Summary The chemicals and advanced materials industry consists of large multinational companies serving nearly every other market, key single market material and application development firms and an array of smaller, niche chemical and material companies.
Research plays a unique role within this industry, driven by production costs (and ultimately the cost of the material to the market) perhaps more than any other industry examined. R&D operations are managed as a cost component like other operations within the firms, but provide the intellectual property enabling new, higher value, and hence higher margin materials and products.
The forecast for R&D growth in the chemical and advanced materials industry reflects the improving global economy and the key markets the industry serves. U.S. R&D spending in chemicals and advanced materials is forecast to grow by 3.6% to reach $12 billion in 2014. Overall global R&D is forecast to grow at a slightly higher 4.7% rate to $45 billion in 2014.
click to enlargeChemicals & Advanced Mat’ls Industry R&D SpendingSource: Battelle, R&D Magazine
Trends and Forecast The chemicals and advanced materials industry includes traditional chemical/polymer firms, all of which continue to push the envelope in feedstock and material development, as well as to niche material companies both large and small that focus research activities on unique material properties and the development of applications to exploit these properties. R&D in this industry also works to improve process efficiency and reduce the costs of the large scale production facilities.
The increasingly global nature of materials supply and research continues to drive the rapid growth of new materials capabilities and processing methodologies, driving down costs while greatly enhancing chemical and physical properties and production. This is driving the integration of both chemical and biologically based materials into new medical, industrial and ecological applications. For U.S. advanced materials firms, the global nature of the industry is a double-edged sword. More than a third (35%) of our industry respondents expect to increase their level of foreign collaboration over the next year, yet nearly half (45%) feel that the U.S. is at a moderate to significant risk of losing its leadership position in key material areas.
U.S. industry has taken advantage of reduced feedstock costs due to significant increases in the domestic production of natural gas via shale gas deposits. These deposits stabilize the cost of key feedstocks, so U.S. chemical and material companies are feeling more confident and are seeking to bring new, higher value added advanced materials and formulations to market.
The forecast for R&D activities within the chemical and advanced materials industry reflects improvements in the U.S. and global economy, and the role this industry plays in support of other demand-driven industries. We forecast U.S. chemical and advanced materials R&D to increase by 3.6% in 2014, reaching $12.2 billion. Worldwide R&D is expected to increase by 4.7% to $45.3 billion.
Factors Driving R&D Investment Like most industries, resources to fund R&D activities are strongly connected to industry bottom lines. As the markets for chemical and advanced materials products have rebounded post-recession, investments in industry R&D also have increased. These investments are directly tied to developing new, market-leading chemicals and materials for which higher margins can be achieved.
The factors driving R&D are distinctly different across different types of firms. Large, multinational firms such as DuPont, Dow, BASF and Bayer hold industry-leading positions, both within key materials and in product applications across industries and markets. These firms’ R&D agendas are driven primarily internally, with emphasis on developing materials to meet future applications. There also are key material-product dedicated firms such as Goodyear’s rubber/tire research where the material application defines both the R&D and the market. The industry also has a large number of smaller, material specific firms whose R&D is driven by extensions of their proprietary materials, and by key customer demand.
click to enlargeSources of InnovationSource: Battelle, R&D Magazine
Lower-cost raw materials have dampened, but definitely not eliminated, continued R&D into the use of biomass feedstocks and the production of bioplastics. Research has increasingly focused on materials and applications where the “green” context adds value to support the potentially higher cost of biomass-based material.
Throughout much of the chemical and advanced materials industry “cost” is an overarching driver, as both material substitution and global competition, in what are often commodity products, requires firms to drive production costs to the lowest level possible. R&D costs are also included in these budget equations, and 46% of industry survey respondents believe increasing R&D costs are becoming a significant issue and budget strains are making it difficult to accomplish R&D goals.
Changing Technology Landscape New technology development within the chemicals and advanced materials industry is largely approached through in-house development activities (76%), supplemented to a lesser extent by both industrial and academic collaborations.
Nanomaterials, a key focus of chemical and advanced materials R&D, are expected to be even more important over the next three years, with 80% of survey respondents citing nanomaterials as a key area of technology development (a substantial increase from 67% of the respondents in our previous survey). Similarly, biomaterials will continue to grow in importance as a focus of R&D, with 56% of this year’s industry respondents believing biomaterials research will be a key development area, compared to just 38% two years ago.
Composite materials development provides a good example of the unique market position of the chemical and advanced materials industry. Among chemical and advanced materials respondents composites were viewed as the third most important future technology development area, cited by 47% of the industry respondents. Among aerospace and defense respondents, composite materials were cited by 50% of respondents as a key area for development.
Corporate leaders in chemical & materials R&D
click to enlarge Source: Battelle/R&D Magazine, Schonfeld & Associates, European Commission-JRC/EIRI
The diverse nature of the global chemicals and advanced materials R&D is reflected in the chart. The largest U.S. firm, DuPont, though currently smaller than both Bayer and BASF, has been growing at an annual average rate nearing 15% over the past two years. Beyond DuPont, the remaining Top 5 U.S. firms all have experienced growth over the last two years. At around 8% of sales, Bayer has the highest R&D intensity among large chemical companies.
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