My Predictions for 2023

For the Chemical Industry at least

Hey There,

This is a bit outside of my normal writing in that I originally wrote it for somewhere other than this newsletter. The below originally appeared in the ACS Industry Matters newsletter. A bit of clarity and disclosure. I agreed to write this for ACS to gain exposure to some new audience. I’m not sure that’s happened yet, but it feels good to expand my horizons and try new things. I’d appreciate you dropping your own predictions for the year below.

As originally written by me for ACS Industry Matters: February 2, 2023 12:00 AM EST

About a year out of my PhD I was traumatized because my employer instituted a big layoff, and it has stuck with me ever since.

From people I’ve talked to recently within industry, it looks like there are some headwinds and many companies are in a position of hiring freezes. If I had a crystal ball, I’d see the future and tell you about it here, but I can only offer my opinions … and please take them with a bucket of salt.

Recession Lurking

One thing many people agree on is that we are headed for some sort of economic contraction in 2023. We might even be experiencing it now, but at the end of 2022 despite record revenue numbers, overall volumes were flat and/or down for many chemical companies. This is more of a function of price increases as opposed to actual value being created with new products. The important thing to note is that these circumstances are outside of your control, but it doesn’t hurt to prepare for the worst and hope for the best. The economy might not even recess in 2023, but if the worst thing that happens is you spend a few hours updating your résumé and talking to people on LinkedIn, then consider yourself prepared and lucky.

The truth is that a recession is always going to occur, and cost-cutting and layoffs are common in the chemical industry. Most of us tend to expect them, and while talk of what feels like impending doom can dominate lunch conversations, it often doesn’t help to dwell on things you cannot control. Do what you can and move forward with your life. If you do get laid off and need help getting that next gig, don’t be afraid to reach out to your network. If you feel like you don’t have a network, email me and I’ll do what I can to help you. No one is safe, including CEOs; they just have a better parachute than the average employee.

Fragmentation and Consolidation

In 2022, the big trend that I noticed was chemical companies changed their core businesses. DuPont looks completely different today than it did 10 years ago. Conglomerates that once spanned an enormous amount of end markets now focus on a select few that they think will yield the types of growth that their shareholders want. Take my own last employer: GCP Applied Technologies. It was formerly part of W.R. Grace, a big family-run conglomerate; it spun off as its own public company in 2016; and by the end of 2022 it was absorbed intoSaint-Gobain, a former competitor. 

I expect that large chemical companies will seek to become focused as we move into 2023 and either look to consolidate end markets by buying competitors businesses or divesting commoditized businesses. Consolidation is a strategy to lower costs by leveraging economies of scale for raw material negotiation, production, and labor supporting businesses. Instead of four sales from four companies, people trying to win the business of the same customer, consolidation means it's only three. Instead of two product teams working against each other they are now collaborating in the same direction. The best way to beat your competition is to buy them.

Start-ups Gonna Start

Large chemical companies seeking consolidation, better profitability, and lower costs are sowing the seeds of their own destruction. The chemical industry has ceased to try and innovate with big ideas and new products. The industry has instead opted for incremental innovation within their own product portfolios and much of the innovation that occurs is to maintain or marginally grow the current business as opposed to disrupting their own. There are numerous reasons for why this has happened, but the easiest explanation is that it is what the shareholders of the chemical industry want.

The technical talent that seeks to make the big changes in the world will tend to migrate toward start-ups promising big technical innovation as well as potential big paychecks in the form of stock options. I cannot point to a runaway success in the start-up world right now, but the few companies I’m keeping my eyes on are Solugen, Origin Materials, and Enginzyme. These companies all seek to lower production costs significantly through innovation either through enzymatic catalysis or tapping into new feedstocks to produce chemicals. 

Only a few start-ups need to succeed to demonstrate that it’s possible to bring new capacity online, and if they can demonstrate specialty chemical margins by producing commodity chemicals, then a new standard is set and the positive feedback loop begins. If you’ve been in the chemical industry for long enough to know that most of the companies are the same, you might want to think about going to a start-up. 

You can be the change you want to see in the world.

Tony

Back when I was going to Tennessee all the time for manufacturing trials I listened to this album on repeat. My favorite song from the album: