In this first part of a two-part series on the specialty chemicals industry, Ben Godbout, Managing Director and Head of Strategic and Transaction Advisory at CMA, looks at structural shifts that have put the sector under pressure. Part two will focus on the broader implications of the downturn for lenders and investors and address opportunities for maximizing value amidst volatility.
Over the past two years, distress across petrochemical, oleochemical, and downstream specialty chemical value chains has intensified. This is especially true for businesses tied to plastics, resins, and coatings. While these industries are inherently cyclical, today we see a more complex dynamic: a traditional chemical downturn coinciding with structural shifts in supply, demand, and capital availability.
A cyclical downturn with sharper credit consequences
At a fundamental level, the chemical sector is facing a familiar imbalance. Significant global capacity additions came online just as demand slowed. The result has been persistent oversupply, lower operating rates, and sustained pricing pressure. While key plastics end markets—such as packaging, consumer goods, and certain industrial applications—have since stabilized, demand has not rebounded strongly enough to absorb excess supply.
What has made this downturn even more challenging is its duration. The destocking that took place post-COVID extended far longer than many anticipated, resulting in a rolling demand slowdown that moved unevenly through chemical value chains. Many companies entered this period with balance sheets structured for mid-cycle or peak-cycle earnings. But as margins compressed, working capital consumed liquidity, leverage increased, and covenant headroom eroded.
Higher interest rates have only intensified these pressures. Capital-intensive chemical businesses with floating-rate debt or near-term maturities saw free cash flow deteriorate rapidly, even without severe volume declines.
Coatings resilience masks upstream stress
Though paint and coatings demand has been relatively resilient, upstream suppliers—including producers of resins, intermediates, solvents, and additives—have experienced significantly greater volatility. In weaker housing and construction environments, pricing pressure tends to concentrate upstream, where differentiation is limited, and substitution risk is higher.
Oleochemicals: dual exposure, uneven outcomes
Oleochemical markets face a distinct, but no less challenging, set of pressures. Feedstock volatility linked to agricultural commodities, competition from discounted petrochemical alternatives, and rising sustainability and traceability requirements have all contributed to greater earnings volatility. While the long-term outlook for bio-based solutions remains optimistic, the near-term economics can be unforgiving, particularly for sub-scale or highly levered businesses.
Cyclical recovery versus secular reality
This downturn is unfolding amid restrictive monetary policy, selective credit availability, and heightened investor scrutiny of capital-intensive, cyclical businesses—conditions that intensify stress for chemical companies with significant fixed-cost leverage.
Over time, inventories are likely to normalize, demand should recover modestly, and financing conditions will eventually ease. Many assets can, and should, survive this phase, but a structural issue remains. Certain chemical chains are persistently oversupplied, demand growth for particular kinds of plastics is slowing, and regulatory and sustainability considerations are increasingly influencing capital allocation decisions. In this environment, not all assets will earn their cost of capital again, and some capital structures will not correct themselves through cyclical recovery alone.
How CMA can help
CMA’s Strategic & Transaction Advisory team helps creditors maximize recoveries and sponsors preserve optionality by addressing capital structure challenges early, before liquidity erosion and value impairment occur. Grounded in early diagnosis, process control, and execution certainty, CMA evaluates downside risk, structures balance sheet solutions, and executes controlled transactions that protect collateral value and improve outcomes.
For sponsors, the team assesses recapitalization versus ownership change, sources new capital, and runs strategic sales or carve-outs to stabilize businesses and preserve value. Combining deep restructuring expertise with transaction execution and operational insight, CMA delivers deliberate, value-maximizing solutions rather than reactive outcomes.
