Everyone is saying the chemical industry has reached an inflection point—what is the logic behind this?

Over the past four years, the chemical industry has been mired in a cyclical trough characterized by overcapacity, falling prices, and shrinking profits. However, since the second half of 2025, multiple structural signals have emerged simultaneously: rapid exit of high-cost global capacity; proactive supply-side contraction in China; prices and profitability hitting historic lows; inventory cycles turning upward; and collective price hikes by leading enterprises. Taken together, the chemical industry has essentially completed its bottoming-out phase, and 2026 is poised to mark the beginning of a new upcycle. This article systematically outlines the core logic behind this cyclical reversal across five dimensions. Global supply structure reshaping: High-cost capacity entering an irreversible exit phase The current global chemical capacity adjustment is not a short-term fluctuation, but a structural cleanup driven by energy structure shifts, carbon costs, and aging equipment. Europe: Deep contraction under dual pressure from energy and carbon costs According to the latest data released by the European Union Agency for Energy in January 2026, the average natural gas price in Europe during Q4 2025 stood at €35/MWh (approx. $38/MWh), driven by the Russia-Ukraine conflict—and surged briefly to €37/MWh in January 2026 amid an unusually severe winter. Coupled with EU carbon prices exceeding €80/ton, chemical enterprises now face a cost disadvantage of 15%–20%. From 2023 to 2025, Europe cumulatively shut down ~12 million tons/year of naphtha cracking capacity, including over 2 million tons/year of ethylene capacity. ExxonMobil announced in 2025 that it will permanently close its 830,000-ton/year steam cracker facility in Fife, Scotland, effective February 2026—impacting 179 direct employees and approximately 250 contractors, and prematurely ending six apprenticeship programs. BASF, Shell, and INEOS have likewise exited midstream capacities such as adipic acid and styrene. Critically, most of these shutdowns are permanent. Once facilities remain idle for over 18 months, restarting them faces severe technical obsolescence, broken supply chains, and sharply rising compliance costs—making actual resumption highly improbable. According to EPCA estimates, Europe’s ethylene self-sufficiency rate has declined from 95% in 2020 to 80%–83% in 2025, significantly increasing import dependence. Japan & South Korea: Strategic contraction driven by aging infrastructure and weak demand Core ethylene plants in Japan were mostly built in the 1960s–1970s; their average utilization rate fell below 70% in 2025—well below the 80% breakeven threshold. Toray, Mitsui Chemicals, and Asahi Kasei are accelerating divestment from traditional businesses such as PTA and MMA. In South Korea, government-guided industry consolidation led ten major petrochemical firms to agree in August 2025 to cut 2.7–3.7 million tons/year of naphtha cracking capacity (roughly 25% of national capacity) by 2026; LG Chem and YNCC have already shuttered a 915,000-ton/year unit. Global supply-demand rebalancing underway In November 2025, Huntsman’s 280,000-ton/year MDI plant in the Netherlands unexpectedly halted operations. Combined with low-load operation across multiple European facilities, global MDI supply tightened abruptly. The following month, Wanhua Chemical, BASF, Dow, and Huntsman all raised MDI/ TDI prices in unison—indicating a serious overall supply shortfall rooted in chronic energy shortages and outdated equipment. Meanwhile, new capacity is rapidly concentrating in low-cost regions: In 2025, China accounted for over 70% of global PTA capacity and ~45% of PX capacity.

Are chemical industry giants withdrawing from the European market?

The EU’s share of global chemical R&D spending is declining, and its R&D expenditure growth lags behind that of China and the U.S. Between 2013 and 2023, China’s share of global chemical R&D spending rose from 25% to 32%, while the shares of the U.S., the EU, and Japan all declined—by 1%, 3%, and 5%, respectively. The EU’s chemical R&D spending grew only 25% (from €8 billion to €10 billion), whereas China’s surged 100% (from €9 billion to €18 billion) and the U.S.’s rose 50% (from €8 billion to €12 billion). China’s R&D spending in the sector has more than doubled over the past decade. The European chemical industry remains committed to improving its overall sustainability performance and recognizes the importance of both disruptive technologies and continuous improvement of existing ones. 2. The Russia-Ukraine conflict exacerbates Europe’s energy price surge In February 2022, Russia’s invasion of Ukraine fundamentally disrupted Europe’s energy landscape, triggering sustained, sharp increases in energy prices across the continent. Prior to the war, Europe was heavily dependent on Russian energy—importing roughly 40% of its natural gas, along with substantial volumes of oil and coal from Russia. The conflict and subsequent sanctions drastically reduced Russian energy imports. According to the Kyiv Independent, the EU has pledged to fully eliminate its reliance on Russian energy by 2027—but this transition poses major challenges, including new dependency risks and persistent volatility in global energy markets. The European Chemical Industry Council (CEFIC) stated in its report: “Weak demand and declining business confidence continue to challenge the chemical industry across the EU’s 27 member states. Moreover, natural gas prices remain 3.3 times higher than those in the U.S., severely undermining Europe’s global competitiveness.” CEFIC identifies energy and fossil feedstocks—not labor or regulation—as the true constraints on chemical industry competitiveness, accounting for 30–40% of total costs. 2.1 Europe’s ethylene production cost is at a disadvantage versus North America and the Middle East The global situation in 2023 clearly revealed Europe’s competitive disadvantage relative to the U.S., China, and the Middle East—driven primarily by high energy and feedstock costs. In 2023, Europe’s ethylene production cost—a key indicator of cost competitiveness—was 3.2 times that of the U.S., underscoring this gap. According to Dow’s annual report, Europe continues to face exceptional challenges and remains the world’s most expensive region for chemical production. Stagnant demand, tightening regulations, and supply chain disruptions are placing immense pressure on Europe’s chemical industry. The result is a negative trade balance in chemicals: European chemical output has declined by approximately 20% over the past two years. Since 2021, the EU has been a net importer of chemicals—meaning its chemical industry has fallen far behind those of countries like China. Data from CEFIC, Europe’s industrial trade association, shows that between 2023 and 2024, Europe’s chemical industry will permanently shut down 11 million tons of capacity. 2.2 EU chemical output remains below pre-pandemic levels, with low capacity utilization In 2023, chemical output across the EU’s 27 member states declined by 8.5% year-on-year and remained 11% below pre-pandemic levels (2014–2019).

EPCA: Ample Supply, Weak Demand to Weigh on European Ethylene, Propylene in 2027

just now

Industry participants at the EPCA conference expect ample supply and weak demand for European ethylene and propylene in 2027, pressuring prices despite planned asset closures. Geopolitical uncertainty and high costs continue to limit operating rates and market recovery.

chemweek

2026-10-12

EPCA: Ample Supply, Weak Demand to Weigh on European Ethylene, Propylene in 2027

EPCA: Ample Supply, Weak Demand to Weigh on European Ethylene, Propylene in 2027

FAQ