According to a report from Deloitte Touche Tohmatsu, chemical companies’ profits will continue to fall unless new approaches are adopted. The report is based on the analysis of 1998–2008 financial results for 231 publicly held chemical firms. Gross margins for 35 commodity-chemical providers declined from 28% in 1998 to 16.5% in 2007. Commodity-chemical suppliers are expected to face excess capacity and pressure on margins. In response, the report recommends that they preserve cash, increase cash flow, sell or shut down excess capacity, and strengthen their balance sheets. An analysis of 158 specialty chemical firms showed that gross margins declined 4.2% from 1998 to 2007. For specialty chemical supplies, which will face increasing competition, the report recommends that they adopt a flexible business model, redesign innovation and service, address the complexity of operations, choose a dominant or niche role in markets, and address cyclicality. Gross margins for 20 integrated chemical firms fell from 30% in 1998 to 22% last year. For these companies, the report recommends synergies from acquisitions and expanded specialty chemical businesses.

Source: Deloitte Touche Tohmatsu