For the last five years, chemical companies have strived to adapt to shifting global paradigms, or what is now widely called a VUCA world—a business environment characterized by volatility, uncertainty, complexity, and ambiguity.

Since the pandemic in 2020, the world has had severe weather events and multiple geopolitical conflicts (some armed, and many still unresolved), culminating in the current escalating trade war, which is far from settled. At this point, a VUCA world has become the new status quo. Adding to the complexities of running a chemicals business today is the extended trough the industry is currently going through.

As a result, global chemical company leaders are implementing a wide range of strategies, from redesigning supply chains and reorganizing cost structures, to maximizing cash flows. This piece outlines some of these measures.

Key corporate actions and focuses

For corporates, the key focus is shareholders. As such, all strategies must be clearly beneficial from a shareholder perspective, meaning they need to support balance sheets, share value, etc.

Among strategies, the following are commonly mentioned in earnings calls:

• Restructuring/ cost savings: These are a wide range of measures, ultimately aiming to optimize supply chain and cost structures.
• Cash flow optimization: This is done via capital expenditure cuts and/or delays, working capital optimization, and, in some cases, reduced shareholder returns.
• Asset footprint optimization: Asset closures and divestment can deliver on both points above by generating cash inflows to bolster the balance sheet, allowing the company to focus on core businesses and/or more competitive assets.

Restructuring/cost savings

Businesses can reduce costs in many ways. Beyond typical company-wide cost saving programs—including workforce reductions, travel budget cuts, etc.—longer-term, strategic measures come into play. In the grand scheme of things, global chemical corporations are seeking new supply chain efficiencies and instituting a combination of measures to achieve this.

Companies are revising their supplier portfolios to target purchasing savings; that said, supply security remains a top priority, especially during unpredictable times. One way to step up supplier optimization is upstream vertical integration: Where cash flows and opportunity allow, this can be a good option to boost profitability. Companies can also improve margins by extending operations into downstream, value-added products. They can opt to acquire stakes or entire assets upstream or downstream from their core businesses.

Companies are also continuously reassessing their noncore assets as part of business restructuring efforts, closing and/or consolidating downstream entities and reevaluating projects and investments, often delaying or scrapping them, at least for the foreseeable future.

By focusing on expanding their lowest-cost locations or moving into entirely new locations, businesses are also rethinking their geographical asset placements. Locations can be selected for cost advantage, value chain integration, proximity to an existing client base or new demand centers, or even geopolitical positioning for export markets at a time of increased trade tensions.

The escalating trade conflict is also boosting the need for regional exposure diversification. Indeed, companies are protecting themselves from trade barriers by efficiently utilizing their global assets, aiming to take advantage of bases across different regions. This also means companies are reshuffling which assets they use to supply given clients, taking origin and destination country, shipping costs, and existing levies into account. Where possible, businesses are leveraging local production to meet domestic demand, reducing supply chain and logistics strain as well as the potential impact of any trade tariffs.

Finally, restructuring can also take the form of new solutions, be it looking into new products or ways to differentiate their existing portfolio, launching specialty grades or entering niche markets, or even implementing more digital and/or AI solutions for operational efficiency gains.

Cash flow optimization

Cash generation and preservation is key in times of uncertainty, weak demand, and geopolitical tension. CFOs need to ensure that free cash flow is optimized during the cyclical downturn, ensuring they can support future growth by focusing capital expenditure on projects that will add the most value, while simultaneously ensuring existing assets are well-maintained and running safely. Essentially, working capital optimization preserves optionality, which is vital to ensure a company’s agility and resilience in volatile times.

By reducing capital expenditure, companies can also remain flexible for opportunistic moves. In the current environment, where many assets are underperforming on economics, mergers and acquisitions or joint ventures could become an option, for instance among more competitive companies operating in the same value chain (e.g., for vertical integration), especially those with robust balance sheets.

Companies may need to cut back on capital expenditure to ensure that balance sheet ratios such as net debt to EBITDA remain within any stipulated bank covenants, as well as allowing them to potentially refinance at the most attractive interest rates available.

In some cases, and where safety and regulation allow, planned turnarounds are also being postponed. In more extreme cases, for example where market conditions are expected to remain unfavorable, some operators are opting out of maintenance, instead planning to idle assets when it is no longer viable to run them in the current state, keeping them offline until markets improve.

However, delaying maintenances comes with risks, including unexpected temporary shutdowns and repairs that necessitate additional expenses. Idling assets also leads to financial losses. Such measures can lead to increased labor costs and client supply disruptions and can damage client relationships, which can exacerbate associated losses. That said, companies will generally have provisions to ensure continued supply to meet contract liabilities.

From a longer-term strategic perspective, more projects are being delayed or scrapped entirely; this can result in a loss of competitive advantage and/or prevent companies from capitalizing on market opportunities, such as entering new geographical markets or expanding their customer base. In addition, if these projects resume, replanning costs will impact balances further down the road. Some projects might even be completely canceled later, as lags can impact a project’s overall return on investment, making it less attractive.

Finally, another way to improve the balance sheet is to reduce cash returns to shareholders: Several major global chemical producers have cut dividend payouts or delayed share buybacks until market conditions and balance sheets significantly improve. That said, some companies have been more prudent in managing their balance sheets in the preceding years, allowing them increased optionality, and, where balance sheets allow, companies are actively using this strength to sustain dividend payments and buybacks, often using attractive dividend yields to encourage current investor loyalty and to entice new investors.

Asset footprint optimization

The divestment of noncore businesses or less competitive assets is a frequent outcome of asset reassessment. In previous downcycles, there has often been a wave of mergers and acquisitions in the chemical industry: Struggling companies tend to sell assets, and even full business units, at attractive prices.

However, the current trough is one of the longest, if not the longest, in history, meaning more companies are struggling than not. This, combined with rising uncertainty and general volatility, as well as relatively high interest rates, is preventing chemical companies from buying assets, with many not in a position from a liquidity and balance sheet perspective to consider such a move. Historically, private equity has been a major force in picking up assets from industrial participants, but as many potentially saleable assets are in Europe, where long-term competitiveness is in doubt, their willingness to step in currently appears very limited.

With limited, if any, offers on the table, many companies are idling or permanently shutting down assets. Closing an asset is an extreme measure, typically for older plants in high-cost locations. Notably, this is not an easy move from a legal perspective and is also often very cash intensive.

For example, employment laws, which are especially complex in developed economies, can delay the process and incur hefty workforce layoff costs. Additionally, the idled/closed plants need to be cleaned up, which is costly, often involving complex procedures and hazardous or difficult-to-dispose of waste.

Even so, there has been a wave of rationalizations in the last few years, especially in Europe and Asia, and more are expected. Indeed, several companies have already announced asset closures in 2025.

Company-specific key measures announced: Q1 2025

Dow Chemical

• Delay construction of Path2Zero project in Canada until market conditions improve.
• Advance and expand scope of European asset review.
• Close Freeport propylene oxide asset.
• Sell noncore assets to improve balance sheet (e.g., a 40% minority equity stake in Diamond Infrastructure Solutions to Macquarie Asset Management).
• Postpone planned turnaround of one Terneuzen steam cracker and idle it when its legal inspection is due, expectedly in 2025.
• Reduce capital expenditure spending in 2025 (from $3.5 billion in 2024 to $2.5 billion).
• Target minimum $1billion cost reduction by end of 2026.

LyondellBasell

• Cash improvement plan and value enhancement plan underway.
• European asset base strategic review, which resulted in a 5 June announcement of an “agreement and exclusive negotiations with AEQUITA for the sale of select olefins & polyolefins assets and the associated business in Europe”. Assets include Berre, Carrington, Münchsmünster, and Tarragona.
• Closure of Netherlands propylene oxide/styrene monomer (PO/SM) unit (joint venture with Covestro).
• Exit refining business.
• Capital expenditure cuts of $100 million in 2023, $300 million in 2024, and $100 million in 2025.
• Focus on fixed-cost reduction programs.
• $200 million working capital reduction.

Covestro

• STRONG transformation plan in progress.
• Closure of Netherlands PO/SM unit (joint venture with LyondellBasell); negative one- time EBITDA effect of €88 million with positive EBITDA effect expected from 2026 onward.
• Capital expenditure remains unchanged from prior guidance for 2025.
• Continued cost savings measures targeting approximately €250 million in 2025 and €400 million by 2028.

BASF

• Dividend cut and delay to share buyback (in 2024).
• Carve out agriculture business to extract value through eventual IPO.
• Capital expenditure cut (after the new mainland Chinese site investment posted peak spending in Q1 2025).
• Sale of Brazil decorative paints business, part of its coatings division.
• Ongoing cost savings program.

Celanese

• Reduce common stock dividend by approximately 95% to improve cash flow and allow some deleveraging; actively pursuing additional divestiture opportunities.
• Reduce costs aggressively, targeting $120 million.
• Cut capital expenditure from $220 million to $135 million, along with working capital improvements to generate increased free cash flow.

Lanxess

• Continued cost savings initiatives, targeting about €150 million in 2025.
• Dividends cut in 2023 to focus on net debt reduction, no change currently.
• Asset sales to reduce debt (e.g., Urethane Systems sale to UBE Corporation).

Huntsman

• Restructuring EU polyurethanes cost base, including closing two downstream units, in Germany and the United Kingdom.
• Ongoing cost savings program.
• Trimming capital expenditure to lower end of guidance range ($180–190 million), of which $150 million is critical maintenance, and mandatory safety and environmental spend.
• Close maleic anhydride facility in Germany; will supply customers from US facility.

Olin

• No significant actions other than disciplined use of capital.
• Capital expenditure in 2025 expected to be more than 2024 but still expected to maintain dividend and undertake tactical share buybacks.

Westlake

• Rightsizing costs and capacity within performance and essential materials, including increasing costs savings program by $25 million and reducing capital expenditure by 10% to nearly $900 million.
• Very strong balance sheet (net debt to EBITDA approximately 1.0x compared with many peers in 3–4x).

Air Products

• Changed management after activist shareholder pressure.
• Exit three US projects: World Energy Sustainable Aviation Fuel expansion project in Paramount, California; green liquid hydrogen project in Massena, New York; and carbon monoxide project in Texas. This will cut capital expenditure spending over time.
• Exiting projects and other strategic initiatives, including employee reductions under its global cost reduction plan, resulting in charges of approximately $2.9 billion.

Evonik

• Restructuring and cost programs ongoing.
• Capital expenditure flat in 2025 but below long-term average.
• No mergers and acquisitions planned in coming years.
• Focusing on regional exposure in three main markets (more than 80% local production).
• Focusing on reducing working capital to sales ratio, which was above expectations at the end of 2024.

No one-size-fits-all solution for corporates

During times of volatility, uncertainty, complexity and ambiguity (VUCA), there is no one-size-fits-all solution for corporates. Each entity will have its own challenges and opportunities, dependent upon its asset base footprint and cost competitiveness and the strength of its balance sheet. However, the obvious critical commonality is ensuring an optimal cost structure, which is why virtually all corporates are laser focused on cost savings programs.

When profitability is under pressure in an industry that is facing an extended period of overcapacity for many reasons, the one area that corporates have some control over is cash flow optimization. This includes improving working capital ratios, targeting growth capital expenditure only for projects that add the most value, and, in some cases, focusing almost entirely on maintenance capital expenditure (i.e., what is essential for safe and reliable asset operations).

Returning cash to shareholders has long been a way for chemical companies to reward investors. The ability to keep doing this is very dependent upon the strength of a company’s balance sheet, and the actions taken often reflect this. Those with weak or stretched balance sheets often have to cut dividend payouts and postpone share buybacks. Yet those with a stronger position are able to maintain dividends, often at attractive dividend yields, and the ability to buy back shares to their advantage, encouraging investors to stick with them – and, in some instances, attracting new investors.

Portfolio footprint optimization has become more prevalent in the current extended downturn. Corporates are having to make the difficult decision of re-evaluating the sustainability of certain assets. In the past, selling assets has often been an option, but this is becoming harder given the structural changes to some regional assets’ cost positions (e.g., in Europe or Asia). This is leading to a greater number of plant and site closures as corporates look to maintain their most competitive assets.

Corporations have never had to be so focused and nimble as they do today. Those that stay ahead of the curve will be the best positioned when the recovery inevitably begins.