Asia’s chemical industry1 is in deep trouble: the regional collapse in demand for its products is forcing more and more debt-burdened companies to the brink. But the crisis is hardly confined to Asia; it has deprived many US, European, and Middle Eastern chemical manufacturers of what used to be an important export market and undercut prices around the world for many of the industry’s products.
The continent’s chemical industry is highly fragmented, and its capacity is in many cases chronically excessive, particularly for commodity chemicals. A radical restructuring will be needed for prices to recover, and Asian companies must lead it. Asians, after all, control by far the largest part of installed capacity in this part of the world; Western players still have only a limited presence, and most would balk at the number of takeovers needed to consolidate the industry in a meaningful way—and at their cost. Moreover, uncertainty about the pace of economic recovery in Asia will probably deter all but the most risk-hungry outside investors.
Indeed, the task ahead for Asian chemical producers is enormous. Of all the world’s regions, this has the largest imbalance of capacity and demand for many products, as well as...