Europe’s Chemical Industry Under Pressure

The European chemical industry is one of the continent’s most important industrial pillars. It supplies key intermediate products to numerous sectors—from the automotive industry to agriculture. However, as a report by the credit insurer Credendo shows, the industry’s competitive position has deteriorated significantly over the past four years.

A major turning point was Russia’s invasion of Ukraine in 2022. As a result, Europe’s supply of relatively inexpensive Russian natural gas largely dried up. This had significant consequences for the energy-intensive chemical industry.

Energy is a key cost factor in production. In the petrochemical industry, energy costs can account for up to 75% of production costs, and in the fertilizer industry, as much as 85%. Since energy is significantly more expensive in Europe than in the U.S. or China, the international competitiveness of European manufacturers has noticeably declined.

Weak demand and increasing competition

At the same time, the industry is suffering from weak demand, as the Credendo report explains. Economic growth in Europe remains subdued, and key customer industries, such as the automotive sector, continue to face uncertainty. This has resulted in low capacity utilization rates at many chemical plants and declining production volumes.

Added to this is growing competitive pressure from China. In recent years, the country has massively expanded its production capacity in the chemical sector. Chinese manufacturers benefit from large-scale facilities and lower costs, particularly when it comes to basic chemicals and petrochemical products.

Significant Decline in Production Capacity

These structural problems are increasingly reflected in concrete figures. Between 2022 and 2025, chemical production capacity of approximately 37 million metric tons was shut down in Europe—about 9% of total European capacity. At the same time, new investments have declined sharply. Overall, this results in a net loss of approximately 30 million metric tons of production capacity.

Key production sites such as Germany, the Netherlands, the United Kingdom, and France are particularly affected. Within the industry, the petrochemical sector is under the most pressure. It accounts for nearly half of the announced capacity closures, including the shutdown of several steam cracker plants.

Export pressure from China is likely to continue

Excess capacity in China is an additional pressure point. As domestic demand remains weak, many Chinese manufacturers are increasingly exporting to international markets—including Europe. Although the Chinese government is trying to slow production growth, many companies are reluctant to voluntarily give up market share.

Uncertain Outlook for the Industry

In the short term, the European chemical industry is unlikely to see any relief. High energy costs, weak demand, and increasing international competition will continue to weigh on the sector—particularly in the petrochemicals, basic chemicals, and polymers sectors.

In the long term, the industry could focus more on innovative and specialized products. However, the key factor will be whether Europe creates a framework that ensures investment and the industry’s competitiveness.