In the past few months, due to the sharp drop in oil prices, we can see changes in the economic activities of upstream oil and gas exploration and production businesses every day.

But what impact does this have on downstream chemical and specialty chemical manufacturers? I interviewed Peter Cox of Emerson, who leads the Chemical Industry Group. He has been closely following some of the analyses made by organizations such as the American Chemistry Council and the European Chemical Industry Council (Cefic).

Peter pointed out that from the production of petroleum and petrochemical products and plastics to the production of high-tech professional products and consumer chemicals, the chemical industry has learned to adapt to the volatility, uncertainty, complexity and ambiguity of the VUCA environment. It seems that it has always been and will always be the order of the day in the chemical industry, but producers are becoming more intelligent and actively handling the current environment.

In addition to the decline in crude oil prices, he also described some of the risks currently faced by chemical producers, including geopolitical turmoil and its many effects, as well as the continued slowdown of the Chinese economy and uncertain prospects. The production cost of basic chemicals and plastics largely depends on the price of energy and energy-derived raw materials. In the Americas, the American Chemistry Council reports that chemical production continues to expand.

The combination of these two factors can represent up to 75% of the total cost of the final product. Given this fact, lower oil prices are driving down the prices of most chemicals and polymers worldwide. There is no doubt that this will compress the profit margins of bulk chemical products, even though the input costs of petroleum and its derivatives are declining.

On the other hand, when you further enter the professional and consumer chemicals field, their profit margins have actually increased because of low oil prices and return on investment (ROI) that have subsequently increased. Chemical companies that may benefit include those that produce products such as industrial coatings, adhesives, alcohol, fibers, and solvents.

For example, crude oil derivatives like propylene are key raw materials for paint and coating companies. Propylene derivatives can be found in adhesives, paints, floor tiles and polyurethanes.