We've seen that for many chemical companies being tied to cyclical inputs can cause problems.
Oil and gas, for example, is highly cyclical.
If you track the oil price over decades, you'd see peaks and troughs.
This is due to some of the same issues facing chemicals such as the need to invest in decades long investment programs.
It's also caused by other risks, such as government policy, discovery of new extraction technologies, and many more not directly related to the chemical industry.
However, by being so reliant on oil and gas, many chemical companies make this relevant to them.
The urge to build capacity contributes when the chemical industry is doing well, and chemical companies are cash rich.
It can often feel like the right time to invest in capacity.
However, by the time that capacity comes online, the industry and its demand may be going through a dip.
The extra capacity contributes to this by widening the gap between supply and demand.
It is important to note that not all players are equally faced by this.
Diversified may have different parts of the business which hedge each other.
When Bass's coating segment is doing badly due to the problems in the automotive market, their protection segment may be doing well if the construction industry is on the up.
Specialized firms may have different ways of buying or selling, which protect them.
A good example is Air Liquide and other industrial gas players.
These often have longer term contracts that push some of the risks of supply and demand to their customers.
