Could you introduce Bain & Company, and describe the services you provide to regional chemical companies?

Bain & Company (Bain & Co.) is a global management consulting firm, known for its results-driven approach. We are deeply involved in the chemicals industry, providing not just strategy but also hands-on work in the transformation phase. This could involve building a new site, adjusting the operating model, or assisting in decarbonization, a current focal point for many companies in this industry.

Our offerings span across cost and revenue work, performance improvement, commercial excellence, M&A, and integration. We have a unique capability of conducting quick industry screens, company assessments, and opportunity assessments through our extensive work with private equity firms. Have you noticed any trends in the chemical and petrochemical industry, particularly in the SEA region?

Short-term economic pressures are impacting everyone, with increased raw materials prices and reduced customer demand. However, the long-term trend reveals two major themes: decarbonization and circularity.

Decarbonization has prompted many companies to establish aggressive emissions targets for 2030 and 2050. Companies are putting measures in place to achieve these targets, ranging from performance improvement to energy efficiency initiatives, and are re-evaluating their asset portfolios, sometimes leading to asset restructuring. This involves assessing their product and business portfolios from a future-back perspective, factoring in the potential impacts of future carbon prices.

Another significant theme is circularity, and companies are diversifying into alternative feedstocks and increasing their use of recycled materials. Companies in Thailand, for instance, are making a push into biofeedstocks for bioplastics.

Plastic recycling is another key area. Stakeholders in waste management, consumer goods, and chemicals companies, all view recycling as a valuable avenue for sourcing high-quality, low-cost feedstock. Many Southeast Asian chemical companies are exploring potential businesses they can build around sustainability as an additional revenue source, diversifying and building a new business around decarbonization. Do companies in SEA make rapid changes in response to impending government regulations or are they leading the change, with regulations catching up?

In my assessment, it is a bit of both. Europe's implementation of the carbon border adjustment mechanism (CBAM) means exporting to the EU will require carbon reporting. This global mechanism will soon be adopted by the US and others, so change is unavoidable, irrespective of domestic carbon taxes. Therefore, for businesses operating in global markets, it is in their interest to start looking at this.

Many of these companies have set ambitious emissions targets for 2030 and are on sustainability indices. To maintain these ratings and reach their targets, they need to do more than just comply with regulations. Sustainable companies often get better valuation multiples, better investor bases, and access to lower funding, creating a real economic incentive for them. Regionally, I have noticed that the discussion is more about global markets, commitments, shareholders, and accessing green financing. Has there been a softening in demand for some chemical products?

Companies that depend on buying feedstock from the market have experienced cost increases in a low-demand market, leading to contracted spreads. Integrated producers have weathered this situation better due to their direct access to captive feedstock.

As for China's reopening, it has not yet boosted demand as expected, perhaps because China has been building petrochemical capacity over the last few years. With new capacities coming to market soon and a still low-demand environment, we anticipate an impact on certain chemicals into 2024. The increasing balance of China's polymerization capacities and other new capacities coming online could impact Southeast Asian markets most as volumes find their way there first. Despite a demand rebound, the supply overhang will likely continue to impact midstream players in Southeast Asia significantly. What are Bain & Co.'s plans for the coming years?

Today, every strategy we devise with chemical companies is aimed at monetizing sustainability. We help our clients lower their carbon intensity, identify future feedstock supplies, and build new businesses around that.

The goal is to ensure they become attractive, end-to-end decarbonized companies. We help in areas such as finding the right customers, electrifying assets, portfolio restructuring, and supporting M&As to diversify business portfolios. When discussing sustainability, we consider three elements: economic, environmental, and social sustainability, with proper governance and the right operating model.