go into ‘23 and beyond about mindful regionalism. Companies are continuing to develop alternative supply demand sources. A shifting of supply chains and we have talked about this on the episode before, and we will be talking about it again into North-South supply chains and regional supply chains as opposed to East-West global supply chains, and that is going to continue to evolve as we go into 2023.

The fourth thing is logistics in the supply chain, and that has been a theme more than ever since for the last couple of years. In 2022, one of the striking things to me was the railroad and the potential strike of the US railroads narrowly averted. We have put a couple of Band-Aids in place, and the final Band-Aid may be a fix, and we are averting and avoiding a railroad strike.

Those in the chemical industry recognize how significantly dependent we are on the railroad. What I have seen from AFPM and Rob Benedict, who has been on the show. He writes a lot about it and talks openly about the fact that we still continue to need reforms. Looking ahead and continuing to see this focus on domestic and international supply chains, strengthening and creating more resilience. Putting more pressure to make it a more robust system for everybody that’s engaging.

Some other themes. I would call these not necessarily events because these tend to be more themes as it relates to them. ESG, sustainability and circularity have become household names and household words. A continuing focus on ESG, sustainability and circularity. At an event I participated in, most of the people held during this event said they don’t expect us to reach net zero targets, us, the energy in the chemical industry by either 2030 or 2050, those targets. However, there’s clearly this recognition that we are making significant and continued focus and investment.

When we look at this is led by the majors and also by small innovators. What I think is going to be significant in 2023 is that we are going to see companies that are in the middle of the value chain take a much bigger focus on sustainability and ESG. Driven by reporting requirements, consumer demand, and the poll that’s coming at the end of the value chain.

What that looks like is clarity on their current sustainability stories and ESG strategy. What is an interesting focus when we talk about ESG is that we often focus on sustainability, and yet it’s environmental, social, and governance. We will continue to see focus on all three components of that as it relates to ESG as we go forward into 2023.

Digitization has been the trend of the 2020s. It has been the trend for a long time but certainly has been heightened. What I see from companies across the chemical industry is a struggle to find the right balance between what their customers and employees want, what the right answers are and the right solutions, and the most economical solutions.

What I see going forward in ‘23 is digital is not going away. This is not something we are brushing under the rug and ignoring but there’s going to be an increasing focus on structure and platform and optimizing what companies have now, a real focus on data efficiency, and then moving forward into figuring out what their next thing is.

I think of it as a cycle around, and we maybe almost even be considered an agile cycle where we innovate, optimize, develop, implement, and keep this circle going and learning. Digitization is going to be a continued focus in ‘23. Supply chain, I have already touched on that. The three things that stand out for supply chain in ‘23 are regionalization and rationalization, in terms of making supply chains much more rational, and optimization. Driven by the economics of China and some of the challenges that we have seen over the past few years, the supply chain is going to continue to evolve.

The fourth item I’m going to put on here is talent. Over the past few years, talent has been a bigger issue than ever. It continues to be a big issue. When I talk to clients and people across the industry, getting the right talent is challenging and critical, and in some places, there is a real talent shortage. Whether it be the right talent or the talent that wants to come into the office after people got accustomed to working from home, talent is going to be critical in 2023.

I personally have a prediction that we are going to see a mashup in some ways of digital supply chain and talent coming together. Especially as many companies that are digital-only companies have gone through significant layoffs. We are shedding a lot of talent back into the workforce, and a smart chemical company is going to go find its way to grab the digital talent that they want. The innovators are those that are understanding how to do business in a new way and in a more customer and personally-centric way and bring those into the workforce. We will see.

That leads me to my last one, which is customer experience tied closely to the employee experience. I have talked with a lot of people, and companies are having problems getting their employees to come back to work. What I talk about a lot with people is the activation energy. It takes a lot of activation energy to decide to go back to the office on a daily and weekly basis, however, people are going back in. A lot of this has to do with creating a compelling experience.

2023 is going to be the year of experience. Share on X

As we go into 2023, experience is going to be critical, whether it’s the customer experience or the employee experience. Are you creating an experience that wins that, draws people to your business and your company, and engages them most effectively? 2023 is the year of experience. I’m calling it. I’m wrapping it up. Happy holidays, Merry Christmas, and Happy New Year.

I hope that everyone gets a chance to take some time and enjoy some time with family and friends over this holiday season. We will be back in 2023 with another great year of content on The Chemical Show with some new and exciting activities. Be looking for some in-person events and more. Thanks for reading. Please share the show with a friend or three, and come back and read more. We will talk to you soon.

 

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