Reports Of The Demise Of Chemical Innovation Are Greatly Exaggerated

John Abbink profile picture
John Abbink


  • A recent Financial Times editorial bemoans the state of the chemical industry. It is seriously misinformed.
  • This and other commentators fail to realize that the industry has been in a continual state of flux and disruption since the 1970s.
  • Scaling nanomaterials to mass production is clearly the next step in materials science, which is proving challenging.
  • Effect chemistry has made enormous strides and will continue to do so. Whether it will be housed in diversified specialty chemicals companies or more specialized firms remains to be seen.
  • The industry is primed for revaluation: financial engineering will contribute to this, but demand and margin conditions are ripe for a reconsideration of the industry's outlook.

Commenting about the recent flurry of M&A in the chemical industry, John Gapper of the Financial Times concludes, "It is enough to make one long for the era when Dow was Dow, ICI was ICI, corporations were simpler, and there was more of a future in chemical engineering than financial." He bemoans the alleged fact that innovation has dried up, quoting a McKinsey study.

One would think that Financial Times staffers would know that any of McKinsey's alleged "research" is at best dubious. Granted, there have been no major new polymers recently. It would be foolish to maintain that polymer science has been exhausted ─ such claims are almost invariably proved wrong. But it is sufficiently advanced that true innovations are, inevitably, few and far between: not just the low-hanging fruit has been picked. On the other hand, incremental improvement is continual, and increasingly, plastics' characteristics are customized to order.

The industry has not developed any new multi-billion dollar materials because the necessary technologies are still in development. The "next big thing" in synthetic materials is molecular construction: the manipulation of atoms to form nanomaterials such as graphene. Commercially useful quantities of these materials cannot yet be produced. Significantly, Wikipedia lists twenty-one production techniques for graphene ─ all very much in the development stage. In other words, commercial graphene is some distance away. The chemical industry has by no means lost its future: it is very busy ─and expending considerable research efforts─ looking for the bridge to it.

Materials are not the be-all and end-all of chemistry: the lack of new, high-volume materials is not a useful indicator of the health of industry innovation. The last thirty years have seen a revolution in the sciences of molecular design and non-molecular compounds, including an improved understanding of catalysis. The result is what have been called "effect chemicals." They

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John Abbink profile picture
I am the author of Alternative Assets and Strategic Allocation, released in 2010 by Bloomberg Press/John Wiley. I have been involved with investments of all types on both sides of the Atlantic since 1980, as an equity analyst, portfolio manager, research director and corporate planner. I have established the investment function at several firms and introduced alternative investments where they had not previously been employed. I was deeply involved with shaping European Union securities legislation and have consulted widely to investment management firms, central banks and ministries of finance. I am also the author of articles appearing in the Journal of Risk Finance and the Journal of Trading. I hold a Ph.D. in philosophy from Yale University.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I apologize: I found out that somehow or other your messages to me were being blocked. The piece I've written is to some extent a 'think piece,' but I hope I have made it more market-relevant in this version.

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