The European chemical industry is facing a dire crisis, with a dramatic decline in investments, soaring energy costs, and stringent regulations. This is causing a significant impact on the sector's operations and global market share.
The Financial Times reported an 80% plunge in investments in the European chemicals industry last year, according to data from the European Chemical Industry Council (Cefic). This alarming trend has led to a surge in capacity closures, with 37 million tons of capacity shut down by 2025, representing 9% of the total capacity. These closures have resulted in 20,000 job cuts and a slump in new investments, pushing the industry to the brink.
Marco Mensink, the head of Cefic, emphasized the critical situation, stating that the sector is under severe stress and breaking. The rate of closures has doubled in a year, and annual investments are half and close to zero. This accelerating decline demands decisive action at the factory floor level.
The chemicals industry is a vital sector in Europe, supplying essential goods and materials to various industries, including car manufacturing and defense. It recorded sales of over 600 billion euros for 2024, but its global market share has shrunk from 27% in 2004 to 12.6% in 2024.
The accelerated decline of the European chemicals industry coincides with EU sanctions on Russia and the loss of cheap pipeline gas from the East. The industry heavily relies on cheap energy inputs, particularly gas, for its competitiveness. Sky-high energy costs are affecting all European industries, but energy-intensive sectors are suffering disproportionately.
Climate-related regulations are adding to the challenges, with the EU leadership prioritizing emission reduction over competitiveness. However, the cost of emission reduction is becoming a concern, as top EU officials are now prioritizing competitiveness alongside emissions.
The carbon border adjustment mechanism (CBAM) was introduced to tax cheaper imports of goods produced in regions with laxer emission regulations and abundant, cheap power from gas and coal. China, the biggest such region, is rapidly eating up the global market share of European chemical manufacturers.
The Wall Street Journal highlighted the Chinese competition, noting that Chinese companies are building more capacity than the demand for certain products, such as monoethylene glycol. This capacity, even if not fully utilized, puts pressure on high-cost European producers, who are also facing low-cost US competition following a recent trade deal.
The situation is grim, with companies like Saudi SABIC divesting assets in Europe and Dow planning to close plants in Germany due to high energy costs, CO2 emission costs, and weak demand. Exxon is reportedly considering a similar exit from the European chemicals sector. Two chemical producers have recently filed for insolvency for several of their subsidiaries.
The European chemicals industry's struggles have far-reaching implications, as it is essential for other sectors, including car manufacturing and defense. Mensink warns that the industry is breaking down, and the problems appear insurmountable unless there is a complete reversal of priorities for political decision-makers.
