The European chemical industry is trapped in a structural crisis

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　Soaring energy costs, weak downstream demand, and a complex regulatory environment are pushing Europe’s chemical industry into its toughest period in years. Since 2022, over 25 million tons of chemical production capacity has been shut down or sold, accounting for about 9% of the region’s total chemical production capacity in 2021. Industry giants such as BASF and Evonik have lowered their forecasts, with some companies warning that if natural gas supplies continue to decline, the world’s largest chemical manufacturing complex might be forced to shut down. The European chemical industry is undergoing a profound structural transformation. 　　Large-scale shutdowns of production capacity and accelerated outflow of investments. Capacity contraction has become a prominent trend in the European chemical industry. According to ICIS data, since 2022, nearly 25 million tons of chemical production capacity in Europe has been shut down or sold. Germany has been the most severely affected, with around 7 million tons of chemical production capacity having withdrawn from or about to withdraw from the market. ExxonMobil prematurely shut down its ethylene cracker in Scotland, which had an annual production capacity of 830,000 tons of ethylene and was once a vital chemical industry infrastructure in the UK. Two factories in the Rotterdam Port chemical cluster have already closed due to high energy costs and weak demand. 　　The investment data is even more alarming. In 2025, investments in the European chemical industry plummeted by over 80% year-on-year. The recent bankruptcy filings by three of Dowmer Chemie’s German subsidiaries highlight the ongoing deepening of structural difficulties. Industry analysis shows that currently, about three-quarters of Germany’s energy-intensive chemical companies are shifting their investments overseas, with production gradually moving to regions where raw material costs are lower and regulatory burdens lighter. Thanks to low energy prices and subsidy policies, the United States has become the preferred destination for companies relocating overseas. Companies such as Shell, BASF, and Linde have announced the construction of new or expanded chemical plants in the United States. 　　Alongside capacity consolidation, corporate mergers and acquisitions are also accelerating. Large enterprises seek economies of scale through acquisitions, but this also carries the risks of unemployment and regional economic decline. The German Chemical Industry Association warns that if the current trend continues, Europe could lose 15% to 20% of its chemical production capacity permanently by 2030, resulting in irreparable disruptions in related supply chains. Small and medium-sized enterprises face particularly severe difficulties, lacking sufficient funds to tackle the dual challenges of energy transition and digital transformation. 　　Soaring energy costs erode profit margins. Europe’s chemical industry bears the highest energy costs in the world. Industrial natural gas prices have long been three to four times those of its U.S. competitors. A greater concern is the uncertainty in raw material supply. BASF has issued a warning that if the natural gas supply to its plant in Ludwigshafen drops below half of normal demand, this world’s largest integrated production facility might be forced to shut down, affecting the employment of around 40,000 workers. 　　High energy costs force European chemical companies to allocate a large portion of their funds to fuel purchases rather than equipment upgrades and research and development, putting continuous pressure on their profit margins. The operating conditions for small and medium-sized, non-integrated chemical enterprises have deteriorated sharply. Compared to its competitors in the Middle East and the United States, which have access to cheap ethane as a raw material, Europe relies on costly naphtha and natural gas, resulting in an increasingly significant cost disadvantage. Data shows that by 2025, the average profit margin in Europe’s chemical industry had dropped to its lowest level since 2010, with over one-third of listed companies operating at a loss or on the brink of breaking even. 　　High energy costs also trigger a chain reaction. Companies are forced to cut their R&D budgets, delay new projects, and shut down some older facilities. Taking ethylene production as an example, the cash costs at European crackers are approximately 40% higher than those on the U.S. Gulf Coast and 70% higher than in the Middle East. This gap renders European basic chemicals uncompetitive in the international market, with their export share shrinking year by year. Some products originally intended for the Asian market are now being replaced by supplies from the Middle East and North America. 　　Caught between carbon costs and external pressures: European chemical companies not only face high energy bills, but also have to deal with the world’s highest carbon pricing system. Currently, the industrial carbon price in the EU is around 80 euros per ton, which is significantly higher than that in other major economies. Executives in the industry warn that current climate policies are accelerating the relocation of European chemical manufacturers, leading to a continuous loss of regional industrial competitiveness. Although the Carbon Border Adjustment Mechanism aims to protect domestic industries, its implementation rules are complex and the execution process is lengthy; thus, it is difficult to alleviate the actual burden on enterprises in the short term. 　　Downstream demand remains weak. In the first quarter, the seasonally adjusted production of the chemical industry declined by 2.8% on a month-on-month basis, and dropped by nearly 6% on a year-on-year basis. The CEO of Univar Solutions said that customers tend to opt for smaller order volumes and more frequent purchases in order to manage inventory risks, and a lack of market confidence is the main reason behind weak demand. The weak growth in key downstream industries such as construction, automobiles, and electronics has directly dragged down the consumption of chemical products. Although some companies have gained a brief respite due to supply chain disruptions among their Asian competitors, the industry generally believes that this window of opportunity will not last. Once Gulf shipping routes return to normal, Asia will remain a cheaper base for producing chemicals. 　　From the perspective of the long-term competitive landscape, the European chemical industry is under triple pressure from the United States, the Middle East, and the Asia-Pacific region. U.S. shale gas, ethane from the Middle East, along with the large markets and industrial supply chains in the Asia-Pacific region, have essentially eliminated Europe’s advantages in the field of bulk commodities. The industry needs to accelerate its transition toward a circular economy, bio-based materials, and low-carbon processes, but such a transition requires substantial investment, and companies generally lack financial flexibility amid difficult profit conditions. Policymakers need to find a more balanced approach between climate goals and industrial competitiveness; otherwise, the decline of Europe’s chemical industry will be irreversible.