The European chemical industry is facing a critical crisis, with a dramatic decline in investments, rising energy costs, and stringent regulations. This is causing a significant impact on the sector's operations and global competitiveness. The industry, a vital supplier to numerous essential sectors, is struggling to maintain its position in the face of mounting challenges.
According to recent reports, investments in the European chemicals industry plummeted by 80% last year, a staggering figure that highlights the industry's dire financial situation. This decline has led to a surge in capacity closures, with the European Chemical Industry Council (Cefic) reporting a sixfold increase since 2022, reaching a total of 37 million tons by 2025. These closures have resulted in the loss of 20,000 jobs and a significant slump in new investments, pushing the industry to the brink.
Marco Mensink, the head of Cefic, emphasized the severity of the situation, stating that the sector is under immense stress and on the verge of breaking point. The rate of closures has doubled in a year, and annual investments are alarmingly low, with no signs of improvement. Mensink urged for decisive action to address the issues at the factory level.
The chemicals industry is a cornerstone of Europe's economy, generating sales of over 600 billion euros in 2024, according to Cefic. However, Europe's chemicals companies have witnessed a decline in their global market share, falling from 27% in 2004 to just 12.6% in 2024. This shrinkage is not solely due to EU sanctions on Russia and the loss of cheap pipeline gas, but also to the industry's high energy costs and the EU's focus on emission reduction.
The EU's stringent climate-related regulations, while commendable for environmental goals, are placing a significant burden on businesses. The cost of emission reduction is proving to be prohibitively high, and EU officials are now prioritizing competitiveness alongside emissions. The Commission's carbon border adjustment mechanism (CBAM) aims to tax cheaper imports from regions with laxer emission regulations and abundant, cheap power from gas and coal, primarily targeting China.
Chinese competition is intensifying, with Chinese companies building excess capacity in certain sectors, such as monoethylene glycol, a component of polyester. This overcapacity 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 Dow planning plant closures 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. The industry's struggles are not limited to financial and competitive pressures; they also have significant implications for other sectors, particularly car manufacturing and defense. Mensink emphasized that the chemicals industry is the 'mother of all industries,' and its breakdown would have far-reaching consequences.
The crisis demands a reevaluation of priorities for political decision-makers. Removing emission reduction from its current position of priority is essential to provide the European chemicals sector with the much-needed support. The industry's survival is crucial for the broader European economy and its global competitiveness.
