European chemical producers expect a difficult road ahead

“The long road ahead has only just begun,” analysts at Jefferies Financial Group say in a financial note about the prospects for BASF—the world’s largest chemical firm.

BASF is not the only European chemical company on this road. High energy prices and soft demand for Europe-made chemicals are set to stay across the board in 2024, according to industry experts. Demand will continue to be weak as more exports from China enter the market in the postpandemic era, Jefferies analysts say.

Meanwhile, European regulators are requiring chemical companies to make investments to reduce their carbon emissions. “Our industry is facing what we call a ‘double twin’ transition: we need to go climate neutral, circular, digital, and transition to safe and sustainable chemicals, all by 2050,” says Marco Mensink, director general of the European Chemical Industry Council, Europe’s largest chemical industry association.

“With this, the speed of the transition is a key element,” Mensink says. “Yet this comes at a time when, compared to our main competitors in the US, China, and the Middle East, Europe is facing some of the highest energy prices in the world as well as a lack of competitively priced raw materials.” He is calling on European leaders to facilitate the formation of a regional clean energy supply chain.

Energy costs in Germany are among the highest in Europe. “Electricity prices in Germany are already a massive competitive disadvantage,” Wolfgang Große Entrup, managing director of the German chemical industry association Verband der Chemischen Industrie (VCI), says in a recent press release. If prices continue to rise, “the transformation to climate neutrality will be further jeopardized,” he says.

Several European chemical firms say that market conditions are forcing them to close plants and cut jobs. Among those doing so, Celanese will close its nylon 6,6 plant in Uentrop, Germany; Indorama Ventures will shutter its purified terephthalic acid plant in Sines, Portugal; and Ineos will mothball a similar polyester raw material unit in Geel, Belgium.

Bernd Elser, global chemical lead for the consulting firm Accenture, says the European chemical industry may be in the longest downturn of the past 15 years. Still, he sees some grounds for optimism, such as customers’ restocking of inventories, which is expected at the start of the year. The year “2024 is likely to be a year of volatility, uncertainty, and change, but these challenges also create opportunities to capture upswings, additional demand, and pockets of growth,” Elser says.

Although weak chemical demand is forecast to be a central issue this year, environmental regulation will also feature strongly. This year, politicians and experts from the European Commission will debate a proposal to ban per- and polyfluoroalkyl substances (PFAS) in the EU on account of their impact on the environment and human health. This debate will put PFAS “on top of the chemicals agenda,” says Jonatan Kleimark, senior chemical and business adviser for the International Chemical Secretariat, a Swedish environmental organization also known as ChemSec.

“More generally, we will see an increase in pressure on the petrochemical industry” because the connection between fossil fuels, plastics, and chemicals is becoming more obvious, Kleimark says.

In response, some European firms are trying to move away from chemicals made from fossil fuels toward more sustainable ones. Evonik Industries, for example, recently set a goal of generating $1.1 billion or more in annual sales by 2030 from specialty chemicals that promote sustainability. “The circular economy is a strong growth driver for Evonik,” Harald Schwager, Evonik’s deputy chairman, says in a recent press release.