The European chemical industry is facing a critical crisis, with a dramatic decline in investments, rising energy costs, and stringent regulations threatening its very existence. This sector, once a cornerstone of Europe's economy, is now struggling to stay afloat, with far-reaching implications for the continent's industries and global market share.
The Financial Times reports a staggering 80% drop in investments in the European chemicals industry last year, according to data from the European Chemical Industry Council (Cefic). This decline has led to a surge in plant closures, with 37 million tons of capacity shut down by 2025, representing 9% of the total capacity. The consequences are dire, with 20,000 job cuts and a significant slump in new investments pushing the industry to the brink. Cefic's Marco Mensink warns that the sector is under severe stress, with the rate of closures doubling in a year, and annual investments plummeting to near-zero.
The chemicals industry is a vital supplier of goods and materials to numerous essential sectors, including car manufacturing and defense. With sales exceeding 600 billion euros in 2024, it might seem robust, but Europe's market share has shrunk from 27% in 2004 to just 12.6% in 2024. This decline coincides with the EU's sanctions on Russia and the loss of cheap pipeline gas, which is crucial for the industry's competitiveness.
The EU's focus on emission reduction, at the expense of competitiveness, is a significant challenge. While the cost of emission reduction is being recognized as potentially excessive, top EU officials are now prioritizing competitiveness alongside emissions. The carbon border adjustment mechanism (CBAM) is a recent example of this, designed to tax cheaper imports from regions with laxer emission regulations and abundant, cheap power from gas and coal, primarily China.
Chinese competition is intensifying, with Chinese companies building excess capacity in some areas, such as monoethylene glycol, a component of polyester. 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 dire, with companies like Saudi SABIC divesting from Europe and Exxon considering a complete exit from the European chemicals sector.
The crisis in the European chemicals industry has far-reaching implications, impacting not only the industry itself but also essential sectors like car manufacturing and defense. Cefic's Mensink emphasizes the industry's critical role, describing it as 'the mother of all industries' and warning that it is 'breaking down as we speak.'
To address this crisis, a complete reversal of priorities is necessary, with a renewed focus on competitiveness. Without this shift, the European chemicals sector may face an insurmountable challenge, threatening the stability of the entire continent's economy.
