The global chemicals market will continue to grow despite greater volatility in the chemicals market over the past two years and the  growth will be driven to a  large extent by the Asian and special chemicals markets, which will also shape the future of the chemicals industry, according to a study.

Over the next 20 years, the chemicals market will more than double from its current £2 trillion to almost £5 trillion. However, at the same time, critical developments will stifle margins and growth rates. The NAFTA countries and Western Europe in particular will realise annual growth of only about two per cent. China and India will remain the countries with the strongest growth. This will lead to a major shift toward Asia, the study adds.

This trend is highlighted by the fact that currently 43 per cent of the chemicals industry global market volume - worth €2 trillion - is in Asia. "Rising Asian demand for chemicals means production will be increasingly moved to countries in Asia," the study points out.

With 43 per cent  of the market volume, Asia today already plays the key role. Industry trends such as changing competitive structures, further market shifts toward Asia. Although the market will continue to grow to about Euro 5 trillion and thus more than double by 2030, several internal and external trends are negatively impacting profitability in the industry. Increasing competition from Asia, the importance of sustainability, shorter and shorter life cycles of chemical products and issues with sourcing raw materials will all play a role. These are key findings of the new study entitled "A different world – Chemicals 2030" by Roland Berger Strategy Consultants.

Over the next 20 years, the chemicals market will more than double from its current Euro 2 trillion to almost Euro 5 trillion. However, at the same time, critical developments will stifle margins and growth rates. According to Alexander Keller, Partner at Roland Berger Strategy Consultants, "the NAFTA countries and Western Europe in particular will realize annual growth of only about two per cent. China and India will remain the countries with the strongest growth. This will lead to a major shift toward Asia."

This trend is highlighted by the fact that currently 43 per cent  of the chemical's industry global market volume – worth Euro  2 trillion – is in Asia. "The most profitable high-growth segment will be plastics and speciality chemicals in the Asian market," explains Keller. "Rising Asian demand for chemicals means production will be increasingly moved to countries there."

Major challenges include meeting environmental requirements and ensuring raw materials supply. Other developments will also play a decisive role, such as sustainability. For instance, legal requirements regarding the environment will lead to higher production costs in practically all industry segments.

Problems with raw materials supply and rising prices will put a considerable strain on the global chemicals industry. "Companies that have easy access to critical raw materials will have a major competitive edge in the future. This is because they will be in a much better position to keep their production costs in check. Manufacturers of basic chemical products must pay special attention to this when developing their marketing strategy," explains Keller.

Companies focused on special chemical segments such as flavours and fragrances will have to compete against competitors with big brand names, huge customer portfolios or innovative product technologies. "There is fierce competition in this specialized market segment – driven by significant customer orientation – and especially on the local level and primarily in Asia," says Keller. "Furthermore, Asian investors are acquiring more and more companies in Western countries to gain easier access to these companies' technologies and customers."

Says KPMG global chemical business controller Paul Nick,"Even though the not sure of global macroeconomic outlook will produce great negative impact for the 2012 global chemical industry, we continue to remain positive on Asia chemical industry growth prospects, global chemical industry will continue shift to emerging market" .

Further, Nick points out that Asian powerful growth will stimulate chemical industry further growth, and the chemical companies of developed countries are increasing investment in Asia, in order to seek further growth of the business. Thailand, Indonesia and Vietnam extend to existing oil refineries petrochemical industry chain would also boost the rapid growth of the chemical industry.

According to some of the experts, though  growth is expected  Asian chemical industry will face some challenges, including the raw material price fluctuations increase, and because of the global economic outlook uncertainty lead to demand fluctuation.

Over the past few years Asia-Pacific has experienced secular growth in business alliances. Key factors driving business alliances in Asia- Pacific are: supportive regulatory environment, private equity and financial investors, globalisation and regionalisation of local champions in several markets.

Leading chemical manufacturers are entering emerging markets through joint ventures or acquisitions mainly in the Middle East to gain access to feedstocks, and in China and India to develop a local market presence. The most successful chemical producers in the near future are likely to be those that embrace the changing dynamics in the global chemical industry and effectively position themselves in emerging markets.

Growth in Western Europe started to decline in recent years, making Asia, the Middle East, and Latin America the new markets driving growth. The Asian chemical market is highly fragmented and is still dominated by a plethora of relatively small players in terms of market capitalization. Thus, they present as attractive takeover targets for many European and US chemical players.

According to a new report by the Boston Consulting Group, Chemical companies, whether they focus on a single industry sub segment or offer a wide range of products, are reshaping themselves to meet the challenge posed by three powerful trends.

These trends—the breathtaking growth of emerging markets, the rise of low-cost producers, and the tight constraints on some raw-material supplies—are spurring chemical companies to action. They are reshaping their businesses to serve important customers, generate operating and cost-saving synergies, and meet their needs for key inputs. With their balance sheets in good shape and market enthusiasm for chemical-industry deal-making remaining high, chemical companies are poised for an active year as they adapt to a fast-changing world.

“Asia and other emerging markets are the main source of the industry’s demand growth, and the industry must reorient itself to win the business of these key customers,” said Udo Jong, a BCG senior partner and a co-author of the report. “We believe that Western companies must expand their footprints in these regions to succeed in the environment now taking shape.”

While the developed world’s share of demand for chemical products has declined steadily since 2006, demand in emerging markets has surged, surpassing developed markets in 2010. China, meanwhile, overtook the U.S. in 2011 as the world’s largest market for chemicals.

Driving the growth of the industry in China is the government's policy of self-sufficiency in petrochemicals and plastics. To try to meet this target, China has been pursuing a two-pronged strategy of building up ethylene capacity - a basic petrochemical that is used in myriad plastics - and partnering with multinationals to get access to the technology required for more sophisticated products.

To ensure it has enough raw feedstock, China has been forming partnerships with Middle Eastern companies and shopping overseas for oil and gas production blocks. The importance of the chemicals industry to Chinese policy-makers also means that the largest state-owned companies can easily source large amounts of cheap funding for projects or overseas acquisitions. Western companies and even rivals from India and other emerging markets cannot compete.

However, while China's chemical industry has made important strides in securing feedstock, many challenges remain. Aside from giants such as Sinopec, the industry is highly fragmented with more than a hundred oil refiners across the country with more than one million tonnes annual capacity. These smaller companies are often inefficient, with much of the industry operating at only about 70 per cent capacity.

The downstream chemical industry is also beset by fragmentation and overcapacity, with a concentration on low-value bulk chemicals amid growing demand for speciality products. High-end plastics, such as those used in domestic appliances, or sophisticated products such as liquid crystal alignment film resin, used in LCD televisions, are in huge demand in China but domestic production cannot keep up. China is seeking to move up the value chain, however. Research and development spending is estimated to have increased to two percent of gross domestic product in 2010, double the level of a decade earlier. The demand for higher technology is also attracting western multinationals.