The European chemical industry is facing a critical crisis, with a dramatic decline in investments, rising energy costs, and stringent regulations. This sector, a vital supplier of essential goods and materials to various industries, is struggling to stay afloat. The Financial Times reports an 80% plunge in investments, with capacity shutdowns reaching 5 million tons last year, and the industry is on the brink of collapse. The European Chemical Industry Council (Cefic) warns that these closures have led to 20,000 job cuts and a significant reduction in new investments, pushing the industry to its limits.
The head of Cefic, Marco Mensink, emphasizes the dire situation, stating that the sector is under severe stress and breaking. The rate of closures has doubled in a year, and annual investments are nearly zero. This rapid acceleration in both closures and the decline in investments is a cause for immediate concern. Mensink calls for decisive action, urging an impact at the factory floor level.
The chemicals industry is a cornerstone of Europe's economy, generating over 600 billion euros in sales for 2024. However, its global market share has shrunk from 27% in 2004 to just 12.6% in 2024. This decline is not solely due to EU sanctions on Russia or the loss of cheap pipeline gas. The industry's competitiveness is significantly impacted by sky-high energy costs, which are a burden on all European industries but particularly on energy-intensive sectors.
Climate-related regulations are adding to the challenges, with EU leaders prioritizing emission reduction over competitiveness. This has led to the introduction of the carbon border adjustment mechanism (CBAM) to tax cheaper imports from regions with laxer emission regulations and abundant, cheap power from gas and coal. China, in particular, is a major player in this context, eating up European chemical makers' global market share.
The Wall Street Journal highlights the grim situation, noting that Chinese companies are building more capacity than the market demands, such as in monoethylene glycol, a component of polyester. This excess capacity puts pressure on high-cost European producers, who are also facing low-cost US competition following a recent trade deal. The Journal reports that companies like Saudi SABIC and Exxon are divesting their European assets, citing high energy and CO2 emission costs, and weak demand.
The European chemicals industry's struggles have far-reaching implications. It is a critical supplier to sectors like car manufacturing and defense, which are essential for Europe's economy. Mensink warns that the industry is breaking down, and the problems seem insurmountable without a shift in political priorities. Emission reduction must be balanced with competitiveness to give the chemicals sector the much-needed support.
