The global chemicals sector is entering a period of profound disruption, not from the next breakthrough in material science, but from the unrelenting industrial scale of China’s production machine.
Europe’s chemical industry structural reset
How can companies adapt to the new European reality
The European chemical industry is undergoing a fundamental transformation driven by weak local demand, global overcapacity due to increased imports from China, high energy costs, and increasingly complex regulations – including the current Emissions Trading System (ETS1), which is currently under review but still remains set to end the supply of carbon allowances by 2039. From 2022 to 2025, announced capacity closures increased sixfold to nearly 37 million tons, while new investment announcements have dropped sharply, resulting in a shrinking industrial footprint and a net capacity loss of over 30 million tons. This structural reset is not a temporary downturn but signals a decisive moment for the industry, requiring companies to reassess their strategic positioning and operating models.
"This is no longer a cyclical downturn. Energy costs, overcapacity, regulatory pressure, and uncertain demand are structurally undermining Europe's investment case. Understandably, companies are initiating far-reaching transformations, with many decisions being irreversible."
To remain competitive and resilient, chemical companies must act across three critical dimensions: (1) developing a robust transformation strategy based on scenario analysis and value chain positioning, (2) redesigning their operating models to ensure effective execution and agility, and (3) driving targeted performance improvements to stabilize short-term results. Incremental optimization is no longer sufficient; only those who act decisively and adapt rapidly will be positioned to succeed in the new reality.
The structural reset of the European chemical industry
As detailed in our recent study commissioned for Cefic, between 2022 and 2025, the European chemical industry experienced an unprecedented wave of announced capacity closures, increasing sixfold over the period and reaching roughly 37 million tons — close to 9% of total production capacity. In 2025 the announced closured even doubled compared with the previous year.
Upstream petrochemicals accounts for nearly 50% of the announced closures in capacity followed by basic inorganics and polymers. The closures are geographically widespread but most acute in Germany and the Netherlands, which together account for nearly half of the total.
Closures are increasingly framed as irreversible, driven by lack of energy cost competitiveness, weak demand, and overcapacity. These closures put approximately 20,000 direct and 89,000 indirect jobs at risk, threatening the stability of integrated chemical clusters across Europe, which might be leading to a cascading and accelerating effect.
"We're witnessing an acceleration in both the number and capacity of closures with companies citing uncompetitive energy costs and weak demand as the main reasons. Chemical players have little choice but to transform their business in Europe."
Investment imbalance: A shrinking footprint
In stark contrast, confirmed investments in new chemical capacity have dramatically dropped by 90% from 2022 to 2025 totalling just 7 million tons over the period, i.e. only 2% of total production capacity.
New investments are by far insufficient to offset the scale of closures, especially in petrochemicals, where new capacity additions are dwarfed by shutdowns. Remaining capital deployment is increasingly concentrated around a limited number of themes including circularity, emissions reduction, and battery materials, which emerges as a silver lining for specialty chemicals.
A decisive moment: Strategic choices ahead
This creates a decisive moment for chemical companies, clusters, and policymakers alike. The industry now faces a structural and potentially irreversible contraction, with a net capacity loss of over 30 million tons.
This raises hard questions about which assets to defend, which to transform, and which to exit — and how to do so while preserving strategic capabilities, employment, and long-term resilience. This is where targeted transformation and performance improvement become critical.
Required actions: From strategy to execution
In an environment of shrinking capacity and constrained capital, chemical companies must make deliberate choices about where to act, by reinventing their strategic positioning, refocusing their operating model and by strengthening near-term economics through performance improvement. Depending on starting point and ambition, this can entail different actions. It may involve value chain repositioning and portfolio and asset optimization, selecting the best participation model defining the radical business rules, and improving performance by defining a new target operating model or by supply chain optimalization, implementing procurement excellence, fixed-cost reduction and plant performance uplift.
Companies that focus on the right levers for their situation can stabilize performance in the short term while building a more resilient and competitive footprint over time. The window for incremental optimization is closing; what lies ahead is a period of active, strategic reconfiguration that demands disciplined choices and execution at speed.
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