3 trends that are changing the chemical industry in 2024
What will 2024 hold for the chemical industry? Image: Getty Images.
- The challenges of low growth, geopolitical uncertainty and the climate crisis, are set to persist in 2024.
- The World Economic Forum invited members from the chemical industry to share their views on the year ahead.
- These three trends have been identified as strategic imperatives for the chemical industry.
In 2024, the chemical and advanced materials industry is expected to continue experiencing the challenges that persisted throughout 2023, such as inconsistent economic growth, climate crises, and geopolitical conflicts. Institutions such as the OECD, IMF, and the World Bank are sending warning signals that the global economy will be even bleaker than last year.
Extreme climate conditions are causing widespread impact, including affecting energy supply and supply chain logistics; while also creating greater public demand for sustainability solutions. Geopolitical conflicts continue to challenge particularly in sourcing key markets.
In the context of 2024's low-growth environment, accelerating carbon-neutral management, transforming business portfolios, and strengthening global supply chains will likely top the global agenda for the industry in 2024.
At the end of 2023, the World Economic Forum invited members of its communities to contribute a brief commentary on recent, upcoming and detailed views of the chemical industry and its transformation. Here are their findings:
1. Low economic growth
The OECD has adjusted its global economic growth forecast for 2024 to 2.7%, a 0.2 percent point drop from June, due to limitations on global trade resilience from global economic fragmentation and fundamental structural problems like low birth rates and ageing populations. As the downturn is expected to continue in 2024, companies need sustainable survival strategies to adapt to the prolonged period of slow growth.
In response to the impact of low growth, the Chinese government has declared a shift towards a domestic-driven growth system. In line with this, China's self-sufficiency rate for ethylene in the chemical industry continues to rise, and according to Chemical Market Analytics, full self-sufficiency in the Chinese market is expected by 2025 with the establishment of new petrochemical complexes. To cope with the situation, companies outside of China are rapidly transforming differentiated survival strategies, such as phasing out businesses that have reached their limits and transitioning to new ventures like battery materials and eco-friendly plastics. Thus, as a response to the uncertainties, a swift transformation of business portfolios is crucial.
2. Climate action is on the agenda
According to the UN, we have entered the era of “global boiling” beyond “global warming”. This is the warning from UN Secretary-General António Guterres after the world average temperature in July 2023 hit the highest record since human observations began. Considering strengthened environmental regulations in various countries to address the climate crisis, adaptation to environmental concerns will become a crucial factor in determining the growth and ability to sustain economic growth and company operations.
According to the International Panel on Climate Change (IPCC), with the current rate of temperature rise, the global temperature will reach the threshold of “1.5 degrees above the pre-industrial levels” of the Paris Climate Agreement between 2030 and 2052. More and more countries are introducing environmental regulations to address the climate crisis. In 2022, the United Nations Environment Programme (UNEP) passed a resolution limiting total plastic production and disposal, and the EU plans to implement the Sustainable Battery Regulation in 2027, strengthening the recycling rate of battery materials.
How is the World Economic Forum facilitating the transition to clean energy?
Such changes in the regulatory environment can facilitate the expansion and transition to environmentally friendly businesses within the chemical and advanced materials industry. According to the 2022 Green Industry Insights Plastic Recycling Report, the global plastic recycling market was approximately $45.4 billion in 2022, but it is expected to grow to around $59.6 billion by 2026, with a 7.4% annual increase. We expect that in 2024, circular net molecules/plastics could reclaim the spotlight, with net-zero circular molecules potentially returning to the forefront of the global agenda.
Thus, the climate crisis can create new opportunities for companies by promoting a transition to sustainability-related industries. The year 2024 will be a test of the appetite and ability to deploy capital and resources so that this value can be materialized.
3. Geopolitical shifts and decarbonization strategies for the chemical industry
As protectionism and geopolitical conflicts challenge supply chain operations, the reconfiguration of global supply chains and the diversification of supply are becoming essential survival strategies. Major countries are expanding the scope of regulations employing strict environmental standards and investigations into subsidies, to protect the domestic industries. This trend is expected to persist in 2024 and become a comprehensive issue throughout the whole value chain, rather than an independent concern. In response, companies need to be strategic about supply sourcing, partnerships and driving trusted trader policy environments.
Besides that, governments around the world are recognizing the crucial role of a robust industrial policy in achieving a net-zero world. It’s becoming evident that beyond decarbonizing the energy system and facilitating access to renewable sources (green electrons, green hydrogen, nuclear/SMRs, and carbon capture, usage and storage (CCUS)), achieving net-zero circular molecules/materials, like steel, aluminum, and chemicals is imperative. In Europe, the upcoming EU Commission (2024-2029) and EU Council Presidency are anticipated to prioritize industrial policies and the vital role of the chemical industry in realizing the EU Green Deal. A Potential “EU Chemical Industrial Act” could foster investments in Europe, align the EU Transformation Regulatory Framework and balance the Inflation Reduction Act (IRA). Meanwhile, in the US, the IRA has played a significant role in enhancing investments in low-carbon technologies, circular solutions, and CCUS within the industrial and chemical sectors. The question remains: could this landscape undergo changes following the American Presidential elections in November 2024?
Collaborative efforts are the key to success
Global collaboration across the whole chemical industry and value chain would be paramount to ensure the right regulatory framework. As well as agreement on the Science Based Targets initiative (SBTi) targets for the sector to support a mass balance approach that enables the right regulatory framework (supply/demand/financial side). Collaboration to enable access and the right regulations around renewable carbon (CO2, bio and plastic waste) would be also essential. Collaboration across key sectors would be also key as access to low carbon and circular molecules will start becoming more dominant for key sectors like electronics, automotive, construction, etc.
Despite the challenges expected in 2024, the industry will have a valuable opportunity to unlock value in 2024 as it focuses on its resilience and innovation. Investment discipline, visible participation in business ecosystems and clear demonstration of its commitment to people and planet will demonstrate the essential nature of the chemicals industry driving sustainable solutions.
Don't miss any update on this topic
Create a free account and access your personalized content collection with our latest publications and analyses.
License and Republishing
World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.
The views expressed in this article are those of the author alone and not the World Economic Forum.
Stay up to date:
Chemical and Advanced Materials
Related topics:
Forum Stories newsletter
Bringing you weekly curated insights and analysis on the global issues that matter.
More on Industries in DepthSee all
Jane Sun
December 18, 2024