The downcycle for the chemicals industry continues

2025 has been a year of uncertainty for the chemical industry. At the beginning of the year, companies were nervously anticipating the arrival of US president Donald Trump’s tariffs in April, but a year on, the situation regarding tariffs continues to change and still the daily uncertainty remains, with significant impacts on supply chains.

‘This is the decade of supply chain, and that continues to be the case,’ says Victoria Meyer, an industry consultant and host of The Chemical Show podcast. ‘As we look at 2025, a lot of the supply chain story is around tariffs and companies figuring out where and how they are moving their products most effectively so that they can, frankly, maximise margin.’

Not only is there uncertainty regarding tariffs, but geopolitical tensions in Europe and the Middle East have continued to influence the chemical supply chain. Results from the Chemical Business Association’s (CBA’s) latest quarterly supply chain survey revealed that while fewer companies were affected by route issues in the Red Sea and Suez canal – caused by attacks by Houthis in Yemen – the impact of the Ukraine–Russia conflict has grown.

Overall, the global picture shows some distinct contrasts – the European chemical industry is undergoing a severe and sustained contraction, while some countries, such as India, are seeing significant growth, which is only set to continue over the next five to 10 years.

Turbulent times in Europe

Europe has been in a period of declined output since 2019 – the year before the Covid-19 pandemic hit. Figures in a recent Ineos report show that in the second quarter of 2025, output in the UK and Germany were 30% and 18% lower, respectively, than in 2019. This is down to reduced price competitiveness because of higher energy prices, higher environmental and regulatory costs, weak demand, and excess global capacity, largely driven by China.

‘As major supplier of products and technologies to key manufacturing sectors, the European chemical industry needs a strong domestic demand to achieve significant growth,’ the European Chemical Industry Council, Cefic, wrote in its Chemical Trends report, published in September.

‘Unfortunately, no strong positive changes have been observed so far and business expectations for most downstream users are still not encouraging,’ the report said.

This steady unravelling has left chemical companies with little choice other than to close plants which, in turn, has led to thousands of job losses. ‘What we’ve seen this year is a number of announced shutdowns of sites in Europe, because they’re just cost unsustainable … which then affects people’s livelihoods,’ says Meyer.

In July, petrochemicals giant Sabic said it was to close its olefins cracker in Teesside, UK, while Dow Chemical confirmed it would be shutting down its ethylene cracker in Böhlen, Germany, citing ‘structural challenges’ in the region. At the same time, Dow announced the shutdown of its chlor-alkali and vinyls site in Schkopau, Germany, in 2027, and its basics siloxanes plant in Barry, UK, in 2026. ExxonMobil decided in November that it will close the Fife Ethylene Plant in Mossmorran, Scotland, in February 2026. Exxon said the 40-year-old cracker is small, inefficient and would require £1 billion of improvements to be profitable. The UK government has said it will not offer financial support to keep the plant open. However, in early December, the UK government did commit to investing £120 million in the Grangemouth petrochemicals complex run by Ineos, which serves as the last remaining ethylene plant in the UK.

The polymer segment of the chemical industry is under particular threat, with at least 10 chemical crackers either closed or scheduled to be shut down between 2022 and 2027. And this certainly isn’t the end of it – according to Wood Mackenzie, up to 40% of EU ethylene capacity faces a high or medium threat of closure. A document issued by eight EU countries on petrochemicals in March said that 50,000 jobs could be at risk due to potential closures of 20 more crackers in Europe by 2035, if no action is taken to restore competitiveness.

In July, the European Commission presented an action plan for the chemicals industry to strengthen the competitiveness and modernisation of the sector by addressing high energy costs, unfair global competition and weak demand. As part of that it plans to establish a Critical Chemical Alliance to address the risks of capacity closures in the sector and implement an Affordable Energy Action Plan to help reduce energy and feedstock costs.

Overcapacity issues

The cause of many of the issues in Europe is the global overcapacity of ethylene production in the Middle East, North America and Asia.

China, once a major importer of commodity chemicals, has been striving to grow and become more self-sufficient. This is reshaping global trade flows. Korea, Japan, southeast Asia, the US and the Middle East were previously all big ethylene derivative exporters to China. With more Chinese demand being satisfied domestically, markets elsewhere have excess supply, leading to lower prices and putting pressure on plants in Europe which tend to be older, smaller and therefore less efficient as well as facing higher energy and feedstock costs.

According to Wood Mackenzie, global ethylene capacity has expanded by more than 40 million tons between 2020 and 2025, with around 70% of this new capacity built in China. In September, a ranking of the top 100 chemical firms by ICIS put China’s majority state-owned Sinopec at the top of the list, with three other Chinese firms in the top 10.

‘China products are aggressively going into Europe,’ says Meyer. ‘If you boil it down to regional advantages and disadvantages, a lot of this has always been about feedstock and cost of production – the US is a low-cost centre of production for many products; the Middle East continues to be a low-cost centre of production for many products; China’s not necessarily low-cost on a feedstock basis, but the rest of its infrastructure and its government policies make it low-cost. And then Europe is high-cost because of energy and because of the regulatory requirements that are only heightening, and so that makes it really challenging.’

But closures are happening across Asia as well. Significant steam cracker shutdowns in Asia include Lotte Titan in Malaysia (temporary) and JG Summit in the Philippines. In South Korea, the government has intervened to facilitate industry restructuring which is expected to result in approximately 25% cut in domestic petrochemicals capacity, potentially signalling the end of an era for South Korea as a large volume exporter of commodity chemicals and polymers. China’s PetroChina and Sinopec are also retiring many older, less efficient plants to avoid more drastic oversupply issues.

In October, John Richardson, a senior consultant at the Independent Commodity Intelligence Services (ICIS) said that across global petrochemicals, ‘too much global capacity was chasing too little demand, with little prospect of a full recovery before 2030’.

‘China’s engineering-led growth model, centred on manufacturing, means we underestimated the extent to which it would push towards petrochemicals self-sufficiency,’ Richardson explained. ‘This will continue, even when cost-per-tonne economics for individual plants and projects may suggest otherwise.’ He predicts China will reach approximate trade balance in the products where it remains in deficit – including polyethylene, para-xylene, and ethylene glycol – within 5–10 years.

Rapid growth in India

When it comes to growth in 2025, India is currently one of the fastest growing regions, and this is set to continue. This growth has been primarily driven by domestic consumption of chemicals, particularly speciality chemicals.

‘It is one of the few places where demographics are very positive; the income pyramid and domestic consumption are continuing to rise at the top,’ says Amit Gandhi, who leads Boston Consulting Group’s work in chemicals and agribusiness for India. ‘For chemicals this is very important, because the more people get into a certain income category, the more they need different kinds of chemicals.’

According to Gandhi, the speciality chemicals industry in India was about $150 billion in 2020 but is set to double to over $300 billion by 2030. ‘It’s one of the few countries and industries in the world which is going through this kind of a transition at this pace,’ he adds.

Chemical companies in India also have a high valuation on the stock market. A strong contrast to where the industry was 20 years ago. In 2005 there were only 16 Indian chemical companies with a stock market value greater than $250 million, and only one valued at over a billion dollars, explains Gandhi. ‘In 2025, that number was 103, of which 57 are $250 million to a billion, 46 are greater than a billion. Of those, 15 are greater than $3 billion,’ he says

Most of these chemical companies are owned by Indian ‘promoters’ – often the companies’ founders or their family members – who have built significant corporate power, have access to strong capital and are looking to build conglomerates.

‘There’s been two large deals already in the last year, of large chemical assets in Europe being bought by an Indian promoter,’ says Gandhi, referring to Murugappa Group’s $310 million purchase of Germany’s Hubergroup and Sudarshan Chemical’s purchase of German pigments maker Heubach out of bankruptcy. ‘It’s a reflection of both opportunities and capital available within India, and the aggression or ambition of promoters to say “we really want to build something big and differentiate here”,’ he adds.

That growth is only set to continue. ‘There’s going to be lot more capital being put in the ground, rather than an over-dependence of imports coming in,’ Gandhi says. ‘Once you have an asset here, it typically tends to accelerate faster, rather than just an import product-based industry.’

AI on the rise

Another area that has seen significant growth over the past year has been the integration of artificial intelligence (AI). Many chemical companies are integrating AI into their processes to enhance cost efficiency and operational productivity and offer solutions for predicting and tackling practical challenges.

There are two ways AI is impacting industry, says Eren Cetinkaya, who leads McKinsey’s work in petrochemicals globally. ‘[First,] what is going to be the impact on demand, especially around the industries that are supporting the AI move, around data centres and power generation? And the second one is, how do we use AI to improve the performance of our industry? There is significant potential, especially on real-time optimisation, using both quantitative and generative AI, of how we run the plants [and] also in commercial applications – how we understand the market, price trends etc.’

Meyer, who hosts the Chemical Summit every year, says that in 2023 the industry had only really started talking about AI, and now it’s everywhere. ‘I have heard from multiple [senior] executives: “We are driving an AI-based culture” with the recognition that it speeds up, streamlines, changes the dynamic of how we’re able to work.’

However, she cautions that while this sentiment is really widespread, ‘we’re still on the growth and experimentation phase of figuring it out’.

Sustainability with a small ‘s’

In 2025, sustainability has continued to be lower down on the priority list than it was three to four years ago, with oil and gas companies in particular scaling back their aspirations for decarbonisation.

‘Sustainability is now not so much sustainability with the big ‘S’, like the big booming promises,’ says Meyer. ‘It’s sustainability with a small ‘s’; how do you have sustainable businesses and make the right decisions to be more efficient?’

A prime example is the biofuels sector, particularly in Europe, which has taken a significant hit this year. In August, Associated British Foods (ABF) closed Vivergo, its bioethanol production plant in Hull, UK leaving Ensus’s Teesside plant, owned by German company CropEnergies, as the sole major producer of bioethanol in the UK; although it too has warned it might be forced to close unless action is taken.

Biodiesel producer Argent Energy has said unprecedented competition from Chinese biodiesel and renewable diesel from the US has ‘substantially weakened’ the environmental for European and UK biodiesel products.

Although, for the UK, the biggest blow came in June when the prime minister, Keir Starmer, agreed a 1.4 billion-litre tariff-free import quota for US ethanol; approximately equivalent to the UK’s entire annual demand for bioethanol.

‘It seems like some of the advantages that would have incentivised companies to do more green and sustainable products and have big biofuel or biochemical sites have gone away,’ says Meyer. ‘So, we’ve certainly seen a lot of delays of green products and green investments, especially the biggest ones.’

Looking to the new year

The overarching message for 2025 is that the chemical industry, overall, continues to be in a long downcycle. ‘Our industry is cyclical, so it is okay to be in a downcycle,’ says Cetinkaya. ‘But now the downcycle that we’re in is deeper and longer than we’ve seen because of the overcapacity situation.’

Meyer says she is now hearing people in the sector saying they don’t expect improvement until 2027 and that with the ongoing disruption of international trade disputes, many companies are being driven to more regional markets to avoid tariffs altogether.

‘Throughout this year, when you look at earnings reports, international companies like Clariant will say, “70% of our supply chain is local”, and that’s how we’ve managed some of this tariff disruption,’ she explains. Overall, Mayer suggests that we are at the beginning of a ‘reshaping of the industry’.

‘What we’re seeing is a lot more of the big companies carving out and selling off businesses, going to other strategic, smaller companies who see an opportunity. Companies are just going to look a lot different. We went through some major strategic reshaping in 2008–2009, [and] I think we’ll be seeing it in 2026–2027.’