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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.
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.
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.
2016 R&D spending: $2.06 billion
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.
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.
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
2016 R&D spending: $1.64 billion
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.
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.
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.
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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