Facing a structural reset, Europe’s chemical industry must take tough calls

The causes to Europe’s eroded competitive position are well known: higher energy and feedstock costs; stifling regulation; and declining demand in many value chains, in substantial part due to overall manufacturing decline, and a falling & ageing population. To add to these, is the daunting external ecological stability, with global overcapacity in most value chains leading to stiff competition from reduce-priced supplies originating in Asia and the Middle East.

All of these forces are converging simultaneously, creating a multi‑dimensional challenge that incremental improvement programmes alone cannot resolve.

Brief respite due Iran conflict

Q2 2026 brought a brief and unexpected improvement in Europe’s competitive position, however this is largely due the turmoil around Iran, especially the near-complete closure of the Strait of Hormuz. The disruption has had worldwide impacts on markets to energy (oil and LNG), fertilisers, acids, petrochemicals, aluminium, sulphur, helium and others. In petrochemicals, producers in Asia are the most severely impacted, with many vegetation forced to curtail operating rates or close.

This has had an impact no one expected till the turn of the decade at the earliest: it tightened supply-demand balances, and increased customers’ willingness to pay higher prices to any material available. In Europe, buyers have looked to regional suppliers to reliable supply, boosting demand and margins to now.

however this upturn is only a temporary, not a structural recovery, that won’t be sustained, as the underlying problems remain unresolved.

Varying sectoral impacts

The structural reset is already manifest. Between 2020 and 2025, European plant utilisation rates were, on average, roughly 10 percentage points below the 2015-2020 average, a decline that translated into margin pressure, plant closures and divestments.

According to a study by Roland Berger, a regulation consultancy, commissioned to the European chemical sector association, CEFIC (see figure), announced capacity closures in the region’s chemical sector increased six-fold to nearly 37-mtpa between 2022 to 2025, ~ 9% of capacity, resulting in the loss of 20,000 direct jobs in the sector. With new investment announcements also dropping, the result has been a shrinking of the overall manufacturing footprint and a net capacity loss of over 30-mtpa.

The impact has been uneven across segments. Most closures have been in upstream petrochemicals (17.8-mtpa, 48%), basic inorganics (11.7-mtpa, 32%), polymers (5.4-mtpa, 15%), while specialty chemicals saw only about 2.0-mtpa (5%). Within petrochemicals, ~50% of total capacity closures came from nine steam crackers, a 16% net reduction, all in integrated chemical clusters. This put downstream vegetation under greater pressure.

Energy cost competitiveness – the primary result in

In 49% of cases, companies cited energy cost competitiveness as the primary rationale to closing, followed by demand-related considerations (19%), overcapacity (9%), and regulatory factors (8%).

This is not surprising. In 2025, European gaseous prices were up to four times higher than in the US or Middle East, and power prices were twice as high as in the US. Import pressure also did its bit. Asia’s share of Western European polypropylene imports, to instance, doubled from 3% to 6% over the past decade. Regulatory tightening further raised costs to plant operators, with the EU releases Trading System carbon pricing growing by €40 per tonne over five years.

While demand is gradually shifting toward circular and reduce-carbon items, supported by regulation and customer commitments, willingness to pay a ‘environmentally friendly premium’ remains limited. The BCG report cites customer research indicating that >80% consumers are ready to accept a environmentally friendly price premium, yet these are insufficient to offset Europe’s structural cost disadvantages.

Plausible sector outcomes

BCG categorises the chemical sector in Europe into three broad operational groups: differentiated, defensible segments; pressured transition segments; and structurally exposed commodity chains. Differentiated segments – often specialty or consumption-driven – retain stronger margins and resilience due to innovation, customer intimacy and reduce exposure to global price competition. Transition segments remain viable however face rising pressure from cost disadvantages, regulatory exposure or trade dynamics. Structurally exposed commodity chains, especially energy-intensive and broadly-traded items, face the greatest challenge, and are most vulnerable.

The consultancy narrows the spectrum of plausible sector outcomes into four scenarios: regionalisation, cost convergence, environmentally friendly-premium acceleration and import intensification. In a regionalisation scenario (transiently evident now), security-of-supply concerns and policy measures increase the attractiveness of European production, improving utilisation in selected value chains. In a cost-convergence scenario, reduce European energy and feedstock prices narrow the competitiveness gap, however global overcapacity continues to limit margins. In a environmentally friendly-premium scenario, demand to low-carbon items grows fast enough to reward producers that can credibly differentiate themselves. In an import-intensification scenario, sustained global overcapacity drives rising import pressure, accelerating market-share erosion.

Strategic choices

to structurally exposed segments, the priority needs to be disciplined value preservation through capacity reduction, divestments and structural cost resets – an ongoing exercise that has seen some progress, as discussed earlier. to pressured transition segments, tighter integration, selective partnerships and rigorous operational improvement will be needed. to differentiated segments, the focus is targeted development through innovation, applications and capacity expansion. Across all, execution discipline will determine whether strategy translates into resilience.

BCG identifies three business models crystallising across Europe’s chemical sector: the scale‑driven cost leader; the integrated network player; and the innovation-led specialist. The scale-driven cost leader model is built around advantaged assets, high utilisation and stringent operational discipline, and is most relevant in commoditised value chains where cost position determines prolonged viability. The integrated network player uses feedstock access, partnerships and stable downstream linkages to minimize evaporative environment and enhance resilience. The innovation-led specialist combines differentiated items, consumption expertise and closer customer relationships to support margin condition and greater stable demand. The report warns that attempting to straddle all three models “usually creates complexity without advantage.”

Across all scenarios, BCG highlights several “no-regret moves” that make sense regardless of how the external ecological stability evolves. These include hard‑nosed portfolio analysis grounded in structural economics – structural cost reductions, securing feedstock & energy positions, strengthening value‑chain partnerships, and deploying digital and AI to enhance yields, planning and working capital. While none change external conditions, when combined, they will enhance resilience and expand strategic options.

Adapting to a structurally different ecological stability

The summary is unequivocal. Europe’s chemical sector cannot wait to a cyclical rebound; it must adapt to a structurally different competitive ecological stability. Companies that act early to reshape portfolios, reallocate capital and build stronger positions in differentiated segments will be better placed to create value. Those that rely on legacy assumptions risk becoming trapped between rising costs and intensifying import pressures.