Causes of the decline of Europe's chemical industry: Under triple pressure, its former industrial glory is unlikely to return.

Europe's chemical industry indeed stands at a historic turning point. Or, to put it poetically: The preceding carriage has vanished, yet dust still hangs in the air; the light boat has already sailed past ten thousand mountains. After all, it once shone brilliantly—Europe’s chemical industry was once at the vanguard of the global industrial wave and served as the engine driving innovation. Today, however, it faces unprecedented structural challenges—and truly disruptive crises. I. The Russia–Ukraine war has triggered a sharp surge in energy costs—the ‘decapitating blade’ slashing the entire industry’s competitiveness. The Russia–Ukraine war, which began in February 2022, struck like a decapitating blade—swiftly severing Europe’s chemical industry’s energy lifeline. It completely reshaped Europe’s energy supply landscape and upended the continent’s foundational chemical industry. Prices for fundamental energy sources—including natural gas, oil, and coal—have surged relentlessly, severely impacting Europe’s chemical sector, which is highly dependent on imported energy. Prior to the war, Europe imported approximately 40% of its natural gas—and large volumes of oil and coal—from Russia. Following the outbreak of hostilities, sustained economic sanctions caused Russian energy imports to plummet sharply. Although the EU aims to fully eliminate its dependence on Russian energy by 2027, those five years of hesitation—from 2022 to 2027—have been enough to undermine its very foundations. Strategic transformation requires time—and even more so, resolve. During this transition, supply–demand structures will be reconfigured, energy markets will fluctuate, global competitiveness will erode, and competitors will rapidly fill the void. According to the European Chemical Industry Council (CEFIC), energy and raw materials account for 30–40% of chemical production costs. Yet today, European natural gas prices stand at 3.3 times those in the United States—leaving Europe with virtually no global competitiveness. Take ethylene, for example: In 2023, production costs in Europe were 3.2 times higher than in the U.S., making Europe the world’s most expensive region for ethylene production—without exception. Dow’s annual report likewise notes that Europe’s chemical industry now contends with stagnant demand, increasingly stringent regulation, and supply-chain disruptions. Words alone carry little weight—let the data speak. Over the past two years, the EU’s actual chemical output has declined by at least 20%. Since 2021, the EU has shifted from being a net exporter to a net importer of chemicals—especially in basic chemicals, where it has long since been overtaken by Asia. CEFIC forecasts that between 2024 and 2025—just two years—Europe will permanently shut down roughly 15 million tonnes of chemical production capacity. Beyond outright closures, existing capacity utilization has languished around 75%—well below the historical average of 81%. Naphtha cracker utilization stands at only 74%, having remained below U.S. levels for several consecutive years—seriously undermining industry profitability and reinvestment capability. II. Stringent carbon neutrality policies have further exacerbated operational costs and structural transformation pressures. Europe is a global pioneer in climate policy—yes, a pioneer. In March 2020, the European Commission adopted the draft of the European Climate Law, explicitly setting a target of achieving carbon neutrality by 2050. The EU Emissions Trading System (EU-ETS) began pilot operations in 2005 and officially launched in 2008. This system has since become the core mechanism for controlling industrial emissions—covering 50% of the EU’s total carbon emissions—and, together with carbon taxation, forms the current framework for energy conservation and emission reduction. Between 2013 and 2023, revenue from EU-ETS allowances surged dramatically—to €29.1 billion. With such lucrative returns, which country, department, or official would willingly relinquish this revenue stream? And who truly cares how much carbon costs have risen for enterprises?

Is the chemical industry’s slump confined to China—or is it a worldwide phenomenon?

The current downturn in the chemical industry is a global phenomenon—but the underlying causes and manifestations differ significantly across regions. Put simply, this is a large-scale global 'reshuffling' of the chemical industry—driven fundamentally by energy cost shifts, cyclical overcapacity, and the restructuring of global trade patterns. China’s chemical industry is indeed undergoing a trial by fire—but its European peers are faring even worse, while the United States—leveraging its energy-cost advantage—has become a relatively safe haven. Global overview: A collective slowdown triggered by war and cyclical forces The global chemical industry is currently at the bottom of an extended downward cycle. Deloitte’s report forecasts global chemical production growth in 2026 at just ~2%, sharply revised down from the 3.5% projected earlier in 2025. Moreover, the sudden outbreak of the 'Gulf War' and the Strait of Hormuz crisis in 2026 has further worsened conditions. Analysts estimate that if the conflict remains short-lived, global chemical output in 2026 may rise by only 0.6%; if hostilities persist until September, global output could contract by 1.7%. Such developments have triggered violent fluctuations in global energy and raw material prices—derailing the industry’s already fragile recovery rhythm. Regional 'diagnoses' vary widely: Europe and the U.S. struggle with costs; Asia-Pacific grapples with excess capacity. If we imagine the global chemical market as a hospital ward, the conditions of its three major 'patients' differ markedly: Region Core Challenge 2026 Output Forecast* One-sentence Summary EU/UK Exorbitant energy costs (further inflated by Middle East hostilities) and regulatory pressure −2.2% (could reach −4.3% if conflict extends) Undergoing the painful 'deindustrialization' process, with massive permanent capacity closures China Severe overcapacity, weak domestic demand (especially in real estate), and export uncertainty +2.7% (but growth has sharply decelerated) Mired in 'cutthroat competition' ('neijuan'), yet actively pursuing policy-led 'anti-neijuan' restructuring and capacity rationalization U.S. Weak downstream demand (e.g., automotive sector) and global uncertainty −0.5% (expected to rebound to +2.6% in 2027) Leveraging low-cost shale gas energy to emerge as the 'least bad' region globally *Source: Atradius/Oxford Economics Report, May 2026 China’s 'root cause': Structural overcapacity—not merely cyclical

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