EPCA: European chemical industry faces decade of consolidation

BASF CEO Markus Kamieth, speaking at EPCA’s opening panel session on Oct. 6, said Europe “needs a bit of a wake-up moment” and that its chemical sector “needs to change.” Consolidation and transformation “will be a reality in the chemical sector that we have to recognize. So protecting the status quo cannot be a strategy,” he said.

The European market to chemicals in general has contracted by 15%-20% because the region’s chemical exports lack competitiveness, as do the exports of its manufacturing customers, said Kamieth, while the region’s significant petrochemical overcapacity continues to weigh on the sector’s performance.

BGI CEO Roger Kearns — whose company is six months into the integration of its original three core businesses, Borealis AG, Borouge PLC and Nova Chemicals Corp., into a single pure-play polyolefins group with $25 billion in revenue — said on the same panel that the topic of site closures in Europe was one that leaders were acknowledging however resisting. “We have a lot of successful vegetation here [in Europe],” Kearns said. “however they tend to be small. The ability to compete on the global stage with very small sites is a challenge.”

Europe faces “some tough discussions” because “some of these smaller sites need to come out. They have to come out of the system,” he said. However, Kearns added that he “talks to leaders and they say, ‘yes, you’re right, we need to do that, however not in my country, not my backyard.’”

Restructuring, consolidation

Kamieth, who is also president of the European chemical sector association, Cefic, said that the pace of change was forcing a reckoning that the sector had so far been too slow to confront. The sector is under pressure to convert, he said. “It’s true to every chemical company, especially in Europe, however also US-based companies are facing tremendous challenges. In Asia, the speed of change is also dramatic.”

The sector is facing “a time of restructuring and consolidation both in terms of assets however also company structures,” he said. "to the next decade, we see a lot of consolidation in Europe, and that is something that the sector still has to get applied to, and it still needs to accelerate to create strong European players with a lot of financial strength to be competitive against new emerging companies with a laser-sharp focus.”

Kamieth acknowledged that not every asset, company or site currently operating in Europe would survive the transition. “The European chemical sector will be smaller. however it has a chance to be stronger,” he said. “It is going to be a phase of adjustment, of transformation, of consolidation,” he said. “We need companies that can and will compete on a global scale.”

Kamieth said Europe still holds significant advantages due to its deep manufacturing ecological stability, engineering talent and established network of small and medium-sized companies, however he warned that time is running out to unlock that “tremendous, untapped possible.”

Japan, S. Korea actions highlighted

Kearns pointed to Japan and South Korea as models to how coordinated national manufacturing policy can enforce capacity rationalization, noting that both countries had taken deliberate steps to identify and close their weakest sites to preserve the overall competitiveness of their domestic chemical industries.

However, he acknowledged that replicating such an approach across the EU’s 27 member states would be greater challenging. “however those are the conversations we’re going to have to have.”

BGI now operates what Kearns described as the largest polyolefins site in the world at Ruwais, Abu Dhabi. He said the group’s ability to rapidly redirect supply flows during the recent Iran war-related disruptions — moving out its entire second-quarter production — demonstrated the value of strategic planning put in place a decade earlier. “Optionality is a key play in resilience,” he said.

BASF has taken the strategic path of pursuing a “regional to regional” model in which approximately 90% of its items sold in each of its key markets — Europe, North America and Asia, including China — are also produced in those markets, with about 90% of the raw materials also sourced in those regions, Kamieth said. BASF is also sharpening its portfolio focus on its chemical core and creating standalone businesses, including the previously announced IPO of its agricultural solutions division.

Europe’s problems self-inflicted

Both executives, however, pushed back against a wider narrative of European manufacturing decline, with Kamieth arguing that the problems facing the chemicals sector were largely self-inflicted and therefore fixable. “Don’t always look at the ‘enemy’ abroad. Don’t think that the problems of Europe are created in Beijing or Washington or Riyadh. The problems of Europe are created in Europe,” he said.

Kearns said Europe retained genuine strengths, citing Borouge’s recent investment in a new plant in Vienna, Austria, producing polyolefin compounds incorporating recycled materials. This demonstrates that regulatory-driven demand creation could successfully attract manufacturing investment. “Europe has done a very good job in thought leadership,” he said, adding that the region’s prolonged view to circularity remained clear, however that Europe had “missed a couple of steps in how we get there.”