Currently, small-cap industrial and chemical companies in the U.S. are experiencing some challenges. Prices for raw materials, energy and equipment have been rising for a while.
In July 2025, the ISM Manufacturing Prices Index came in at 64.8 percent. That’s better than June’s 69.7 per cent, but it still means input costs are going up faster than many companies can handle.
Tariffs on Chinese imports are also adding pressure. Companies are paying more for the same goods, especially in chemicals. At the same time, overcapacity in petrochemical production is hurting the bottom line. Right now, around 35 percent of chemical producers are operating with EBITDA margins under 15 percent. That means they’re making a lot less profit than they used to.
To make things harder, plants like U.S. ethylene crackers are only running at 75 percent of their capacity. A few years ago, they were running close to 90 percent.
The cost of borrowing money is higher, too, so expanding operations just isn’t easy right now.
Growth Built on Borrowed Time?
On the flip side, there’s still opportunity in the sector. U.S. policies like the CHIPS Act and the Inflation Reduction Act are creating strong demand in industries like electric vehicles, semiconductors and clean energy.
This has been good news for companies like ExxonMobil and Dow, which are investing in high-tech materials used in EV batteries and chip manufacturing.
The American Chemistry Council expects global chemical production to grow by 3.5 percent this year. A lot of this growth is coming from demand for cleaner, smarter products. Companies like LyondellBasell and BASF are investing in recycling and sustainable materials to get ahead.
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There are still smart plays for investors in this space. The first is focusing on companies that have pricing power. These are businesses that can raise their prices without losing customers. Dow and BASF are examples.
Next, investors should look for companies that are building stronger, local supply chains. Eli Lilly is one example. They’re investing billions in U.S. manufacturing to rely less on imports and avoid tariff problems.
Finally, keep an eye on changing global rules. The EU is rolling out new climate-related trade policies like the CBAM, which will impact how companies do business. Those that stay ahead of the curve with cleaner tech and flexible supply chains are likely to perform better over time.
Small-cap industrial and chemical stocks are under pressure, but it’s not all bad news. The smart companies are leaning into innovation, building supply chain strength and using policy shifts to their advantage. It’s a tough phase, but the ones that adapt now are the ones that will grow faster when things turn around.
