Market Overview:
The chemical industry serves as afoundational pillar across numerous manufacturing sectors, includingautomotive, electronics, semiconductors, construction materials, andpharmaceuticals. Globally, demand for petrochemical products continues to grow.However, economic slowdown and inflation in developed countries are dampeningthe growth momentum of their chemical industries. Added to this aregeopolitical conflicts, raw material price volatility, and unstable tradeenvironments, all of which place considerable pressure on the European chemicalsector. At the same time, capacity expansion in emerging markets, led by China,is intensifying competition in both domestic and international markets.Technological innovation remains a core competitive strategy for leadingchemical enterprises. As old players are leapfrogged or eliminated, the globalchemical industry’s supply-demand structure and industrial chain are beingreshaped.
Continued Contraction of the EU Chemical Industry
Declining local demand and high production costs have put European chemicalcompanies under significant strain. Since 2023, leading firms including BASF,Dow, Huntsman, Celanese, INEOS, Covestro, Shell, LyondellBasell, AkzoNobel, andSABIC have announced the closure of production units in Europe. These closuresspan upstream products such as olefin cracking, butadiene, and syntheticammonia; midstream products such as polypropylene, propylene oxide, PX, PTA,bisphenol A, and caprolactam; and downstream products including polyurethane,polycarbonate, PMMA, nylon 66, and thermoplastic fiber composites.
In fact, since 2021, Europe has been in a state of net import ofchemicals. The chemical production of the 27 EU countries has been decliningyear by year, and has accelerated since 22 years.
Several factors are driving this contraction. First, the Russia-Ukrainewar and associated sanctions have disrupted Europe’s access to low-cost oil,natural gas, and other energy feedstocks that historically supported chemicalproduction. This has significantly raised production costs, reducingcompetitiveness relative to regions with more stable and affordable energysupplies.
Second, conflicts in the Middle East—particularly in the Red Sea regionnear Yemen, a strategic maritime route—have directly impacted global chemicalsupply chains, increasing price volatility for critical raw materials such ascrude oil and naphtha. During the peak of geopolitical tensions in the firsthalf of 2024, Dubai crude averaged $83.28 per barrel, a 5.3% increase from$79.07 in the first half of 2023. Naphtha prices surged from $648/ton inNovember 2023 to $730/ton in March 2024. High energy prices and risingtransportation costs have further burdened petrochemical producers.
Third, the implementation of stringent environmental regulations in EUpetrochemical industries is reshaping the operating environment. In 2023, theEU enacted the Carbon Border Adjustment Mechanism (CBAM), significantlyaffecting market demand for chemical products. The accelerated adoption ofelectric vehicles is also altering downstream demand. EU research predicts asharp decline in demand for products related to internal combustion vehicles:engine, gear, and transmission needs could fall by approximately 70%. Paint andcoatings usage is expected to drop by 40%, while tire material consumptiondecreases by around 20% due to extended tire life technologies. Consumer goodsare similarly affected; for example, plastic films used for meat packaging maydecline by roughly 60%.
Over the past two years, more than 20 chemical plants across Europe haveclosed, and this trend persists. TotalEnergies plans to permanently shut downan old cracker in its Antwerp refinery and petrochemical complex by the end of2027, with annual capacity of 550,000 tons of ethylene and 230,000 tons ofpropylene. Dow announced plans to optimize global capacity further, closingthree high-cost, energy-intensive European plants, including the ethylenecracker in Burghausen, Germany; chlor-alkali and vinyl assets in Schkopau; andthe base siloxane plant in Barry, UK, potentially permanently. Importantly, theclosure of bulk chemical production is gradually affecting downstreamhigh-value specialty chemical industries.
Strengthened EU Environmental Regulation andImplicit Policy Barriers
The Korea Petrochemical Industry Association notes that the EU’s CBAM and theUN Plastic Treaty are representative regulations with major impacts on thepetrochemical sector. Such regulations can increase production costs, raisemarket entry barriers, and ultimately reduce corporate profitability. The EURenewable Energy Directive and the expanded scope of REACH regulations(including biocides and pharmaceuticals) emphasize the need for bio-based fuelsand green process designs. Globally, ESG disclosure requirements andfull-supply-chain carbon management (Scope 3) are expanding. As petrochemicalprocesses are high-carbon, firms face pressure in developed countries toinnovate technologically for carbon reduction. These transitions requiresubstantial time and resources, often worsening performance for small- andmedium-sized enterprises while concentrating the market in leading firms.
Shifting Bulk Chemical Capacity to Asia, Led byChina
Influenced by external economic conditions, China’s chemical industry isstriving for higher self-sufficiency. Government policies encourage R&Dinvestment, adoption of new technologies, and industrial upgrading tostrengthen domestic competitiveness. In 2021, a surge in chemical pricesprompted major capacity expansion projects, reshaping both domestic and globalsupply-demand structures. From 2019 to 2024, China’s ethylene and propyleneproduction capacities grew at annual rates exceeding 11%, reaching 42.8 milliontons and 70.44 million tons in 2024, respectively, surpassing the capacities ofSouth Korea, Japan, and Europe. Additionally, at least nine propanedehydrogenation (PDH) plants came online, doubling the scale of Chineseproduction relative to global total facilities.
The increase in China’s self-sufficiency exerts pressure on traditionalchemical powerhouses, especially export-oriented economies like South Korea andJapan. These countries face shrinking export markets and intensified pricecompetition, reducing plant utilization rates. McKinsey projects that by 2028,the operating rate of South Korea’s ten major petrochemical products will fallto 65%. Competitive pressures are particularly acute in the ethylene market,where China’s capacity is expected to reach 56.01 million tons by 2026—farexceeding South Korea’s 12.8 million tons—intensifying challenges for Koreanproducers.
The following is the revenue of China's chemical industry from 2005 to2021 (in billions of US dollars):
Trends in the Chemical Industry
1.Decarbonization of Feedstocks and Chemical Processes
The industry is advancing strategies for feedstock diversification anddecarbonization to address the climate crisis while enhancing competitiveness.The goal is to reduce dependence on fossil fuels, introduce renewableresources, use waste-based raw materials, and adopt carbon-neutraltechnologies, simultaneously achieving cost efficiency and emission reductiontargets. The decarbonization movement in the petrochemical sector begins withdiversified feedstocks, employing bio-based materials, chemical recycling,carbon capture, utilization and storage (CCUS) technologies, as well asalternative solutions such as natural gas and electrically-driven crackingunits. This approach is being implemented across the entire value chain, fromupstream to downstream. Decarbonization has become a core strategy forsustainable growth and proactive compliance with increasingly stringent globalcarbon regulations.
In addition to feedstock diversification andprocess decarbonization, global petrochemical companies are setting carbonreduction targets for Scope 1 (direct emissions) and Scope 2 (indirectemissions). Many firms are implementing internal carbon pricing to incorporatethe cost of emissions into decision-making, thereby driving infrastructureimprovements and technological innovations, such as adopting renewable energyand building more efficient facilities.
2. Development and Exploration of New Projects
The chemical industry is increasingly investing in secondary battery materials,environmentally friendly materials, and biopharmaceutical and drug development.The secondary battery materials market, driven by growing electric vehicledemand, is expected to grow at an annual rate of 22% through 2030. The marketfor environmentally friendly materials is also projected to expandsignificantly due to stricter environmental regulations and evolving consumerpreferences.
In biopharmaceuticals and drug development,despite high entry barriers, chemical companies leverage their coretechnologies and financial strength to generate new growth. In the secondarybattery sector, which is central to electric vehicles and energy storagesystems, BASF is particularly active, planning to invest €3.5–4.5 billion from2022 to 2030 to secure leadership across the battery value chain. They areestablishing a circular economy system to recover and reuse lithium, nickel,cobalt, and manganese from used batteries, integrating high-performance cathodeactive material (CAM) production and recycling technologies, with facilities inSchwarzheide, Germany, and Harjavalta, Finland.
Development also focuses on biodegradableplastics, chemically recycled materials, and bio-based superabsorbent resins(SAP). For instance, Japan leads the development of bio-based SAP. SanyoChemical subsidiary SDP sold its chemical SAP resin business in 2024 whiledeveloping eco-friendly SAP derived from plant biomass, replacing 10–25% of rawmaterials with biomass. Nippon Catalyst produces SAP from biomass-based acrylicacid and has obtained ISCC PLUS certification. These bio-based SAPs maintainthe same quality as petroleum-based products while reducing CO₂ emissionsacross the product lifecycle.
Several chemical companies view thebiopharmaceutical sector as a key growth area, with Japanese firms taking thelead. The top five Japanese chemical companies are actively expandingpharmaceutical business. Mitsubishi Chemical, for example, invests in regenerativemedicine and cell therapy drugs and participates in iPS cell research projectssupported by the Japanese government. Other firms include Sumitomo Chemical andFujifilm. U.S. companies such as Dow Chemical focus on new drug and therapydevelopment, drug delivery systems, bio-polymer-based medical products, andimprovements in pharmaceutical manufacturing processes.
3. Product PortfolioRestructuring and Corporate Mergers and Acquisitions
FromEurope to Japan and South Korea, large chemical conglomerates are graduallydivesting commodity chemical businesses and restructuring their productportfolios towards higher-value-added projects such as specialty chemicals,semiconductor materials, environmental products, and battery materials.
FromEurope to Japan and South Korea, large chemical conglomerates are graduallydivesting commodity chemical businesses and restructuring their productportfolios towards higher-value-added projects such as specialty chemicals,semiconductor materials, environmental products, and battery materials.
Meanwhile,chemical mergers and acquisitions (M&A) volume is shifting towards NorthAmerica and Europe by 2024, with these two regions accounting for 70% of totaldeal volume. A slowdown in Chinese M&A activity, impacted by a weakeningeconomic outlook, is contributing to a decline in Asian deal volume.
4. Key Directions forTechnological Investment
Generative AI: Major chemical companies are introducing artificialintelligence to discover and design new materials, optimize processes, andenhance on-site safety management. BASF established the Chemical AI ResearchInstitute in 2020 to test AI applications in material development, processoptimization, and supply chain management, supporting its deployment on actualproduction sites. The new material discovery platform “Quantum” uses generativeAI to design thousands of potential molecular structures and simulate optimalmaterials. This system has already achieved notable results in batterymaterials development.
Membrane Separation Technology: This technology selectively separates ormoves substances using semi-permeable membranes, with applications in gas andliquid separation, water treatment, waste treatment, and chemical purification.In petrochemicals, membrane separation is viewed as an alternative orenhancement to existing processes, improving sustainability and energyefficiency. Leading companies include ExxonMobil, DuPont, and Toray.
CO₂-Based Olefin Conversion Technology: Converting CO₂ into olefins likeethylene and propylene is a highly promising approach for reducing carbonemissions in existing petrochemical facilities. CO₂ is converted into CO viahydrogenation or reverse water-gas shift (RWGS) reactions, then into olefinsthrough Fischer-Tropsch synthesis or methanol-to-olefins (MTO) processes. Thistechnology is considered central to decarbonization in the petrochemicalsector, with BASF, Mitsubishi Heavy Industries, and Braskem actively investingin research and commercialization efforts.
Process Electrification: This approach replaces fossil-fuel-drivenprocesses—such as heating, compression, pumps, and fans—with electricallypowered alternatives. SABIC collaborates with BASF and Linde Gas to developelectrified cracking processes with electric heating for steam crackers. DowChemical, in partnership with Shell, operates a small-scale electrifiedcracking system in Amsterdam, converting conventional fuel-based cracking toelectrically heated steam cracking.
The petrochemical industry is currentlyundergoing a structural transition, not a short-term recession. Traditionalcompetitive strategies based solely on economies of scale and cost advantagesare no longer viable. Enterprises must improve their performance throughtechnological innovation and increased productivity, while the governmentshould provide an institutional foundation for structural adjustment and thetransformation of new businesses. Research institutions, as key players inacquiring future technologies and building ecosystems, should drive thecompetitiveness of the entire industrial ecosystem. Cooperation and mutualassistance among these three players will achieve sustainable growth.
For enterprises, it is imperative to breakaway from their dependence on commodity chemicals and restructure aroundhigh-value-added businesses, while simultaneously divesting non-core assets,improving productivity, and expanding global sales networks. To this end,mergers and acquisitions, acquiring new technologies, and transitioning toenvironmentally friendly businesses are key strategies. Research institutionsshould focus on developing core technologies, demonstrating and commercializingenvironmentally friendly technologies, and developing high-value-added newmaterials. Through industry-university-research-government collaboration, theycan play a central role in technology transfer and ecosystem development.
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