The chemical distribution industry has faced its share of challenges in recent years. High interest rates, excess inventories, and market volatility have been difficult obstacles to navigate. However, Connor Lokar, Senior Forecaster and Economic Consultant at ITR Economics, now part of Crowe LLP, shared a message of optimism for 2025 and beyond during his keynote presentation at ACD’s Annual Meeting in November 2024.
Lokar’s insights highlight a crucial turning point in the economic cycle, providing reasons for chemical distributors to look forward to growth in the near future.
In his presentation, Lokar reflected on the themes discussed at the previous year’s ACD Annual Meeting, where he cautioned the industry about a slow economy, high inflation, and a potential decline in wholesale trade. 2024 was expected to be a challenging year for the industry, with market data pointing toward a sluggish period. As Lokar explained, some of the air was coming out of the proverbial balloon.
Fast forward to 2024, and while the wholesale trade for chemicals continues to decline, it is now in what Lokar calls the “recovery phase” of the business cycle. This term doesn’t imply an immediate rebound, but rather the rate of decline is slowing. Essentially, we are at a low point in the cycle, but not yet seeing growth.
Lokar emphasized that while this year may feel like a “speed bump,” there is every reason to be optimistic about the years ahead. “Let us get through 2024 and make it the best year we can,” he urged attendees, “but don’t be sitting on your hands for when things pick up next year. Prepare to invest and pivot your strategies heading into 2025.”
While 2024 may be challenging, Lokar sees it as an opportunity for chemical distributors to invest while the market is still relatively calm. This might mean building up inventories, hiring talent, and making strategic investments that will pay off when the market begins to recover in 2025.
“2024 is our pothole,” Lokar noted, “and 2025 is our runway.” He predicts that 2025 will be a year of growth, with 2026 following suit, and likely 2027 as well. The chemical distribution industry will soon see a period of expansion, and it’s crucial for companies to position themselves to take advantage of this growth.
Though Lokar is optimistic about the upcoming years, he also cautioned distributors to remain mindful of inflation and higher interest rates. The era of low inflation and historically low interest rates is over, and while there may be some rate cuts in the future, they will not mirror the deflationary period of 2020. The key takeaway for distributors is to be cautious but not overly conservative.
“As we head into 2025, make sure you are not cutting back too much. Don’t underinvest to the point where you risk depleting your inventories or losing out on market share,” Lokar advised. “Stay strategic about expenses and look to streamline operations but be ready to scale when the growth starts.”
Several sectors within the broader economy are expected to show signs of improvement over the next few years. For instance, manufacturing—especially in durable goods and consumer products—is expected to soften in the short term but will improve by 2025.
Construction is another area to watch. While the past few years have been difficult, particularly for residential construction, there is now significant growth in housing development. Industrial and commercial construction, however, is lagging and may continue to slow into 2025, but the recovery in other sectors will more than make up for this.
One industry to keep an eye on is automotive, where growth is slowing in domestic production but continuing in Canada and Mexico. While current consumer affordability and high interest rates have slowed the market, Lokar anticipates that 2025 will bring improved consumer conditions and a recovery in the automotive sector.
Ultimately, Connor Lokar’s message was clear: the chemical distribution industry should not be overly discouraged by the current slowdown. Instead, 2024 should be seen as a time to prepare for the anticipated rebound in 2025. Distributors who invest wisely now keep their costs in check, and strategically position themselves will be well poised to thrive when the growth phase begins.
With a focus on smart investments, efficient operations, and a forward-thinking approach, the future of the chemical distribution industry looks promising. The light at the end of the tunnel is visible—now it’s time to get ready to seize the opportunities that lie ahead.
As we look at 2025 and beyond, it’s time to plan for success.