Amid geopolitical uncertainty and rapid technological change, the industrials and chemicals sectors stand at a crossroads – with their next moves set to shape the trajectory of the industries for years to come.
That reality was front and center at Mizuho’s second annual Industrials & Chemicals Conference, held at the Mandarin Oriental in New York. Executives and investors from across the sectors gathered for a wide-ranging program, representing companies spanning electronic chemicals and fertilizers to industrial markets including electrification, automation, and energy. The agenda was anchored by a keynote fireside chat with Chris Musso of McKinsey, who has led the firm’s global chemicals practice for the past three years.
While the mood was optimistic, speakers were clear about the challenges ahead. Across the sectors, oversupply in basic commodities continues to weigh on pricing and profitability, forcing companies to pare back investment and dampening activity across equipment makers and suppliers. China’s outsized role – both in driving capacity and shaping global trade flows – has amplified the pressure. At the same time, policy volatility and shifting tariffs are testing supply chains, with many firms managing to offset near-term costs but still facing questions about long-term demand resilience.
However, today’s challenges are also opening the door for reinvention, from deploying digital tools and AI to pursuing strategic restructuring and M&A. The takeaway is clear: the industry still has significant room to improve. Unlocking that potential will require cutting costs, rethinking structure, and harnessing innovation to drive future growth.
The Growing China Problem
For years, the chemicals industry price returns outperformed the broader market, fueled in large part by surging Chinese demand. American producers in particular benefited as China became the destination for the vast majority of their output.
But that outperformance has now reversed. In recent years, China has aggressively expanded its own chemicals sector, adding new capacity that has reduced its reliance on Western imports. In 2019, for example, China’s demand for polyethylene – the world’s most widely used plastic, essential for everything from packaging to construction materials – exceeded supply by 45%. By 2028, however, China is expecting to produce a slight surplus of 2%.
Why is China doing this? Beyond responding to tariffs or seeking to dominate global demand, China’s priority is self-sufficiency. This means ensuring secure access to food packing, strengthening supply chains, creating jobs, and supporting a growing, wealthier population. The result has been one of the longest overcapacity cycles the ethylene and basic chemicals markets has ever seen – a structural challenge for global producers.
As a result, speakers emphasized that firms have two pressing tasks in the next phase of the cycle: determining where to place capacity that was built to serve China, and finding ways to maintain cost leadership in other export markets.
Consolidation as a Catalyst
Looking ahead, speakers at the conference emphasized that the industry must respond to today’s challenges with bold moves and a shift in mindset. American ethylene remains structurally competitive, but margins have slipped from the peak years when exports were running at full capacity.
More concerning, executives noted, is the sharp decline in returns on invested capital. With excess capacity and sluggish demand, many fear those returns could fall even further. EBITDA per employee, for example, has since fallen 42% from recent highs, underscoring the urgency of structural change.
Consolidation has emerged as one compelling answer. While M&A is widely seen as necessary, most U.S. producers remain cash-flow positive and reluctant to undertake it – creating a situation where no one wants to be first to shutter capacity.
The good news is that the path forward may not lie in reducing capacity alone. Speakers suggested the greater opportunity lies in mergers where companies find attractive synergies, rather than plant closures. Large-scale combinations could create “national champions” capable of competing with state-backed players in China and the Middle East.
Adding scale reduces selling, general, and administrative expenses (SG&A), enables bigger investments in AI and sustainability, and strengthens positions in regulated markets such as Europe. Without consolidation, speakers warned, companies risk being forced into it later, under less-favorable terms.
AI as the Next Growth Engine
AI is emerging as another critical solution to the challenges facing both the industrials and chemicals sectors. Speakers at the conference emphasized that companies must accelerate adoption – from procurement to planning – to improve efficiency, reduce costs, and unlock new sources of value.
The biggest winners, they noted, are likely to be established players with decades of accumulated data. By feeding AI systems with R&D records, call reports, and internal documentation, these firms can generate insights and offerings that are more precise and tailored than ever before.
Applications extend across the value chain. In pricing, AI enables personalized offerings and predictive accuracy with returns of 3–5% on sales; in procurement, it scans contracts to catch errors and unlock value; and in sales, agent-based tools can identify new customers, generate outreach, and hand qualified leads to teams at scale.
The consensus was clear: AI is no longer optional. For both industrial and chemical companies, it is becoming a competitive necessity.
A New Era of Innovation
AI isn’t just boosting efficiency today – it’s also beginning to reshape how innovation happens across chemicals and industrials.
Speakers noted that chemical innovation has largely stagnated, limited to process tweaks and incremental changes, while industrials have inched ahead with shorter product cycles and more connected equipment.
Artificial intelligence has the potential to shift this dynamic. By feeding decades of R&D records, contracts, and operational data into AI systems, companies can generate insights that enable faster iteration and more tailored solutions. Instead of the traditional “develop and hope” model, customers may soon be able to articulate exact needs, with AI guiding the design of new materials or products to meet them precisely.
Take a large HVAC system as an example. Today, more than 90% of new chillers are connected, up from less than half a decade ago. That constant flow of performance data enables predictive maintenance, boosts service efficiency, and informs smarter design and manufacturing.
Despite the positives on the horizon, risks remain. Basic chemicals are still weighed down by China’s capacity buildout, while specialty chemicals are moving sideways as housing, automotive, and consumer electronics all struggle to regain momentum. Even with interest rate cuts, housing has yet to rebound and automotive sales remain soft. Electronic chemicals, currently the fastest-growing market within specialty chemicals, stands to benefit once consumer electronics demand recovers. Ongoing tariffs have increased uncertainty, which continues to cloud supply chains and could pressure demand in key markets.
Ultimately, the path forward will depend on how quickly demand recovers and how effectively companies navigate policy shifts. The sector has shown resilience before, and with the right mix of innovation, structural change, and disciplined execution, it can position itself not just to weather today’s challenges but to emerge stronger in the years ahead.