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➡ A surge in global ethylene capacity is set to adversely affect European producers.
➡ Europe’s chemical industry may be entering a period of structural decline.
➡ Manufacturers say they are in dire need of industry-friendly policies.
The operating environment for Europe’s chemical manufacturers the past couple of years has been far from rosy, and there are signs it will worsen in 2025.
“The European chemical industry is at a breaking point, facing significant challenges, including declining demand, stalled investments, and shrinking production, while regions with simpler, faster, and more supportive frameworks eagerly take Europe’s place,” Marco Mensink, director general of the European Chemical Industry Council (Cefic), says in a recent blog post.
One issue underlying this trend is the global excess capacity for ethylene and propylene—and more is expected, particularly in China, according to the consulting firm Wood Mackenzie. This flood is set to hit Europe hard, as operating costs for its ethylene crackers are among the highest in the world. Europe should expect a “quite difficult” period through to the end of this decade, says Olivia Steele, principal research analyst for olefins in Europe and the Middle East at Wood Mackenzie.
The increase in global ethylene capacity means that even more plants will close in Europe this year than in 2024, says Richard John Carter, an independent consultant and former senior executive at BASF. He forecasts that 1–2 million metric tons per year of European ethylene capacity will shut down in 2025 and 2026. And he doesn’t expect it to come back.
The expected decline in western European ethylene production capacity between 2024 and 2030
Source: Wood Mackenzie.
Analysts see a few positives. Steele says that some companies, including Ineos, are successfully adapting their ethylene crackers to replace naphtha, a relatively expensive feedstock, with ethane, which is cheaper. Another promising opportunity in Europe is in sustainable plastics, she says. And according to VCI, the German chemical industry association, a trade agreement that the European Union and the Mercosur countries of South America signed in mid-December could increase exports for European chemical producers.
But the negatives dominate, and European manufacturers say they are struggling to meet the costs of decarbonization in the face of low-cost competition. The European Commission has signaled that it will support the region’s industry in reducing carbon emissions and transitioning to more sustainable products. But actual policies have yet to materialize.
“There was a signal of potential change of direction. I’m not sure we’ve seen that change of direction yet,” says Alan Gelder, senior vice president of refining, chemical, and oil markets and commodities research at Wood Mackenzie. “But if Europe continues to decarbonize through deindustrializing, then that’s a long-term structural threat.”
With no imminent overhaul of European policy, several major European chemical companies, including BASF, are set to continue cost-cutting and divestment programs in 2025. A number of European petrochemical businesses are for sale, including assets owned by Dow, LyondellBasell Industries, and Trinseo, but buyers appear scarce, Carter says. In a briefing on financial results for third-quarter 2024, Sabic disclosed that it may exit Europe altogether.
“The old playbook for many European CEOs is that this is a downturn in the cycle,” Carter says. “I say it is structural.” A pivot to China and the Asia Pacific has already started. “There is resistance to change in Europe, and too much hope and not enough concrete action to prepare for a very new future,” he says.
Cefic’s hope is that the European Commission will come through with a series of policies to support industry. “We now call on new EU leaders to take bold and urgent action to secure Europe’s industrial future,” Mensink says in the blog post. “Now is the time to act—before it’s too late.”
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