Paradigm shifts

DEMAND PATTERNS

The lockdowns have broken down the inertia surrounding work and home-based routines. Travel, leisure, construction, real estate and other industries are already seeing major change as a result.

The EU’s Green Recovery deal is just one example of the new opportunities that are likely to develop. Europe, for example, is likely to see very rapid growth of Electric Vehicles at the expense of gasoline or diesel, and other regions will see similar challenges and opportunities emerge.

Companies and investors need to focus on demand rather than supply, by evolving from today’s product focus to a solution orientation.

RESHORING SUPPLY CHAINS

Global supply chains have proved very fragile during the pandemic. They have collapsed not only because of the uncoordinated nature of the lockdowns around the world, but also due to volatility in demand patterns.

These problems are unlikely to quickly disappear, making it essential to closely monitor developments in all the major end-uses on a segment by segment basis, rather than assuming ‘one size fits all’.

In the food packaging market, for example, anyone selling into the restaurant business during the lockdowns saw volumes collapse, whereas those selling into retail supermarkets were overwhelmed with orders.

RENEWABLE ENERGY

The war in Ukraine is already accelerating plans to increase energy security in the EU, UK and USA and elsewhere. The aim is to replace import-dependent, fossil fuel-based infrastructure with modern renewable-based power sources.

The International Energy Agency has already called for support for Electric Vehicles to be prioritized, along with the unblocking of supply chains to maximize resilience. It has also urged governments and businesses to increase plastic waste collection, re-use and recycling.

These developments also highlight the problems faced by the US shale gas expansions down the chemical chain, and the wake-up call awaiting OPEC and others who believe that pivoting from transport to chemicals will somehow keep oil demand growing in the future.

CIRCULAR ECONOMY

The need to reshore supply chains in a world seeing major energy market disruption suggests that moves towards a circular economy will accelerate.

Even without the pollution issue, it would make little sense for the world to continue spending $80bn-$120bn each year on producing single-use plastic products, which are then thrown away immediately after use.

The pandemic has confirmed that plastics are very valuable materials – but we need new locally-based business models to be created, covering the value chain from collection through processing, manufacturing (based potentially on 3D printing) and distribution.

Thinking ‘out of the box’ will likely create a goldmine for those innovative companies who focus on capturing the sweet spot in the new value chain, and rapidly scale the new business models across the main cities and towns in their chosen region.

ADVANCED MANUFACTURING

Many manufacturing operations still operate as they would have done 500 years ago, or even 50 years ago. A visitor from Shakespeare’s time – or from after World War 2 – would feel quite at home if they visited many manufacturing sites today.

It makes no sense to reshore on the basis of centuries-old technology when digital, continuous & biotech-enabled technology is safer, greener, faster and cheaper.

FINANCIAL MARKETS

Governments are refocusing on fiscal policy instead of monetary policy. The problem is that central bank stimulus policies have created major asset bubbles in stock and housing markets in many major economies.

Unfortunately, these bubbles are now beginning to burst, with potentially serious consequences for the wider economy. We are tracking this development in relation to the markets themselves, and via our proprietary ‘Sentiment Index’ and ‘False Dawns’ charts. These provided timely warning of the downturn in December 2021. And they have since proved an excellent guide to its likely duration and intensity.