INSIGHT: Shifting global investment in chemicals research is a challenge for established markets
LONDON (ICIS)–The chemical industry developed through the clever application of chemistry and technology and will continue to do so as companies adapt to meet the climate threat alongside the needs of growing market demand.
In many ways it is back to basics, as climate and cost implications of well-established process routes are challenged in the shifting feedstock and energy environment.
Companies also have to innovate around sustainable chemicals production and more sustainable and less hazardous materials: in some regions, the EU, for instance, pushed into doing so by increasingly tough regulation.
But producers adapt spending to meet their needs and the balance between their own sustainability and growth. Demand for chemicals is forecast to continue to grow strongly in certain parts of the world while growth slows in others as markets change.
Over many years, chemical industry investment in research and development has hovered at a relatively low level against sales for the majority, as the sector overall has become less technology- and more market-driven.
Commodity chemicals growth and profitability, which has been relatively high for a number of years, taking into account the overall slump through the pandemic, has been an example of that, as low-cost feedstock and higher-growth-market opportunities have been grasped.
In the 27-nation EU, base chemicals sales (including polymers, fibres and inorganics) accounted for 58% of the total in 2020.
But in a more greenhouse gas avoidance, and abatement, and a more circular market situation that is having to change. Companies are having to innovate around feedstock and energy changes, the drive towards utilising renewable power, and distinct pressure from brands and other consumers for more climate-friendly products.
These trends mean that sector companies will have to invest even more in research and innovation than in the past, just as they are expected to have to invest heavily to adopt new process technologies and to further curb greenhouse gas emissions.
In the EU and elsewhere pressure is building for companies to innovate much more smartly around the climate challenge.
The EU trade group Cefic’s mid-century vision, released a few years ago, called sector players ‘molecule managers’ for the capabilities they have to address the multiple, largely climate and chemical safety-led challenges of the coming decades.
The sector invested about €10bn in research and development in 2017, Cefic said at the time, including on greater energy efficiency and on reducing its carbon footprint.
The research and innovation challenge for companies operating in Europe is to invest adequately to meet the demands EU’s Fit for ’55 and Green Deal goals, alongside the traditional approach to matching customer ambitions and demand.
This now has to involve making further advances in the digitisation of research and consequently in research efficiency. Clearly, companies need to know where they are heading as the sector landscape shifts, new opportunities arise and certain process routes and chemicals head for the sunset.
Companies have to address the transition towards climate neutrality, greater circularity and, in the EU, implementing the EUs chemical strategy for sustainability. Cefic set up a Future Chemistry Network last year with “a mission mission to accelerate chemical innovations which are Safe and Sustainable-by-Design”.
The allocation of spending to face the developing innovation challenge will be closely watched, as well as fought over at the national and EU level. A problem that the EU sector faces, however, is that its influence in the global industry is waning fast.
This suggests that the fight for research and innovation funding at the corporate and possibly the national and EU level will be that much tougher in future.
The latest data from Cefic suggests that the EU’s share of growing global chemicals sales will shift from 14.4% in 2020 to 10.5% in 2030. Global chemicals sales growth over that time is forecast to be 77%, from €3.5 trillion in 2020 to €6.2 trillion in 2030.
Not surprisingly, therefore, the EU’s share of total global chemicals R&I investment looks as though it will drop sharply.
China’s investment in chemicals R&I more than tripled in the 2010 to 2020 period as the sector developed rapidly alongside the country’s manufacturing economy and growing domestic demand. The rate of growth may change but the trajectory is clear.
If we can equate smart chemicals growth with research and innovation, then the EU, and the US and Japan, have a job on their hands attracting the necessary investment to help the sector and its companies adapt to society’s changing chemicals needs.
Insight by Nigel Davis