Executive Summary

The global petrochemicals industry has entered a decisive structural transition. The long-standing investment model built on demand growth, scale expansion, and mid-cycle margin recovery is no longer fit for purpose. Overcapacity is becoming persistent rather than cyclical, and capital markets are responding accordingly.

As public equity investors retreat from commodity volatility, a different class of capital is stepping forward. Infrastructure funds, sovereign wealth investors, and specialist private equity are reallocating capital toward assets that offer capital preservation, yield, and resilience rather than exposure to cyclical upside.

The defining theme of the late 2020s is not growth, but survivability. Assets that are physically embedded, operationally indispensable, and deeply integrated into downstream systems are increasingly being valued as industrial infrastructure, not commodity chemicals.

The recently announced acquisition by Ancala Partners of Hexion’s pipeline-connected formalin assets on the US Gulf Coast is emblematic of this shift. Wood Mackenzie’s chemical consulting team advised Ancala on the market and commercial due diligence, supporting investment conviction in a volatile sector by grounding the transaction in long-term demand durability and system relevance.

From growth to attrition: a structural reset

For decades, petrochemicals benefited from a powerful macro tailwind: population growth, rising living standards, and material substitution. That era is ending. Demand growth is slowing in mature markets and fragmenting in emerging economies, while capacity additions continue to reflect long investment lead times, feedstock advantages, and state-led industrial policy rather than market-clearing signals.

The result is a market characterised by:

• Persistent overcapacity
• Faster margin compression and slower recoveries
• Prolonged periods of low utilisation

In this environment, traditional “mid-cycle” economics are increasingly theoretical. Investors are re-pricing risk accordingly, placing a premium on assets that can generate stable cash flows through the cycle and a penalty on those exposed to global arbitrage and oversupply.

The flight to safety in chemicals

Capital is not leaving the chemicals sector—it is being reallocated. The industry is witnessing a clear flight to safety toward assets that combine chemical exposure with infrastructure-like characteristics:

• Predictable utilisation driven by captive or regional demand
• High barriers to entry and replication
• Physical or chemical integration that creates switching costs
• Limited reliance on export markets

This shift is redefining what is considered “investable” in petrochemicals.

1. The infrastructure-isation of chemicals

One of the most significant developments of 2024–2025 is the reclassification of certain chemical assets as infrastructure.

These assets generate value not primarily through commodity price exposure, but through position, connectivity, and indispensability within integrated industrial systems. Pipelines, storage, shared utilities, and pipeline-connected intermediates increasingly resemble regulated or quasi-regulated assets in their risk profile.

Case study: Ancala Partners – Hexion formalin assets

Ancala Partners’ acquisition of Hexion’s formalin production, storage, and logistics assets on the US Gulf Coast illustrates this investment logic in practice.

The assets are:

• Pipeline-connected to methanol supply and downstream consumers
• Located within highly integrated chemical sites
• Supplying essential intermediates into resins, wood products, construction materials, and industrial applications
• Characterised by high switching costs and limited substitution risk

Rather than competing on global cost curves, these assets monetise system relevance. Utilisation is driven by entrenched regional demand and physical integration, not by global export economics.

Wood Mackenzie’s chemical consulting team advised Ancala on the market and commercial due diligence, assessing long-term demand fundamentals, competitive positioning, downside scenarios, and the sustainability of cash flows under extended low-margin conditions.

This transaction reflects a broader investor conclusion: in an overcapacity world, assets that behave like infrastructure retain value even when commodity plants around them struggle.

2. The "sticky" middle: intermediates as safe havens

If you cannot own the pipe, own the molecule that cannot travel.

Investors are increasingly cautious on polymers that are easily shipped and globally arbitraged, such as polyethylene and polypropylene. These products are most exposed to Chinese oversupply and margin volatility.

Instead, capital is flowing toward “sticky intermediates”—chemicals whose physical properties, safety requirements, or process characteristics anchor them to local customers.

What makes an intermediate sticky?

• Transport barriers: hazardous or unstable products that are costly to ship
• Integration lock-in: pipeline-connected or co-located customers
• Process criticality: essential inputs with limited substitution

Value chains attracting investor interest

• Acetyls (acetic acid, VAM): consolidated, technically complex, and essential to construction and coatings
• Isocyanates (MDI/TDI): high barriers to entry, limited global players, and deeply embedded downstream demand
• Chlor-alkali derivatives: chlorine-linked systems integrated into PVC, water treatment, and industrial applications
• C4 and aromatics derivatives: phenol/acetone and butadiene derivatives requiring co-location with refineries or crackers

These assets exhibit lower earnings volatility and stronger customer retention, positioning them as defensive holdings within chemical portfolios.

3. The great unbundling: portfolio high-grading accelerates

The industry is undergoing a clear bifurcation. Integrated majors are actively divesting assets that do not meet infrastructure or specialty criteria, while concentrating capital on platforms with defensible economics.

Examples include:

• European exits from high-cost, naphtha-based petrochemicals
• Strategic refocusing by Japanese producers to stem losses and preserve balance sheets
• Portfolio simplification by global majors to improve returns and ESG profiles

For investors, this creates a growing pipeline of carve-outs, distressed sales, and platform acquisitions.

Where investors are focusing

4. What comes next

The emergence of a “bad bank” for chemicals

We expect more companies to formally separate future-aligned businesses—such as specialties, batteries, and circular materials—from legacy commodity platforms. Spin-offs and carve-outs will accelerate as companies seek to protect valuations, balance sheets, and strategic optionality.

Asian consolidation

• In Japan, consolidation of ethylene and derivatives capacity is increasingly unavoidable.
• In South Korea, non-core chemical divestments are likely as capital is redirected toward batteries and advanced materials.

Investor framework: integration over scale

In an overcapacity environment, integration matters more than nameplate capacity.

A practical filter:

• More than 80% of output moving by pipeline indicates infrastructure-like characteristics
• More than 80% moving by ship or truck indicates exposure to global commodity risk

This lens explains why transactions such as Ancala’s acquisition of the Hexion formalin assets are becoming the reference point for lower-risk chemicals investment.

Conclusion: survival is the new competitive advantage

The petrochemicals industry of the 2030s will be smaller, more concentrated, and more polarised. Winners will not be defined by growth ambition, but by their ability to endure.

Assets that are physically embedded, chemically indispensable, and financially resilient will continue to attract capital. Those that are exposed to global arbitrage without structural protection will struggle.

The Ancala Partners–Hexion transaction, supported by Wood Mackenzie’s market and commercial due diligence, is not an anomaly. It is a blueprint for how capital will be deployed in petrochemicals for the remainder of the decade.

In an age of overcapacity, being sticky is the ultimate moat.

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