The chemical industry companies should balance short

Sales for the chemical industry companies grew strongly for the second straight year in 2022, but persistent inflation meant that results were more mixed than top-line figures suggest. The top of the industry’s leaderboard was relatively stable.

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The chemical industry companies should balance short- and long-term goals to weather the uncertainty in the current landscape and position itself for the future.

After a challenging end to 2022, many in the chemical industry anticipated a modest rebound in production in 2023. But, by mid-2023, several chemical companies significantly revised down their expectations.1 Multiple factors contributed to sluggish demand for chemicals globally, including a recession in Europe, inflation in the United States, and a smaller-than-expected rebound in demand from China. In addition, over-ordering in 2021 and 2022 resulted in high inventory levels, leading to months of destocking. Consequently, chemical output grew less than 1% year over year in the first eight months of 2023, with many segments experiencing lower output.2 Many companies have turned their focus to reducing costs and improving efficiencies to help offset this reduction in output.

In the United States, fears of an economic downturn have faded with increased signs of a “soft landing,” but economic growth is still expected to slow down,3 leading many analysts to forecast only a modest rebound in chemical production.4 Destocking will likely transition to restocking for many chemicals, but the underlying weakness in demand and overcapacity for some products will likely continue. Under these market conditions, chemical industry companies should balance their short- and long-term goals. The American Chemistry Council expects that capital spending for the US chemical industry will remain mostly unchanged year over year in 2024 before ramping up to a growth rate of 3%–4% annually in 2025–2026.5 But, where chemical industry companies deploy this capital could be critical in determining their competitive position in the coming years.

That is in part because the competitive landscape is changing. These changes can present new opportunities for chemical industry companies but, at the same time, expose the industry to new vulnerabilities. Over the last three years, stakeholder pressure and government policies have incentivized investment in the energy transition. As a result, there appears to be an acceleration in the convergence of sectors related to the energy transition. 

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