Future-oriented spending down in 2016 | April 17, 2017 Issue - Vol. 95 Issue 16 | Chemical & Engineering News
Volume 95 Issue 16 | pp. 20-22
Issue Date: April 17, 2017

Future-oriented spending down in 2016

Slow growth and political uncertainty triggered cuts in chemical company research and construction spending
Department: Business
Keywords: investment, R&D, capital spending, future-oriented spending, economy
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Solvay bucked the trend last year with a more than 10% increase in R&D spending.
Credit: Alvin Tan/Solvay
Photo of a researcher at work in Solvay’s Singapore lab.
 
Solvay bucked the trend last year with a more than 10% increase in R&D spending.
Credit: Alvin Tan/Solvay

Capital and R&D spending took a nose dive in 2016.

The year was marked by economic uncertainty, political upheaval, and bottom-line-oriented efforts to keep earnings strong amid tepid growth conditions around the world. As a result, most chemical makers ratcheted back investments in research and in new plants and equipment.

Nineteen U.S. and European chemical firms collectively cut research outlays by 5.2% in 2016 to $9.7 billion.

C&EN’s annual R&D spending survey shows that 19 large U.S. and European chemical firms collectively cut research outlays by 5.2% in 2016 to $9.7 billion. The pullback follows a tepid 0.4% budget boost in 2015, when the firms spent $10.3 billion on R&D.

The decadelong trend for R&D spending is also not inspiring. After adjusting for inflation, spending for the group of 18 companies (excluding Evonik Industries because 10 years of data are not available) increased just a tad more than 1%. Without considering inflation, budgets increased by nearly 21%.

Sales for the group overall declined in 2016, pushing the share of company sales devoted to R&D to 3.5%, which is a decade high. R&D as a percentage of sales tends to hover around 3%.

Capital spending for the 19 chemical firms declined in 2016. The group reduced spending on new plants and equipment by 15.3% to $18.6 billion. The decrease comes on the heels of a more modest 3.3% reduction in 2015.

Capital outlays for the group reached a decade high of $22.7 billion in 2014. The decade low was $12.1 billion in 2009 during the depths of the Great Recession.

For the 18 companies on which C&EN has a decade of data, research budgets drew 34.5% of total future-oriented spending last year. The decade high was 41.1% in 2009 during the economic slowdown, when managers slashed capital spending but protected R&D budgets.

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R&D spending rose about 6% at Arkema last year even as other firms cut back.
Credit: Alexis Cheziere/Arkema
Arkema~research
 
R&D spending rose about 6% at Arkema last year even as other firms cut back.
Credit: Alexis Cheziere/Arkema

Unlike previous future-oriented spending surveys conducted by C&EN, this year’s review makes no projections for either R&D or capital spending in 2017.

Over the years, fewer and fewer companies have been willing to provide R&D spending estimates. Two years ago, seven firms were willing to divulge R&D projections for the year ahead. Last year, only three firms would provide such estimates. Thoughtful estimates of capital outlays for the year ahead are generally easier to obtain, but companies have become stingy even with that information.

Instead, using financial documents and other industry sources, C&EN is providing short profiles of the future-oriented spending plans of the chemical industry’s top five investors in R&D. Beyond the numbers, the profiles offer perspectives on decisions influencing future-oriented spending and glimpses into where the companies are heading this year.

 

1 BASF

2016 R&D spending: $2.06 billion

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Research trends

R&D spending in constant dollars was near 2006 levels last year but hit a 10-year peak as a percentage of sales.
Note: Values are for 18 chemical firms listed in the “Research investments” table. Excludes Evonik Industries because 10 years of data are not available.
Sources: C&EN surveys, White House Office of Management & Budget.
A set of charts showing R&D spending over 10 years in current and constant dollars and as a percent of sales.
 

Research trends

R&D spending in constant dollars was near 2006 levels last year but hit a 10-year peak as a percentage of sales.
Note: Values are for 18 chemical firms listed in the “Research investments” table. Excludes Evonik Industries because 10 years of data are not available.
Sources: C&EN surveys, White House Office of Management & Budget.

As the world’s largest chemical company, BASF has been a leader in future-oriented spending for many years. But similar to its competitors, the firm is taking a cautious approach to spending in part because of the political uncertainties represented by the U.K.’s pending exit from the European Union and rising trade protection sentiments in the U.S., which BASF Chair Kurt Bock recently called “poison.” The firm considers innovation and sustainability closely related goals. It wants to integrate digital technologies into its research process in part by using computer modeling to predict the properties of chemicals from their structures. In early March, BASF said it would collaborate with Hewlett Packard Enterprise to develop what it calls one of the world’s largest supercomputers for industrial research. The company expects that the new system will reduce the time required to get answers to complex questions from several months to days.

 

2 3M

2016 R&D spending: $1.74 billion

Although 3M is a diversified producer of materials and consumer products, the company nonetheless is a significant employer of chemists and conducts R&D on a large scale. The firm spends more on R&D as a percentage of sales—5.8%—than any other firm in C&EN’s annual survey except for DuPont. The budget goes to develop what 3M describes as a “steady stream of inventions that are covered by new patents” in areas such as health care, electronics, and energy management. Among the patented products for which 3M is well known are Post-it notepads and Scotch brand tapes. It also sells less well-known products such as fluoroelastomer seals and dental materials. Last year, the firm opened a four-story, 44,000-m R&D building at its headquarters in St. Paul. The $150 million facility brought together 700 scientists previously scattered over several different sites. The single shared building opens collaboration opportunities for scientists working on diverse products such as ceramics and electronics, 3M says.


Research investments

On average, 19 major chemical firms cut spending more than 5% in 2016.

$ MILLIONS CHANGE AS % OF SALES
2011 2012 2013 2014 2015 2016 2014–15 2015–16 2015 2016
Air Productsab $119 $126 $134 $141 $139 $132 -1.4% -5.0% 1.4% 1.4%
Albemarlec 77 79 82 88 103 80 17.0 -22.3 2.8 3.0
Arkemad 146 164 166 172 231 246 34.8 6.2 2.7 2.9
BASFe 1,777 1,933 2,032 2,086 2,162 2,063 3.7 -4.6 2.8 3.2
Cabota 66 73 74 60 58 53 -3.3 -8.6 2.0 2.2
Celanese 96 102 85 86 119 78 38.4 -34.5 2.1 1.4
Clariant 179 178 184 216 207 209 -4.2 1.0 3.5 3.5
Dow Chemical 1,646 1,708 1,747 1,647 1,598 1,584 -3.0 -0.9 3.3 3.3
DSM 422 424 588 358 376 342 5.3 -9.1 3.8 3.9
DuPont 1,956 2,067 2,153 2,067 1,898 1,641 -8.2 -13.5 7.6 6.7
Eastman Chemicalf 158 198 193 227 251 219 10.6 -12.7 2.6 2.4
Evonik Industries 404 435 436 457 481 485 5.1 0.9 3.2 3.4
FMC 105 118 118 129 144 142 11.6 -1.4 4.4 4.3
W.R.Graceg 69 65 65 80 70 49 -13.0 -29.6 2.3 3.1
Huntsman 166 152 140 158 160 152 1.3 -5.0 1.6 1.6
Praxair 90 98 98 96 93 92 -3.1 -1.1 0.9 0.9
Solvayh 172 289 332 273 307 338 12.1 10.1 2.2 2.7
3M 1,570 1,634 1,715 1,770 1,763 1,735 -0.4 -1.6 5.8 5.8
TOTAL $9,308 $9,980 $10,520 $10,225 $10,270 $9,739 0.4% -5.2% 3.4% 3.5%
ANNUAL CHANGE 9.3% 7.2% 5.4% -2.8% 0.4% -5.2%

Note: Some figures were converted at relevant 2016 exchange rates. a Fiscal year ends Sept. 30. b Spun off electronic materials division in 2016. c Bought Rockwood in 2015. d Bought Bostik in 2015. e Sold gas trading business in 2016. f Purchased Solutia in 2012. g Spun off construction products and packaging businesses in 2016. h Bought Cytec Industries in 2015. Source: C&EN surveys



 

3 DuPont

2016 R&D spending: $1.64 billion

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Capital ideas

Capital spending slipped for the second year in a row in 2016, declining to 6.8% of sales.
Note: Values are for 19 chemical firms listed in the “Capital outlays” table.
Source: C&EN surveys and estimates
A set of charts showing capital spending over 10 years in dollars and as a percent of sales.
 

Capital ideas

Capital spending slipped for the second year in a row in 2016, declining to 6.8% of sales.
Note: Values are for 19 chemical firms listed in the “Capital outlays” table.
Source: C&EN surveys and estimates

DuPont has undergone significant changes in the past few years. In 2015, it spun off Chemours, its fluorochemicals and titanium dioxide business, and soon it will merge with Dow Chemical and subsequently split into three separate firms based on materials science, agriculture, and specialty products. Each will have its own research capabilities. To prepare for the day that happens, DuPont has been paring back its research head count and infrastructure. Last year, the firm cut R&D spending by 13.5% and eliminated its vaunted Central Research & Development organization. It also laid off about 200 scientists formerly assigned to the central research unit in Wilmington, Del., sources told C&EN in 2016. However, the firm continues to support businesses that will be part of DowDuPont and the subsequent spin-offs. And it continues to seek outside research partners. Last month, DuPont said it would collaborate with Purdue University’s College of Agriculture to “shape the future of agriculture” and develop crops with higher yields. DuPont’s support includes a newly endowed chair in plant sciences and access to proprietary phenotyping technology.

4 Dow Chemical

2016 R&D spending: $1.58 billion

The pending merger with DuPont will affect Dow Chemical researchers, though the full extent is not yet clear. When it announced the deal with DuPont, Dow also said it would buy its partner Corning’s share of the Dow Corning silicones joint venture and place it in the planned specialty products firm that will eventually emerge from DowDuPont. Although the Dow Corning purchase resulted in 2,500 layoffs, which presumably included some people working in R&D, Dow nonetheless reported that it employed 7,200 researchers at the end of 2016, up from 6,800 one year earlier. Like DuPont, Dow continues to invest in new R&D initiatives, including an innovation center planned for its headquarters in Midland, Mich. The installation will support 200 R&D jobs, 100 of which will be newly created.

 

5 Evonik Industries

2016 R&D spending: $485 million

Confident in the ability of research to propel its future growth, Evonik Industries says it plans to spend about $4.4 billion on innovation over the 10 years ending in 2025. According to Chair Klaus Engel, Evonik’s investments are paying off. The firm applied for about 230 patents in 2016, and patent-driven sales accounted for 56% of the firm’s $14.1 billion in sales last year. To get the most bang for its buck, Evonik last year focused R&D on six areas where it expects to have above-average growth rates: nutrition, health care, food ingredients, membranes, cosmetics, and smart materials. About 500 research projects relying on 2,700 scientists are now under way. Scientists can take advantage of $175 million in laboratory capacity and pilot plants the firm added from 2014 to 2016.


Capital outlays

Spending sank more than 15% on average as several big companies cut back on building projects.

$ MILLIONS CHANGE AS % OF SALES
2011 2012 2013 2014 2015 2016 2014–15 2015–16 2015 2016
Air Productsab $1,352 $1,521 $1,524 $1,682 $1,615 $1,056 -4.0% -34.6% 16.3% 11.1%
Albemarlec 191 281 155 111 228 197 105.4 -13.6 6.2 7.4
Arkemad 470 485 533 520 477 493 -8.3 3.2 5.6 5.9
BASFe 3,776 4,540 4,872 5,647 5,757 4,318 2.0 -25.0 7.4 6.8
Cabota 230 230 264 171 141 112 -17.5 -20.6 4.9 4.6
Celanese 349 361 370 678 520 246 -23.3 -52.7 9.2 4.6
Clariant 376 316 296 315 380 301 20.6 -20.6 6.4 5.1
Dow Chemical 2,687 2,614 2,302 3,572 3,703 3,804 3.7 2.7 7.6 7.9
DSM 468 760 773 668 507 457 -24.0 -9.8 5.1 5.2
DuPont 1,843 1,793 1,882 2,020 1,629 1,019 -19.4 -37.4 6.5 4.1
Eastman Chemicalf 457 465 483 593 652 626 9.9 -4.0 6.8 6.9
Evonik Industries 919 1,063 1,199 1,243 971 1,050 -21.9 8.1 6.5 7.4
FMC 190 207 272 225 109 131 -51.6 20.2 3.3 4.0
W.R.Graceg 142 139 156 170 155 117 -8.9 -24.4 5.1 7.3
Huntsman 327 412 471 601 663 421 10.3 -36.5 6.4 4.4
Praxair 1,797 2,180 2,020 1,689 1,541 1,465 -8.8 -4.9 14.3 13.9
Solvayh 667 869 897 1,094 1,209 1,086 10.5 -10.2 8.8 8.6
3M 1,379 1,484 1,665 1,493 1,461 1,420 -2.1 -2.8 4.8 4.7
TOTAL $17,820 $20,068 $20,447 $22,740 $21,983 $18,619 -3.3% -15.3% 7.3% 6.8%
ANNUAL CHANGE 31.2% 12.6% 1.9% 11.2% -3.3% -15.3%

Note: Some figures were converted at relevant 2016 exchange rates. a Fiscal year ends Sept. 30. b Spun off electronic materials division in 2016. c Bought Rockwood in 2015. d Bought Bostik in 2015. e Sold gas trading business in 2016. f Purchased Solutia in 2012. g Spun off construction products and packaging businesses in 2016. h Bought Cytec Industries in 2015. Source: C&EN surveys



 
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