Strong demand and higher prices made 2022 a good year for the global chemicals industry overall, but results varied widely by region. In the U.S., the sector had “one of its best years in a decade,” while European companies struggled to navigate an energy crisis.

With a recession expected by many in 2023 or early 2024, the near-term future of the industry is uncertain. However, many producers remain committed to bold capital projects that will spur organic growth and make themselves more sustainable.

In this deep dive, we’ll explore the crossroads that the chemicals industry finds itself in, and the key trends capital planners should keep an eye on to maximize their Capex performance throughout the 2020s and beyond.

Commodity inflation has been a boon to U.S. chemical companies

Despite enduring disruptions caused by COVID and supply chain challenges, the U.S. chemicals industry has emerged stronger than ever, buoyed by favorable pricing and strong demand. As Deloitte points out, “The US chemical industry has shown strong financial performance, reaching a level last seen more than two decades ago. This performance is a result of strong commodity markets and robust demand. Except for 2020, these two factors have generally created an environment of favorable pricing, allowing the industry to recover nearly all the gross margin erosion that occurred through 2015.”


This solid performance recently led investment bank Piper Sandler to upgrade several U.S. chemical companies, citing “a number of tailwinds developing that should create substantive benefits for chemical industry margins, primarily for North American production” which include significant pricing power due to lower raw materials costs. A run of highly-profitable years have allowed these companies to build strong balance sheets, putting them in a good position to make impactful capital investments.


Capital planners have taken advantage of this strength by investing in new projects. American chemical producers increased their Capex by 9% in 2022, investing in more plant capacity, infrastructure upgrades, and new sustainability projects. But, after significant outlays in 2022, capital spending growth is “expected to slow to 3.6%” in 2023 as companies gear up for a potential slow down later in the year.

Globally, decarbonization efforts are ramping up

Climate change is an issue that nearly all industries are trying to get their arms around, but it’s a particular focus for the chemicals industry. According to the International Energy Agency (IEA), “the chemical sector is the largest industrial energy consumer and the third largest industry subsector in terms of direct CO2 emissions. This is largely because around half of the chemical subsector’s energy input is consumed as feedstock – fuel used as a raw material input rather than as a source of energy.”


A range of stakeholders—including governments, investors, and regulators—are sounding the alarm and demanding big changes. As consultancy Oliver Wyman points out, “failure to meet sustainability targets represents the single greatest long-term risk to [chemical] companies, putting even their license to operate in jeopardy. Companies that fail the sustainability test may find themselves locked out of financing, especially as banks and other institutional investors focus on greening portfolios and making ESG priorities core to investment strategies.”


Industry leaders have recognized the urgent need to decarbonize their operations, and are responding with bold capital investments. Dow Chemical, the biggest producer in the U.S., has a goal of spending around $1 billion per year on decarbonization projects, and is planning on constructing the “world’s first net-zero carbon emissions ethylene and derivatives complex” in Canada in 2023. Despite job cuts to start the year, the company has reaffirmed its expectation that Capex spending will increase by 21% in 2023.

It’s not just American firms that have ambitious capital spending goals. German chemical company BASF will invest over $25 billion through 2025 with the goal of driving organic growth, and has announced plans “to build a new hexamethylene diamine (HMD) plant in France and expand Polyamide 6.6 production at its facility in Freiburg, Germany.” Netherlands-based LyondellBasell spent around $2 billion in Capex in 2022, with a relatively even split between growth and maintenance projects. Going forward, the company expects capital spending to remain at that level for the next several years, and “accelerate its investments in decarbonization in the latter half of the 2020s.”



Powder & Bulk Solids, a magazine focused on the chemical and related industries, summed up the outlook going forward:


“Across the chemical industry, manufacturers are building new facilities to support growth, improving their existing asset bases, and investing in sustainability-related initiatives. As the decade progresses, Powder & Bulk Solids expects to see a greater share of Capex go toward assets that support the circular economy and furthering the decarbonization of chemical operations.”

Betting on a battery-powered future

While decarbonizing their operations will be a significant challenge for chemical companies, it also presents an enticing opportunity as demand for battery materials surges. BASF expects that “its Battery Materials business will become ‘a significant earnings contributor’” to its portfolio, and is planning to invest up to $5 billion in Capex between now and 2030.


A number of Korean companies are also seeing the opportunity in batteries. Lotte Chemical has committed nearly $8 billion to new battery material and hydrogen projects by 2030, and “plans to open American production facilities for battery materials in a few years.” Additionally, LG Chem has set aside $5.2 billion to expand its battery materials unit, and POSCO chemical is building a battery cathode materials plant in Canada through a joint venture with General Motors.

The main driver behind all of this battery demand is electric vehicles (EVs). While just one in seven passenger cars sold globally was an EV in 2022, demand has been growing exponentially, and producers are seeing the writing on the wall.



On top of the Inflation Reduction Act (IRA), which provided a number of incentives for both producers and consumers of EVs, the Biden administration recently proposed even more ambitious legislation “designed to ensure two-thirds of new passenger cars and a quarter of new heavy trucks sold in the United States are all-electric by 2032.” As a result, “battery manufacturing is ramping up across the [U.S.]” and in many regions around the globe.


The chemical industry’s transition towards battery-powered solutions marks a pivotal step in embracing a sustainable, low-carbon future. The scale of this transition is so massive that chemical company leaders ought to think about these Capex projects as their own category.

Leaders need a third bucket—“sustainable Capex”—in addition to growth and maintenance

Most capital planners have, minimally, two broad buckets for Capex projects: growth and maintenance. But with the significant amount of decarbonization-related projects that chemical companies are embarking on, leaders should consider a third category—sustainable Capex.


While investing in projects like battery materials plants presents a sizable growth opportunity, other sustainability-related investments may not achieve the kinds of returns investors hope for. As Deloitte points out, “Any scale capital deployment for sustainability in the near term may be at lower-than-threshold hurdle rates yet may require a larger share of capital deployment.” The good news is that government incentives, such as those included in the IRA, “provide billions of dollars for investments in lower-emissions technologies along with continued tax support for carbon capture,” which will help chemical companies meet ambitious emission-reduction goals.


By viewing sustainable Capex investments outside the lens of growth and maintenance, leaders can build a business case that goes beyond dollars and cents. These projects are fundamental to staying competitive in the long term, and will allow companies to effectively address ESG concerns and regulatory requirements. The industry finds itself in a unique position to use “their strong balance sheets…to lead the coming transformation that will substantially alter chemicals businesses and adjacent businesses in the decade ahead.”


Managing the capital projects necessary to facilitate such a transition requires the help of cutting-edge digital tools to prioritize funding of the highest risk-adjusted ROI projects. Traditional solutions lack the ability to incorporate real-time data, look back at past projects, and forecast accurately. That’s simply unacceptable during such a critical moment for the industry.

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