BY STEVE RANGER
Chemicals companies need to rethink their strategies in the face of global headwinds, as the industry races towards a polarised future with some sectors and regions winning out, and others struggling unless they make big changes.
Globally, the industry has been hit by weak end-market demand for chemicals, a knock-on effect of the current tough outlook for manufacturing. Customers looking to negotiate better deals have put pressure on margins and significant overcapacity in the industry has had the same impact, according to a new report from Boston Consulting Group (BCG).
‘The soft expectations of the chemical industry that prevailed at the end of 2023 have given way to a general sense of crisis. A widely anticipated demand recovery in key industries, including automotive and construction, has failed to materialise’ says BCG’s Value Creation in Chemicals 2025 report.
BCG’s report finds that the global chemical industry delivered an average annual total shareholder return (TSR) over the five years to December 2024 of 7% – compared with 12% from 2019 to 2023. BSG’s TSR measure represents the percentage increase in a company’s value – stock price plus dividends – over a given period. The consultants looked at data from 322 publicly listed chemical companies.
But the report also finds that while some sectors and regions have experienced ‘significant value destruction’ through low utilisation, price erosion and plant closures, others have managed a standout performance.
Specialty chemicals performed well, as did industrial gases, agrochemicals and fertilisers. But base chemicals and plastics, and multispecialty chemicals struggled with overcapacity and pricing pressures.
Investors no longer treat large multispecialty, petrochemical and base chemical players as safe havens in turbulent times, the report warns.
By region, emerging market chemical companies did best, with India the top performer, helped by robust domestic demand and policy support in the form of economic reforms and infrastructure investment. However, the impact of soft demand and overcapacity was felt elsewhere in emerging markets, and also in the UK and Western Europe, where companies also felt the effects of high energy costs and a high regulatory burden.
Japanese chemical players demonstrated strong value creation performance over the most recent five-year period, in part because of their focus on electronic and semiconductor materials.
By sector, BCG’s report notes that since 2015, the growth in global capacity for bulk chemicals has exceeded demand by 1% to 1.5%/year, something that is particularly an issue for olefins and polyolefins production, pushing factory utilisation rates below 80% and below profitability.
Added to this is an increase in China’s production capacity and rising Chinese exports of commodity chemicals, which have worsened the overcapacity problem and created challenges for companies in Europe and the Middle East. In Europe, these pressures have led to firms cutting back capacity. Companies have earmarked over 11m t of capacity, involving 21 major European production sites, for closure. ‘These developments render the negative impact of overcapacity on chemical industry margins more visible than before,’ the report notes.
The European petrochemicals subsector struggles with overcapacity, weak demand, high energy and labour costs, regulatory costs and feedstock disadvantages, compared with the US or Middle East, which benefit from access to cheap oil.
‘Because of the oversupply of uncompetitive assets, many sellers need to offer financial incentives to attract buyers,’ the report says. In contrast, in the Middle East, state-owned investors are placing bets that the future for petrochemicals players will be brighter.
Frederik Flock, Managing Director and Partner at BCG told C&I that recovery is possible but it is likely to be uneven. ‘The US is structurally better positioned in the near term, while Europe faces a multi-year reset unless it accelerates closures, portfolio shifts and cost relief,’ he said, noting that overcapacity and pricing pressure are the core headwinds, to which Europe is most exposed.
‘Here’s what changes the trajectory. Based on our analysis, winners are typically focused specialties, industrial gases and agrochemicals; laggards are base chemicals, plastics and multispecialties. Portfolios tilted toward the former, with disciplined cash returns, can recover faster,’ he added.
‘The bottom line is that modest growth in the US looks achievable, as demand normalises and global rationalisation tightens balances. In Europe, growth requires faster footprint action, cost relief and mix shift – otherwise performance will lag global averages.’
This uneven global performance is likely to create a more polarised industry a decade from now, with fewer, stronger hubs for commodity chemicals and faster-growing specialty leaders. By the early 2030s, commodity chemicals demand may catch up with capacity in some segments, especially where new investment has slowed, while others will remain oversupplied for longer. Meanwhile, the US and Middle East will continue to benefit from lower-cost feedstock and Europe’s industry is likely to shrink but could retain selective, higher-value niches.
Sustainability – particularly in Europe – will see customer demands push low-carbon grades and circular feedstocks from niche to mainstream. ‘Early movers are unlikely to consistently earn premiums today, but they can secure more stable contracts and preferred access with demanding customers. Laggards risk being pushed to the lowest-cost corner of the market,’ Flock said.
‘Based on our assessment, companies that reposition assets toward growth regions/segments, tighten capital discipline, innovate around products and processes, adopt digital and AI at scale, and strengthen commercial excellence will be best placed.’
Visit Blog
