**The Chemicals Sector at a Turning Point: Tackling Ongoing Challenges of the 2020s**
The COVID-19 pandemic significantly impacted the global chemicals sector in 2020, leading to production reductions, diminished demand, and decreased revenues. While the sector witnessed temporary recoveries in the years that followed, persistent issues—including fluctuating markets, supply chain disruptions, and geopolitical tensions—have lingered. As the sector continues its efforts to achieve stability, 2024 has emerged as yet another difficult year, with uncertainties anticipated to extend into 2025.
Victoria Meyer, a consultant in the field and host of *The Chemical Show* podcast, succinctly captured the ongoing unpredictability: “I would characterize these as the patterns of the 2020s … every year we anticipate improvements, and each year they don’t materialize.”
Although some businesses have initiated robust cost-cutting measures, announced closures of facilities in underperforming areas, and experienced sporadic profit increases, fundamental challenges such as slumping demand and geopolitical turmoil persist. The chemicals sector stands at a crucial juncture, confronting economic challenges, regulatory demands, and an urgent necessity to adapt to evolving global demand patterns.
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### **Evolving Global Economic Environment: A Saga of Divergent Regions**
#### Europe: A Region in Crisis
Few areas illustrate the ongoing adversities of the chemicals industry as starkly as Europe. The continent faces a combination of soaring energy costs, sluggish economic growth, and the ramifications of the Russia–Ukraine conflict. Prices for natural gas and crude oil have surged, rendering production exceedingly costly. To make matters worse, European manufacturers—many of whom depend on naphtha-derived ethylene production instead of the less expensive ethane feedstock favored in the U.S.—are encountering fierce competition from more cost-effective rivals in North America, China, and the Middle East.
A surge of plant closures and operational assessments highlights the stark reality of Europe’s chemicals sector in 2024. Exxon Mobil has revealed plans to close its ethylene facility in France, while Sabic has announced a similar decision in the Netherlands. Shell and BP are set to reduce their German operations by 2025. Industry giants such as BASF and LyondellBasell are reevaluating their strategies in Europe as they deal with declining capacity utilization and falling revenues.
Al Greenwood, deputy editor at energy and chemicals consulting firm ICIS, emphasizes Europe’s difficult circumstances: “Unlike the U.S., which primarily uses ethane, Europe relies on naphtha—and we’ve witnessed the fluctuations in oil prices, especially following the Russian invasion [of Ukraine].”
Germany, the largest chemicals center in Europe, continues to grapple with recession. A report from the German Association of the Chemicals Industry (VCI) predicts a 2% decline in industry sales for 2024, indicating yet another year of decline. “Our sector is in a profound recession,” expresses VCI Director-General Wolfgang Große Entrup.
Compounding Europe’s challenges, stricter environmental regulations are escalating compliance costs. Ambitious sustainability goals concerning plastics and circular economy are compelling companies to invest heavily in decarbonization and recycling infrastructure.
#### United States: An Optimistic Perspective
In sharp contrast, the U.S. chemicals sector has remained comparatively robust, gaining advantages from favorable feedstock and energy prices due to abundant shale-sourced natural gas. This cost edge has enhanced the competitiveness of U.S. manufacturers in the global arena, even amid a cooling demand worldwide. “It’s been a challenging year for many chemical firms,” remarks Meyer, “but the U.S. is showing more resilience due to its extensive demand base, affordable feedstock, and moderated regulations.”
#### China: Expansion Meets Excess Capacity
China, the dominant force in the global chemicals market, witnessed over 10% production growth in 2023. Although the growth rate has slowed this year, the nation remains a pivotal player in global demand. However, domestic manufacturers face a critical issue: overcapacity. The extensive development of chemical plants, fueled by overly optimistic growth forecasts, has resulted in market saturation, tighter margins, and heightened exports. This situation has increased pressures on global producers and contributed to closures in Europe.
“Currently, China accounts for roughly 50% of the chemical industry,” Meyer observes. As the country continues to influence demand and production, its moves will significantly affect worldwide industry dynamics for the near future.
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### **Geopolitical Turmoil and Policy Changes**
The chemicals industry is also navigating a more complex geopolitical environment. The “super-cycle” of elections occurring this year across Latin America, Europe, and the U.K. has led to significant political shifts, the effects of which on the industry are still unfolding. In the U.S., the potential resurgence of Donald Trump as president could present both advantages (such as deregulation and tax reductions) and drawbacks (including tariffs and retaliatory trade actions that impact crucial exports).