1. Global market volume for chemicals will more than double in the period through 2035 compared to current sales of 2.6 trillion euros in the industry
2. Europe's loss of relevance as a chemicals market continues: By 2035 Europe's market share will be just 13 percent
3. Asia is still gaining ground, its share of the market set to rise to 62 percent by 2035
4. Shorter product lifecycles, product commoditization, difficult access to raw materials and heavy customer demands are major challenges for corporations
5. Chemicals 4.0: The chemical industry will enter into the next evolutionary step, hugely affecting its relationship to customers and also its internal processes and technologies by intensification and digitization

Munich, May 20, 2015

The market for chemical products is expected to grow to some 5.6 trillion euros by 2035, more than doubling its current size. But even though growth prospects are good, the industry's dynamism is set to wane: growing at an average annual pace of 4.1 percent now, the chemicals market will expand by just 3.6 percent per year between 2030 and 2035.

The European chemical industry will see itself especially hard hit, annual growth amounting to as little as 1.5 percent through 2035. Besides sluggish growth in the domestic markets, Europe's industry has other significant hurdles to clear, such as the high cost of raw materials and energy and increased costs resulting from the tightening of EU regulations, according to the latest Roland Berger study, "Chemicals 2035 – Gearing up for growth: How Europe's chemical industry can gain traction in a digitized world".

"Even though European chemical companies are highly productive and very innovative, the market has been consolidating for years, especially in Europe," explained Alexander Belderok, Partner at Roland Berger Strategy Consultants. "Major topics like the growing digitization of industry and new customer demands are placing chemical concerns under ever-increasing pressure."

Five drivers determine global market trends

Europe's share in the global market has been falling for years. Having accounted for one third of the world market in 2000, Europe now makes up just 19 percent, and the tendency is falling. By 2035, Roland Berger experts predict only a 13 percent share of the global market for the European continent, a highly significant market for the European chemical industry being its home market. "On the other hand, the Asian markets, with their already dominant role, are set to become ever more important for the chemical industry," forecasted Roland Berger Partner Alexander Keller. "Asia will make up some 62 percent of the market by 2035 and create new challenges for chemical concerns."

The Roland Berger experts found that five key drivers are behind these developments in the chemical industry:

Cheap access to raw materials: Regions like the Middle East are massively expanding their chemical production owing to the low cost of raw materials. Production costs for a ton of ethylene, for example, amount to about 250 dollars – half the cost of producing it in Europe. American firms and their fracking activities are also squeezing European companies' margins. While the use of bio-resources is on the agenda of many corporations, it is not yet an economical option.

New chemical clusters outside of Europe: Emerging economies like China and India are expanding their local chemical production and becoming ever less dependent on European exports. India, for instance, plans to move from being a net importer of polyethylene to exporting it by 2016. China, too, is focusing to an increasing extent on expanding the size of its chemical parks located close to customer industries – an exciting development for Western firms: "Given its strong demand for chemical products, China is a focus for many Western companies. We find them scaling back their involvement in Europe and investing more and more in China as a means of boosting their revenues there," explained Alexander Belderok.

Regulation is raising costs: Europe is the world's most strictly regulated market. There are now nearly 60% more EU regulations in place than in 2008, particularly in respect of environmental protection. Companies now face significantly higher costs as a result.

Production offshoring to Asia: By continuing to move production activities out of Europe, companies run the risk of losing their customer base for premium products. That is why many firms are focusing to an increasing extent on the life science business, where profitability is higher and the market less volatile.

Customer needs being increasingly taken into account: Customer demands are rising relentlessly. Customers want add-on services and they want more functionality in the products they buy. None of this can be achieved without substantial investments in the improvement of chemical products. Many chemical concerns have already made the transition from pure manufacturer to solution provider as a result.

Chemicals 4.0: The next evolutionary step of the chemical industry

These trends are going to influence the chemical industry to a very significant degree in the coming years; a new world, the fourth generation of chemicals, will ensue. "The new challenges affect the entire chemical industry value chain," commented Roland Berger Partner Alexander Keller. "In an application-driven environment, understanding and cooperating with the customer will become even more important to generate value and be sustainably competitive."

Chemical companies should also make use of the considerable advantages offered by the fourth industrial revolution, which enables much more efficient and customer-centered production, also including the incorporation of customer data along the whole value chain. Only companies exploring the full range of options will be sustainably successful.