Downstream chemicals enjoying better margins than upstream (petro) chemicals


4000bn USD


MEDIUM RISK for entreprises

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

  • Innovative sector with upmarket positioning
  • Very diversified end markets softening the impact of external shocks on firms’ revenues
  • Sound profit margins enabling chemical firms (esp. cosmetics and specialties) to invest more in R&D
  • Cyclicality of some of its main outlets (i.e. automotive and construction)
  • High capital intensity combined with high degree of WCR
  • Poor public image in terms of environmental issues
  • Agrochemicals bogged down in difficulties

What to Watch?

  • Turnaround in output on the back of a slowdown in global manufacturing demand
  • Impact of rising feedstock prices, like ethylene, on plastics according to global regions
  • Level of R&D expenditures required for chemical specialties to bear margins
  • Intensifying battle for market share in petrochemicals

As many chemical products are used up in the early stages of manufacturing supply chains, it could be argued that chemicals are a cyclical business closely tied with variations of countries’ GDP. However, this appears to be less the case nowadays, especially when focusing on downstream chemical subsectors such as cosmetics or specialties. For instance, companies evolving in the field of specialty chemicals like the French ARKEMA, the Belgian SOLVAY or the German EVONIK have posted sound financial performances recently, notably in 2018. They succeed in keeping high margin levels because of their pricing power, which more than makes up for downward adjustment of volumes, if any. We expect this sound backdrop to continue over 2019 as specialties have become almost inescapable by investing a lot in R&D spending for their main outlets such as the automotive industry, construction and electronics.      

Even if upstream chemicals like petrochemicals can build upon the dynamism of the manufacturing sector, they usually undergo variation of their main feedstock prices. The problem is that rising prices in naphtha are not that easy to pass on to downstream ethylene prices. Plastics made out of monomers such as ethylene strongly depend on the construction sector, whose outlook appears to be hardly vivid across a few mature countries. Agrochemicals keeps on struggling because it has to cope with the shrinking revenues of farmers, who have not succeeded yet in getting  them back on track. 

Estimated at nearly USD4000bn in 2018, global chemical sales are expected to rise again in 2019, albeit to a (much) lesser extent compared to last year in view of the latest global slowdown in economic growth. Upward pressures in downstream prices might, however, shore up margins of specialty chemical companies as long as naphtha prices remain under control.   (But this doesn’t necessarily improve the odds of a turnaround in the chemical cycle in the near future.

Upstream chemicals: Close relationship with the cycle of industrial production as its products are used further down the supply chain, like petrochemicals for plastics

Soaps, detergents, cosmetics: Strongly dependent on trends in global consumer spending

Agrochemicals: Sales closely tied to farmers’ purchasing power 


Key players

Country Role Sector risk
United States

#1 exporter

#2 importer

#2 producer


Low risk


#2 exporter

#4 producer


Low risk


#1 exporter

#1 producer


Medium risk


Contact Euler Hermes

Economic Research Team

Sector Risk Analyst

Marc Livinec

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