DUPONT
BUSINESS
COLLABORATIVE RESEARCH People
attend a video conference at a DuPont innovation center in Troy, Mich.
BRIGHT FUTURE FOR FUTURE SPENDING Chemical makers surveyed to BOOST BUDGET on average 5% for new equipment and 2% for R&D MARC S. REISCH, C&EN NORTHEAST NEWS BUREAU
LAST YEAR, DuPont opened three innova-
tion centers that connect customers to the company’s 10,000 scientists and engineers. Douglas W. Muzyka, DuPont’s chief technology officer, calls the centers “portals” to the firm’s global research installations. The modest facilities, which showcase DuPont technology and include videoconferencing, cost about $1 million each to build. Now numbering 12 in places such as Istanbul, Turkey; Moscow; and Paulina, Brazil, the centers help further what Muzyka calls DuPont’s “distributed R&D model.” Through the centers, customers, academic collaborators, and other partners can access “the full richness and depth of our research capabilities on an even basis worldwide,” he says. DuPont plans to spend $2.2 billion this year on those research capabilities, which reside at major labs in Wilmington, Del.; Hyderabad, India; Shanghai; and
other cities. The firm also plans to spend $1.9 billion this year to build and maintain factories that turn out products based on its research-inspired discoveries. Like DuPont, other chemical companies invest big in the efforts of their chemists and chemical engineers. Although executives from each firm have their own unique priorities, as a group they expect good times ahead. They are opening their checkbooks and preparing to spend more to support science-generated projects in 2014 than they did last year. Seven major U.S. and European chemical companies tell C&EN they will lift research spending 2.0% in 2014 to a combined $7.1 billion. The increase follows a 4.4% budget boost in 2013, when the chemical firms spent $6.9 billion on R&D. The spending rise marks the fourth straight year of increases. R&D spending for the group this year CEN.ACS.ORG
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will be up a hefty 65% compared with 2004. After adjusting for inflation, the increase is about 33% over the period. More consistent over that time has been the share of company sales devoted to R&D, which has hovered at about 3.0%. Twenty U.S. and European firms say they collectively plan to increase spending on new plants and equipment by 4.9% this year to $21.1 billion. Many plan to spend on projects linked to the availability of cheap shale-derived energy and raw materials in the U.S. THE HEALTHY EXPECTED rise in capital
expenditures follows a more modest 3.0% boost last year to $20.1 billion. An increase in 2014 will mark the fifth year of annual budget growth since investment tanked during the Great Recession. C&EN predicts that capital spending as a percentage of sales for the 20 firms will be 6.3% this year, up from 6.2% last year. That figure is the high for the past 10 years. The estimate assumes collective sales for the group will increase 3.1% in 2014. The decade low occurred in 2004 when the group spent just 4.5% of sales on equipment. According to C&EN’s survey, the overall forecast for future-oriented spending is for better times ahead. For the seven firms— Albemarle, BASF, Cytec Industries, Dow Chemical, DuPont, W.R. Grace, and Solvay—that supplied both R&D and capital
spending data, combined budgets in 2013 will increase 5.6% to $19.7 billion. The increase outpaces the rate of inflation and shows the group’s continued confidence in the chemical business. Combined, the future-oriented spending budgets rose a modest 3.0% last year, but in 2010, 2011, and 2012, they rose 4.5%, 23.4%, and 9.8%, respectively, after a 12.0% drop in the recession year of 2009.
The ratio of investment in new production facilities to investment in R&D for firms that supplied both numbers will be higher this year than in 2013. Budgets for 2014 devote 64.1% of funds to capital projects, the high for the decade. The low for the decade was 55.6% in 2009, when economic concerns froze many new projects. Because R&D spending doesn’t fluctuate as widely as capital spending does,
R&D gets a proportionately smaller share of future-oriented budgets when firms go on a building binge. This year, 35.9% of future-oriented spending is devoted to research, the low for the decade. The decade high of 44.4% in 2009 resulted from managers protecting R&D budgets as they slashed capital spending during the economic slowdown. Of the surveyed companies, Cytec plans
CAPITAL INVESTMENTS Collectively, 20 chemical firms plan a nearly 5% increase in spending this year $ MILLIONS
2008
2009
2010
2011
2012
3M Air Productsf Albemarle Arkema Ashlandf,g BASFh Cabotf Chemtura Clarianti Cytec Industries Dow Chemicalj DuPontk Eastman Chemicall FMC Corp. H.B. Fuller W.R. Grace Huntsman Corp. Praxair Solvaym Stepan
$1,471 1,085 100 445 205 3,348 199 121 292 196 2,276 1,978 634 175 20 132 418 1,611 1,013 50
$903 1,179 101 399 174 3,330 106 56 145 194 1,410 1,378 137 93 23 94 189 1,352 605 43
$1,091 1,298 76 419 206 3,384 108 138 242 116 2,130 1,508 243 142 36 113 236 1,388 379 74
$1,379 1,352 191 563 201 4,529 230 154 400 117 2,687 1,843 457 190 36 142 327 1,797 800 83
$1,484 1,521 281 582 298 5,445 281 149 336 145 2,614 1,793 465 207 36 139 412 2,180 1,043 83
TOTAL ANNUAL CHANGE
$15,769 6.3%
$11,912 -24.5%
$13,327 11.9%
$17,478 31.1%
$19,493 11.5%
PLANNED 2013a
ACTUAL 2013b
na $1,800 163 664 395 5,976 275 168 351 300 2,000 1,900 500 350 na 190 450 1,900 1,228 na
CHANGE 2012–13d 2013–14e
PLANNED 2014c
$1,665 1,524 155 639 314 5,844 264 170 315 300 2,302 1,882 483 272 124 156 471 2,020 1,076 93
$1,750 1,615 130 598 275 5,844 225 120 297 190 3,400 1,900 600 320 105 170 500 1,900 996 120
12.2% 0.2 -44.8 9.8 5.4 7.3 -6.0 14.1 -6.1 106.9 -11.9 5.0 3.9 31.4 244.4 12.2 14.3 -7.3 3.2 11.9
$20,068 3.0%
$21,054 4.9%
3.0%
5.1% 6.0 -16.1 -6.4 -12.4 0.0 -14.8 -29.4 -5.8 -36.7 47.7 1.0 24.2 17.6 -15.3 9.0 6.2 -5.9 -7.4 29.2 4.9%
a March 2013 estimates. b March 2014 estimates. c Budget for 2014. d Actual 2012 to March 2014 estimate. e March 2014 estimate to 2014 budget.f Fiscal year ends Sept. 30. g Bought Hercules in 2008 and ISP in 2011. h Purchased Ciba in 2009 and Cognis in 2010. i Purchased Süd-Chemie in 2011. j Acquired Rohm and Haas in 2009. k Acquired Danisco in 2011. l Purchased Solutia in 2012. m Sold pharmaceuticals unit in 2010, bought Rhodia in 2011, and changed accounting procedures beginning in 2010. na = not available. SOURCE: C&EN surveys
RESEARCH COSTS Seven major chemical firms, as a group, expect to increase spending this year by 2%
$ MILLIONS
Albemarle BASF g Cytec Industries Dow Chemicalh DuPonti W.R. Grace Solvayj TOTAL ANNUAL CHANGE
2008
2011
2012
$67 1,800 82 1,310 1,393 83 749
2009
$61 1,857 75 1,492 1,378 70 737
2010
$58 1,982 73 1,660 1,651 60 166
$77 2,132 85 1,646 1,956 69 207
$79 2,319 53 1,708 2,067 65 347
$5,484 0.9%
$5,670 3.4%
$5,650 -0.4%
$6,171 9.2%
$6,637 7.6%
PLANNED 2013a
$81 2,434 55 1,750 2,100 65 398
ACTUAL 2013b
PLANNED 2014c
CHANGE 2012–13d 2013–14e
R&D SPENDING AS % OF SALES 2012 2013f
$82 2,437 49 1,747 2,153 65 398
$81 2,570 53 1,700 2,200 65 398
3.8% 5.1 -7.5 2.3 4.2 0.0 14.9
-1.2% 5.4 8.2 -2.7 2.2 0.0 0.0
3.1% 2.5 2.5 3.1 6.0 2.1 2.4
3.0% 2.5 2.7 2.9 6.0 2.1 2.3
$6,931 4.4%
$7,067 2.0%
4.4%
2.0%
3.2%
3.2%
a March 2013 estimate. b March 2014 estimate. c Budget for 2014. d Actual 2012 to March 2014 estimate. e March 2014 estimate to 2014 budget. f March 2014 estimate as a percentage of estimated 2013 sales. g Purchased Ciba in 2009 and Cognis in 2010. h Acquired Rohm and Haas in 2009. i Acquired Danisco in 2011. j Sold pharmaceuticals unit in 2010, bought Rhodia in 2011, and changed accounting procedures beginning in 2010. SOURCE: C&EN surveys
CEN.ACS.ORG
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MARCH 17, 2014
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CAPITAL INTENSITY Plant and equipment spending will rise for the fifth consecutive year and peak at 6.3% of sales.
$ Billions
% of sales 7
22
19
6
16 5
13 10 2004 05 06 07 08 09 10 11 12 13 14
4 2004 05 06 07 08 09 10 11 12 13 14
NOTE: Values are for the 20 chemical firms listed in the capital investments table on page 23. SOURCE: C&EN surveys and estimates
“Why do I need to study chemistry?” “How does chemistry afect my life?” If your students ask these questions, magazine has the answers!
RESEARCH LOCOMOTION R&D spending continues upward momentum but will stay steady as a percent of sales.
$ Billions 8 7
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% of sales 4.0
■ Current ■ Constant 2004
3.5
6
3.0
5
2.5
2.0 4 2004 05 06 07 08 09 10 11 12 13 14 2004 05 06 07 08 09 10 11 12 13 14
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NOTE: Values are for the seven chemical firms listed in the research costs table on page 23. SOURCES: C&EN surveys and estimates, White House Office of Management & Budget
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the largest percentage increase in R&D spending, 8.2%, in 2014. The increase supports the firm’s aerospace materials and process separations businesses. BASF, which is the chemical industry’s largest R&D spender, will continue its series of aggressive budget increases with a 5.4% rise in 2014. Dow plans the largest increase in capital outlays, in terms of both dollars, more than $1 billion, and percentage, 47.7%. The firm says the increase is intended to build on access to low-cost shale gas at its U.S. Gulf Coast installations.
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chemical makers, the American Chemistry Council, predicts higher R&D budget growth than does C&EN’s survey. Looking at both chemicals and pharmaceuticals, ACC anticipates a 2.5% increase in U.S. research spending this year to $58.3 billion, compared with the 2.0% increase forecast in C&EN’s survey, which does not include pharmaceuticals. The association’s economists also predict that global chemical capital spending CEN.ACS.ORG
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MARCH 17, 2014
will increase 6.6% in 2014 to $467.7 billion and that capital spending in the U.S. will increase 9.0% to $46.2 billion, thanks largely to shale gas. In contrast, companies surveyed by C&EN are planning a 4.9% increase in capital outlays. Battelle, the nonprofit research group, annually reviews global R&D spending across all industries. It predicts spending will reach $1.6 trillion this year, up 3.9% from the year before. The group’s “2014 Global R&D Funding Forecast,” put together with R&D Magazine, also predicts that industrial R&D funding in the U.S. will reach $303 billion, up 4.1%. However, Battelle’s forecasters expect U.S. chemical and advanced materials makers will increase R&D at a slower 3.6% pace to $12.2 billion in 2014. Battelle forecasters point out that such R&D investments will continue to foster intellectual property development and, along with it, new materials that bring robust profit margins. For R&D leaders such as DuPont’s Muzyka, those are the sorts of investments that create value through science. ◾
