February 27, 2012 - IMM@BUCT

BUSINESS
CHEMICAL FIRMS
SUSTAIN INVESTMENTS
Expecting muted economic growth, chemical makers plan
MODEST INCREASES in R&D and capital spending this year
MARC S. REISCH , C&EN NORTHEAST NEWS BUREAU
CABOT CORP.
CHEMICAL COMPANIES plan to increase
spending on research and equipment this
year but at a slower pace than they did last
year. Concerned over the sovereign debt
crisis in Europe, a weak economic recovery
in the U.S., and a slowdown in the pace of
growth in Asia, many chemical executives
are tempering their future-oriented spending
plans, according to C&EN’s annual
survey.
Seventeen U.S.-based firms say they will
boost spending on new plants and equipment
by 14.1% this year to a combined
$13.0 billion. The increase marks a more
modest uptick in capital expenditures
compared with last year’s hefty rise of
31.2% to $11.4 billion.
Nonetheless, this
year will mark the
third annual spending
increase after
2009, when investment
sank during the
Great Recession.
Eight U.S.-based
firms report they will
lift their research
spending by 3.0% in
2012 to a combined
$4.4 billion. The
increase follows an
8.5% budget boost in
2011 to $4.3 billion
and points to the continued
importance of
R&D for the group.
Even the recession
did not interrupt the
companies’ support
for this important
discovery activity.
According to
C&EN’s survey, the
overall forecast for
future-oriented
spending continues
to be bright. For the
eight firms— Cabot ,
CAPITAL PROJECTS Spending will rise in 2012 for the third year in a row,
reaching 6.8% of sales.
$ Billions
12
10
8
6
4
4
2002 03 04 05 06 07 08 09 10 11 12 2002 03 04 05 06 07 08 09 10 11 12
NOTE: Values are for 14 chemical firms listed in the table on page 21. Excludes Ashland, Celanese, and
Huntsman Corp. because 10 years of data are not available. SOURCES: C&EN surveys and estimates
RESEARCH TRAJECTORY R&D spending is on an upward track but will
stay steady as a percentage of sales.
$ Billions
5
■ Current
■ Constant 2002
4
3
2
2002 03 04 05 06 07 08 09 10 11 12
% of sales
8
% of sales
5
2
2002 03 04 05 06 07 08 09 10 11 12
NOTE: Values are for eight chemical firms listed in the table on page 21.
SOURCES: C&EN surveys and estimates, White House Office of Management & Budget
WWW.CEN-ONLINE.ORG 20 FEBRUARY 27, 2012
4
3
7
6
5
QUALITY WATCH A Cabot technician
supervises extractions to determine
product purity levels.
Cytec Industries , Dow Chemical , DuPont ,
FMC Corp., W.R. Grace , Lubrizol , and
NewMarket —that supplied both capital
spending and R&D data, combined budgets
in 2012 will increase 4.4% to $10.3 billion.
Their combined budgets rose 19.2% and
19.6% in 2010 and 2011, respectively, after
plummeting 18.8% in 2009.
The ratio of investment in new production
facilities to investment in research
is higher for the third consecutive year.
Budgets for 2012 shuttle 57.4% of funds to
capital projects, up from 56.8% in 2011 and
52.4% in 2010. The high for the decade was
60.9% in 2008, and the low was 49.8% in
2009, when managers hit the capital spending
brakes during the Great Recession.
R&D funding generally doesn’t fluctuate
as much as capital funding does. So when
the economic outlook is up, capital spending
rises and a proportionately smaller
share of futureoriented
budgets
goes to research. This
year, 42.6% of futureoriented
spending is
targeted at research,
down from 43.2% in
2011. The decade’s
high was 50.2% in
2009 when, despite
the recession, surveyed
companies
increased R&D budgets.
The low was
39.1% in 2008.
Budgets can change
over time, and they
did just that in 2011.
Companies surveyed
last February (C&EN,
Feb. 21, 2011, page 19)
predicted they would
increase 2011 research
expenditures by 2.8%,
but the companies in
this year’s group say
they actually hiked
spending by 8.5%.
Similarly, those in last
year’s survey expected
to step up 2011 capital
spending by 26.5%.