Tony Hankins, president, Huntsman polyurethanes gave the keynote paper at this year’s UTECH 2015 conference in Maastricht, the Netherlands, this is his view from the top.
View from the Top: PU heads towards the future
My perspective is that of a European who has spent the past decade living and working in the US and the decade before that based in Asia – so perhaps I am an insider looking from the outside.
While there is uncertainty and concern hanging over the European economy, I feel upbeat about the prospects for our industry in Europe. Because we are an industry that is creative, adaptable and resilient!
Since the onset of the Great Recession, in 2009, the road to recovery for the global economy has been slow, uneven and quite frightening at times.
Europe has suffered relatively more than other world regions. Growth has been weaker since 2009 compared with other parts of the world. It is constrained by many factors including:
- Continued uncertainty around the Euro
- Weak investment
- Slow demand within Europe
- Declining demand in many export markets.
This is reflected in industrial production and unemployment figures.
Employment in the Eurozone has shrunk over the past five years. Unemployment remains stubbornly high. At the turn of the year, unemployment in the European Union was almost 10% and in the Eurozone it was 11.2%.
Are we downhearted? No!
But the global PU industry has got through this age of economic turbulence in pretty good shape, and in some geographic and market segments, in excellent shape.
Globally, the PU industry has seen 75% growth compared with 20% growth in GDP between 2009 and 2014. In Europe as a whole – Western, Central and Eastern Europe – our industry grew by 17%, GDP growth in the Eurozone was 3.5% during the same period.
The numbers show hotspots of growth within Europe. Central Europe has grown 54% and Eastern Europe has grown 39%. Sales into construction were up 35% and transport were up 20% since the recession.
There has been structural overcapacity in the automotive industry for many years, but the sector is finally picking up in Europe. The European Automobile Manufacturers Association recently reported 16 months of successive growth. From 2013 to 2014 new passenger car registrations were up by 5.7%, a higher number than the US has managed.
In fact, with the exception of elastomers, consumption of PU in all sectors has grown ahead of European GDP.
This should give us grounds for optimism.
Our industry has really shown itself to be resilient even in tough times.
Grounds for optimism
We have fundamental strengths that allow us to adapt to changing circumstances. We are a creative industry, characterised by entrepreneurial small and medium-sized enterprises, or SMEs.
It’s this variety of companies, working together, that means we can combine different expertise to develop creative solutions that our customers and society need. It means we can adapt to changing market conditions.
But it’s not just our industry that enables us to be creative. It’s the polyurethane molecule, the starting point of everything that we do that enables PU to be a versatile material.
Key Global Trends
I’d like to highlight four key trends that are affecting our industry at a global level: shareholder activism; the growth of national champions; the war for talent and US investment renaissance.
- Shareholder activism:
This has been driven by the search to unlock value and is triggering significant restructuring and portfolio management.Good examples in the US include Nelson Peltz’s focus on DuPont and the changes at Dow Chemical influenced by Dan Loeb. Downstream, the hedge fund H Partners is demanding significant management changes at Tempur Sealy. Similar activism and restructuring could come to Europe in the future.
- National Champions
National champions – companies that are totally or partly state owned – have entered the polyurethane arena over recent years and they are changing the competitive landscape around us. Companies in the industry need to consider where they should best positon themselves in the value chain.
- War for Talent
The European polyurethanes industry is fighting with other industries for the best talent. We are not viewed as the first choice career option by many young people. According to a recent PWC study of global chemical company CEOs, two thirds of those surveyed are concerned about the availability of key skills and are searching for talent in different countries, industries and demographic segments. We cannot successfully fight this war alone as individual companies. We need to work together, through trade associations and other industry bodies, to attract new recruits in a coherent and compelling way.
- the Renaissance of the U.S. as an investment location
Over the last five years, the shale gas revolution has given the US significant benefits of feedstock and energy costs compared with Europe. By Huntsman estimates a large, modern petrochemical plant in the US costs $125 m less to operate each year than a comparable plant in Europe. It is no surprise that the next wave of upstream investments in our industry is focused on North America.
These are global issues and the PU industry has adapted – or will need to adapt – to them. Europe faces these and other trends that will affect it more significantly.
Competition for raw materials is one of the biggest challenges facing us. If we continue as we are, by 2050 we will be using resources and creating CO2 emissions at a rate three times as fast as nature can regenerate and reabsorb in a year.
The resource challenge
For Europe this poses a major issue in terms of the scarcity of, and access to, resources, including energy, minerals and water.
The latest figures from the EC, show around 20 % of its territory is affected by water scarcity. This has cost Europe EUR 100 bn over the past 30 years.
The EC and many NGOs are asking us to change the way we think of resources – with the concept of the Circular Economy gathering wider acceptance and momentum amongst policymakers.
Europe is therefore looking to:
Minimise the resources used:
- Design for reuse and recycling;
- Build longevity into products
- Ensure that at the end of their life, the value of resources can be kept in the economy rather than being put into landfill.
The EC estimates that fully moving to this model would generate savings of EUR 630bn/year.
Polyurethane contributes to a resource-efficient economy. Take food for instance, PU extends the life of food through its insulation role in the cold chain. Preventing food waste has a huge impact on resource efficiency.
And we’re making progress in recyclability. Recent developments include success in the grinding of flexible foam to make a filler for new foam. Suppliers suggest that fillers can be incorporated into new foam at a level of up to 15%. The largest product outlet of material recycling is re-bonded foam which is suitable for applications including vibration sound dampening, cushioning and packaging.
A Joule saved is a Joule earned
The second trend that affects Europe is energy. Europe’s energy prices are high and they are likely to increase in the future – in terms of both regulatory costs and the underlying cost of energy.
Europe’s power sector needs to reduce its carbon emissions by 60% of its 1990 levels by 2030. Europe’s industry faces a 40% emissions cut in the same period.
This has an impact on the PU industry. We’re affected by natural gas prices –natural gas is a feedstock and we get the pass-on costs from the utilities.
But as the International Energy Agency has said, the best energy is saved energy.
Saving energy is a great opportunity for polyurethanes in Europe. Our product is Europe’s best energy resource.
- 40% of Europe’s energy demand coming from buildings: our insulation products can make a huge difference.
- 75% of those buildings are energy inefficient according to the EC. And for every 1% increase in energy saving, Europe can reduce its imports of gas by 2.6%.
It’s no wonder that European policymakers are focused on renovating Europe’s building stock. Such renovation could also create 2 million jobs.
Where Europe leads others often follow. European standards, are copied the world over. Perhaps polyurethanes can be at the heart of a paradigm shift about how the world thinks of energy – moving from a supply discussion to a demand discussion?
The right people for the job
Europe’s GDP growth is expected to continue to be weak.
As Christiane Lagarde said earlier this year: “There is a risk that the Euro Area and Japan could remain stuck in a world of low growth and low inflation for a prolonged period. This ‘low-low environment’ would make it even harder for many Euro Area countries to reduce unemployment and excessive public and private debt, and so would raise the risk of recession and deflation.”
We face the challenge of identifying growth opportunities in a low growth market, but I believe the European PU industry will adapt and grow.
Our industry strengths have helped us succeed through some of the most turbulent economic times in living memory.
The greatest strength we have is our people. Europeans in our industry are resilient, adaptable and creative. Because of this Europeans will succeed.
Seize the day
We can face tough economic headwinds, increasing pressure on costs and continue to grow our business in this region.
Europe is complex. Yet Europeans are able to adapt to this complexity – it’s part of the nature of people in a continent where there are 28 countries and 23 languages.
I feel very confident about the future of the European PU industry. We have great people, great products, great applications and great market opportunities.