**2025: A Year of Instability for the Chemical Sector**
In 2025, the chemical sector has undergone a year fraught with considerable instability and hurdles. Firms commenced the year with trepidation regarding the ramifications of US President Donald Trump’s tariffs imposed in April, but the scenario remains dynamic, with persistent daily uncertainties impacting global supply chains.
Victoria Meyer, an expert in the field and the host of The Chemical Show podcast, underscores the sustained emphasis on supply chains, which have been a prominent concern throughout the decade. As the sector contends with tariffs, firms are tactically maneuvering their product distributions to maximize profit margins.
Geopolitical strains have also significantly influenced the situation. Although routing challenges in the Red Sea and Suez Canal have diminished, the Ukraine-Russia conflict has intensified its effects on supply chains. The international landscape exhibits stark disparities, with the European chemical sector undergoing severe contraction, while nations like India present notable growth opportunities for the upcoming decade.
**Challenging Times in Europe**
The chemical sector in Europe has been facing a downturn in output since prior to the COVID-19 pandemic. A report from Ineos indicates considerable declines in production in the UK and Germany relative to 2019 figures. Contributing factors include elevated energy costs, stringent regulations, subdued demand, and global overcapacity driven by China. The European Chemical Industry Council (Cefic) stresses the necessity for robust domestic demand to stimulate growth, yet current business forecasts are dismal.
The closure of plants has become unavoidable, leading to thousands of job losses. Companies such as Sabic and Dow Chemical have declared site closures, citing cost inefficiency stemming from structural difficulties. Conversely, the UK government has pledged £120 million to bolster the Grangemouth petrochemicals facility.
The polymer sector is especially susceptible, with multiple chemical crackers scheduled for shutdowns. Wood Mackenzie warns that as much as 40% of the EU’s ethylene capacity is at risk of closure. An EU report predicts that 50,000 jobs could be endangered unless competitiveness is reinstated.
The European Commission’s action plan aims to strengthen the sector by tackling high energy prices and competition, forming a Critical Chemical Alliance, and launching an Affordable Energy Action Plan.
**Overcapacity Challenges**
Global overcapacity in ethylene production, particularly in the Middle East, North America, and Asia, has posed significant hurdles. China’s drive for self-sufficiency has transformed trade patterns, decreasing imports and generating surplus supply in other markets. This situation has put pressure on European facilities, which face heightened costs and lag in operational efficiency.
Wood Mackenzie notes an increase of 40 million tons in global ethylene capacity from 2020 to 2025, with considerable contributions from China. Chinese companies dominate the list of top global chemical firms, intensifying regional competition.
Plant closures aren’t confined to Europe; Asia is undergoing similar shutdowns, with South Korea reforming its petrochemical capacity under governmental intervention.
ICIS foresees that oversupply and weak demand will linger until 2030. Senior consultant John Richardson mentions that China will establish a trade balance in deficit products within 5-10 years, further shifting global dynamics.
**Rapid Development in India**
India’s chemical industry stands out as a symbol of growth in 2025, spurred by escalating domestic demand, especially for specialty chemicals. Amit Gandhi of Boston Consulting Group points to India’s advantageous demographics and rising income levels as key growth drivers. The specialty chemicals sector is anticipated to expand from $150 billion in 2020 to over $300 billion by 2030.
Indian chemical firms have witnessed increased stock market valuations, with many significantly expanding over the last twenty years. Indian ‘promoters’ have shown notable ambition, reflected in significant acquisitions of European chemical operations.
This growth trajectory is expected to persist, with capital investments facilitating further expansion and potentially diminishing reliance on imports.
**AI’s Ascendance**
Artificial intelligence (AI) has increasingly infiltrated the chemical sector, boosting cost-effectiveness and operational productivity. Eren Cetinkaya of McKinsey identifies AI’s dual influence: bolstering industries related to AI and enhancing sector performance through real-time optimization and market analysis.
Victoria Meyer observes the extensive adoption of AI across the sector, indicating a transition towards AI-centric cultures. However, she warns that the industry is still maneuvering through the growth and experimentation stages of AI integration.
**Sustainability with a Small ‘S’**
In 2025, sustainability objectives have shifted, with oil and gas companies scaling back their decarbonization ambitions. Meyer describes this trend as concentrating on sustainable business operations rather than lofty commitments. The biofuels sector, particularly in Europe, has faced challenges due to competitive pressures from imports.
The UK’s tariff-exempt import quota for US ethanol has severely impacted domestic biofuel production, highlighting the difficulties in sustaining green investments.
**Anticipating the New Year**
Overall, the chemical sector is navigating a profound and extended downturn exacerbated by overcapacity. Cetinkaya acknowledges the cyclical characteristics of the industry, but highlights the intensity of the current decline.
Meyer emphasizes the industry’s shift towards regional markets as companies adapt to