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Chemical company R&D spending falls on COVID-19, economic slowdown

July 07/2020

MOSCOW (MRC) -- Spending by chemical companies on R&D fell year on year (YOY) in the first quarter of 2020 due to the impact of COVID-19 and the worldwide economic slowdown, reported Chemweek with reference to the International Energy Agency (IEA; Paris, France).

Reductions in R&D spending “were seen in all reporting companies in the chemical sector, with some declines of over 10%,” the IEA says. Corporate R&D is “highly likely” to be cut or to grow more slowly in most energy-related sectors as a result of lower revenue this year and beyond, with the impact “already evident in company reports for the first quarter of 2020, with companies representing a large share of global revenue in automotive, aviation, and chemicals spending less on R&D than in previous years,” it adds.

The reduction in R&D matches the perceptions of respondents to a survey carried out in May by the IEA, which showed they anticipated “pressure on corporate R&D budgets for key net-zero emissions technology areas for the rest of 2020 and into 2021,” the agency says. The IEA says it contacted “a number of large companies” active in the development of specific technologies expected to play a significant role in the achievement of net-zero emissions such as hydrogen; direct electrification; carbon capture, utilization, and storage; and digitalization. This included end-user companies outside the energy sector such as the chemicals, iron and steel, and cement sectors, with 28 companies responding representing almost 1.5 million employees worldwide.

First-quarter YOY spending cuts in R&D by DuPont, LG Chem, Dow, BASF, Linde, and Mitsubishi Chemical are highlighted by the IEA, with DuPont shown to have implemented the largest expenditure cut in percentage terms compared with the prior-year quarter of almost 12%, followed by LG Chem with a cut of 8%. Dow is shown to have cut R&D spending YOY by just under 6%, BASF and Linde by more than 4%, and Mitsubishi by almost 3% (chart). The IEA notes that the chart data is from the subset of companies that report quarterly R&D spending.

The responses overall indicate serious disquiet among experts about keeping their innovation pipelines flowing over the next couple of years, the IEA says. “Most respondents think it is at least ‘somewhat likely’ that all elements of their R&D, demonstration, and deployment strategies will be affected. Companies that are prioritizing technologies for the electrification of energy demand, especially those in heavy industry, consider it likely that their R&D budgets will be considerably or significantly reduced,” it says.

The IEA has released a new wide-ranging report that focuses on the need for R&D and other innovation efforts to achieve global net-zero emissions objectives, and says that without a “major acceleration” in clean energy innovation, countries and companies will be unable to fulfil their pledges to bring their carbon emissions down to net zero over the coming decades. “There is a stark disconnect today between the climate goals that governments and companies have set for themselves and the current state of affordable and reliable energy technologies that can realize these goals,” says Fatih Birol, IEA executive director. A significant part of the challenge comes from major sectors where there are “currently few technologies available for reducing emissions to zero” including shipping, trucking, and aviation, and heavy industries such as steel, cement, and chemicals, he says.

In 2019, overall reported corporate energy R&D spending worldwide reached USD90 billion, according to the IEA.

As MRC wrote before, in late May 2020, BASF successfully issued corporate bonds with a total volume of EUR2.0 billion (USD2.28 billion) on the capital market, including its first-ever placement of a green bond that will be used purely to finance sustainable products and projects.

We remind that an unexpected outage occurred at BASF Total Petrochemical’s joint-venture (JV) olefins unit at Port Arthur, Texas, Thursday afternoon, 11 June. The cause of the outage is being investigated, with a compressor shutdown cited as a possible factor, according to a Texas Commission on Environmental Quality filing. Total’s refinery near the olefins plant has also drastically reduced rates. The outage had little effect on Friday’s US spot ethylene market. The JV’s steam cracker at Port Arthur has a production capacity of more than 1 million metric tons/year of ethylene and 544,000 metric tons/year of propylene, according to IHS Markit data.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.
Author:Margaret Volkova
Tags:Asia, Europe, PP, PE, LLDPE, PP random copolymer, propylene, ethylene, petrochemistry, BASF, Dow, DuPont, LG Chem, Linde Group, Mitsubishi Chemical, Rossiya, USA.
Category:General News
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